Table Of Content

FINANCIAL PRIVACY Y 4.B 22/1:106-32 Financial Privacy, Serial No. 106-32, July 20, 21, 1999 (106-1 Hearings) BEFORE THE SUBCOMMITTEE OX FINANCIAL INSTITUTIONS AND CONSUMER CREDIT OF THE COMMITTEE ON BANKING AND FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTH CONGRESS FIRST SESSION JULY 20, 21, 1999 Printed for the use of the Committee on Banking and Financial Services Serial No. 106-32 FINANCIAL PRIVACY HEARINGS BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT OF THE COMMITTEE ON BANKING AND FINANCIAL SERVICES HOUSE OP REPRESENTATIVES U.S. ONE HUNDRED SLXTH CONGRESS FIRST SESSION JULY 20, 21, 1999 Printed for the use of the Committee on Banking and Financial Services Serial No. 106-32 U.S. GOVERNMENT PRINTING OFFICE 58-308CC WASHINGTON 2000 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-060190-8 HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES JAMES A. LEACH, Iowa, Chairman BILL McCOLLUM, Florida, Vice Chairman MARGE ROUKEMA, New Jersey JOHN J. LaFALCE, New York DOUG K. BEREUTER, Nebraska BRUCE F. VENTO, Minnesota RICHARD H. BAKER, Louisiana BARNEY FRANK, Massachusetts RICK LAZIO, New York PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS III, Alabama MAXINE WATERS, Cahfornia MICHAEL N. CASTLE, Delaware CAROLYN B. MALONEY, New York PETER T. KING, New York LUIS V. GUTIERREZ, Illinois TOM CAMPBELL, California NYDIA M. VELAZQUEZ, New York EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York JACK METCALF, Washington KEN BENTSEN, Texas ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut BOB BARR, Georgia DARLENE HOOLEY, Oregon SUE W. KELLY, New York JULIA M. CARSON, Indiana RON PAUL, Texas ROBERT A. WEYGAND, Rhode Island DAVE WELDON, Florida BRAD SHERMAN, California JIM RYUN, Kansas MAX SANDLIN, Texas MERRILL COOK, Utah GREGORY W. MEEKS, New York BOB RILEY, Alabama BARBARA LEE, California RICK HILL, Montana VIRGIL H. GOODE Jr., Virginia STEVEN C. LaTOURETTE, Ohio FRANK R. MASCARA, Pennsylvania DONALD A. MANZULLO, Illinois JAY INSLEE, Washington WALTER B. JONES Jr., North Carolina JANICE D. SCHAKOWSKY, Illinois PAUL RYAN, Wisconsin DENNIS MOORE, Kansas DOUG OSE, California CHARLES A. GONZALEZ, Texas JOHN E. SWEENEY, New York STEPHANIE TUBBS JONES, Ohio JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts LEE TERRY, Nebraska MARK GREEN, Wisconsin BERNARD SANDERS, Vermont PATRICK J. TOOMEY, Pennsylvania Subcommittee on Financial Institutions and Consumer Credit MARGE ROUKEMA, New Jersey, Chairwoman BILL McCOLLUM, Florida, Vice Chairman DOUG K. BEREUTER, Nebraska BRUCE F. VENTO, Minnesota MICHAEL N. CASTLE, Delaware CAROLYN B. MALONEY, New York TOM CAMPBELL, Cahfornia MELVIN L. WATT, North Carolina EDWARD R. ROYCE, California GARY L. ACKERMAN, New York JACK METCALF, Washington KEN BENTSEN, Texas BOB BARR, Georgia BRAD SHERMAN, California SUE W. KELLY, New York MAX SANDLIN, Texas DAVE WELDON, Florida GREGORY W. MEEKS, New York JIM RYUN, Kansas LUIS V GUTIERREZ, Illinois MERRILL COOK, Utah FRANK R. MASCARA, Pennsylvania BOB RILEY, Alabama JAY INSLEE, Washington RICK HILL, Montana DENNIS MOORE, Kansas STEVEN C. LaTOURETTE, Ohio CHARLES A. GONZALEZ, Texas (ID CONTENTS Page Hearings heldon: July 20, 1999 1 July 21, 1999 59 Appendixes: July 20, 1999 113 July 21, 1999 358 WITNESSES Tuesday, July 20, 1999 Barsness, Robert N., Chairman and President, Prior Lake State Bank, Prior Lake, MN, onbehalfofthe IndependentCommunity Bankers ofAmerica .... 27 BarDtiroenc,tRMiacrhkaertdinAg.,AsSseonciioartiVoin,ceWaPsrheisnidgetnotn,foDrCCongressional Relations, The 33 Brice,Jack, member,AARFs Board ofDirectors, Decatur, GA 48 Cate, Fred H., Professor of Law, Harry T. Ice Faculty Fellow; Director of the Information Law and Commerce Institute, Indiana University School ofLaw, Bloomington, IN 16 Clayton, Gary E., President and CEO, ThePrivacyCouncil, Dallas, TX 14 Connelly, D. Barry, President, Associated Credit Bureaus, Inc., Washington DC 34 CuGlneaonr,getDorw.n UMnairveyrsiJt.,y,PWraosfheissnogrt,on,ThDeCMcDonough School of Business, 12 Davis, Robert R., Director of Government Relations, America's Community Bankers, Washington, DC 29 Kloiber, Michael D., President and CEO, Tinker Federal Credit Union, on behalfofThe National Association ofFederal Credit Unions and the Credit Union NationalAssociation 31 Litan, Robert E., Vice President and Director, Economic Studies Program, The Brookings Institution, and Co-director, AEl-Brookings Joint Center forRegulatory Studies, Washington, DC 11 Mierzwinski, Edmund, Consumer Program Director, U.S. PIRG, on behalf oftheConsumerFederation ofAmerica, ConsumersUnion and U.S. PIRG .. 45 Rotenberg, Marc, Director, Electronic Privacy Information Center, DC 46 Washington, APPENDIX Prepared statements: Roukema, Hon. Marge 114 Vento, Hon. Bruce 116 BBaarrstnone,ssR,iRcohbaerrdtAN r. 226113 Brice, Jack 315 Cate, Fred H 173 Clayton, GaryE 164 Connelly, D. Barry 278 Culnan, Dr. MaryJ 147 Davis, RobertR 231 Kloiber, Michael D 244 Litan, RobertE 125 Mierzwinski, Edmund 283 Rotenberg, Marc 294 (III) Page Additional Material Submitted for the Record Vento, Hon. Bruce: Written questions submitted to Robert Barsness 119 Written questions submitted to Richard Barton 120 Written questions submitted to Fred Cate 121 Written questions submitted to Barry Connelly 122 Written questions submitted to Edmund Mierzwinski 123 Written questions submitted to Marc Rotenberg 124 Barton, Richard A.: "MarketingOnline, Privacy Principles and Guidance" 267 Written response to questions from Hon. Bruce Vento 277 Cate, Fred H.: "The Public Record: Information Privacy and Access, a New Framework forFinding the Balance" 181 Clayton, Gary E.: Written response to questions from Hon. BruceVento 170 Culnan, Dr. MaryJ.: American Express brochure 162 Written response toquestions from Hon. Bruce Vento 158 Davis, RobertR.: Written response toquestions from Hon. BruceVento 241 Kloiber, Michael D.: Written response toquestions from Hon. BruceVento 259 Litan, RobertE.: The Regulatory Right-to-Know Act and the Congressional Office of Regulatory Analysis Act, April, 1999 128 Written response toquestions from Hon. Bruce Vento 145 CCrUedNiAt UMnuitounalNaGtrioounpa,lpAoslsioccyiasttiaotne,mIennct., policy statement 333316 ElectronicFinancial Services Council, policy statement 341 National Council ofInvestigation and Security Services, policy statement 347 WITNESSES i Wednesday, July 21, 1999 Becker, Brandon, Partner, Wilmer, Cutler & Pickering, on behalf of the Securities Industry Association 91 Fink, Matthew P., President, InvestmentCompany Institute 95 Fischer, L. Richard, Partner, Morrison & Foerster, on behalfofthe American Bankers Association, Consumer Bankers Association, The Financial Serv- ices Roundtable, and Visa U.S.A 89 Gensler, Hon. Gary, Under Secretary for Domestic Finance, Department of the Treasury 65 Gramlich, Hon. Edward M., Member, Board of Governors, Federal Reserve System 67 Harding, Richard K., M.D., Vice Chairman, Clinical Affairs, Professor of Neuropsychiatry and Pediatrics, University of South Carolina, on behalf oftheAmerican PsychiatricAssociation 99 Hawke, Hon. John D. Jr., Comptroller, Office of the Comptroller of the Currency 69 Meyer, Roberta B., SeniorCounsel, American Council ofLife Insurance 93 Nazareth, Hon. Annette L., Director, Division of Market Regulation, Securi- ties and Exchange Commission 72 Palmisano, Donald J., M.D., J.D., Board of Trustees, American Medical Association 97 Pitofsky, Hon. Robert, Chairman, Federal Trade Commission 70 Reider, Hon. George M. Jr., Commissioner ofInsurance, State ofConnecticut, on behalfofthe National Association ofInsurance Commissioners 73 (IV) Page APPENDIX Prepared statements: Roukema, Hon. Marge 359 Becker, Brandon 493 Fink, MatthewP 520 Fischer, L. Richard (with attachments) 474 Gensler, Hon. Gary 365 Gramlich, Hon. Edward M 382 Harding, Richard K., M.D 534 Hawke, Hon. John D. Jr. (with attachments) 394 Meyer, Roberta B 505 Nazareth, Hon. Annette L. (with attachments) 443 Palmisano, Donald J., M.D., J.D 524 Pitofsky, Hon. Robert(with attachments) 425 Reider, Hon. George M. Jr 465 Additional Material Submitted for the Record Vento, Hon. Bruce F.: ConsumerCoalition for Health Privacy, policy letter 363 Written questions forRichard L. Fisher 360 Gensler, Hon. Gary: Written response to questions from Hon. BruceVento 376 Gramlich, Hon. Edward M.: Written response to questions from Hon. Marge Roukema 392 Written response to questions from Hon. BruceVento 389 Hawke, Hon. John D. Jr.: Written response toquestions from Hon. BruceVento 421 Pitofsky, Hon. Robert: Written response toquestions from Hon. BruceVento 440 American Insurance Association, policy statement 539 MasterCard International, policy statement 546 (V) FINANCIAL PRIVACY TUESDAY, JULY 20, 1999 U.S. House of Representatives, Subcommittee on Financial Institutions and Consumer Credit, Committee on Banking and Financial Services, Washington, DC. The subcommittee met, pursuant to call, at 10:00 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman ofthe subcommittee], presiding. Present: Chairwoman Roukema; Representatives Royce, Leach [ex officio], Vento, Bentsen, Sherman, Moore, Gonzalez, Schakowsky, and LaFalce. Also Present: Representative Lucas ofOklahoma. Chairwoman Roukema. We have a well scheduled, long, inten- sive hearing today, so we will get started. We fully expect that there will be more Members arriving, although I am sorry they are not here at this moment. But we need to start this hearing. Let me assure all the witnesses that Mr. Vento and I and others will be listening very intently to every- thing. Let me set the scene for this hearing today. I think it is an ex- tremely important hearing. It is the first of two hearings on financial and medical privacy for this week. I fully expect that we will have several more hearings, as the privacy issue is both compelling and complicated. I don't think I have to go into a lot ofdetail about why the question of privacy is import—ant. It touches all ofour lives, and all the issues relating to them financial, medical, or other- wise. Privacy is all-encompassing and involves literally, as I have said, every aspect ofour lives. During the consideration ofH.R. 10, I worked with my colleagues Mr. Vento, Ms. Pryce, Mr. Oxley, Mr. LaFalce and Mr. Frost on an amendment to enhance H.R. 10 with what we considered to be workable privacy protections. In-the end, the House approved that amendment by a vote of 427-to-l. The privacy provisions require banks, securities firms, and insurance companies to disclose their privacy policies and provide consumers with the ability to "opt-out" of sharing their non-public personal information with non-affiliated third parties. In addition, the privacy provisions in H.R. 10 prohibit financial institutions from sharing customer account numbers for the purpose ofthird-party marketing. The question, of course, arises: Does this address all of the concerns relating to privacy? An—d it is quite obvious that it does not. In fact, Congressman Inslee and I would hope that he would be (l) — here shortly offered an amendment during the Banking Commit- tee markup of H.R. 10 which was much broader than the language contained in H.R. 10 as it passed the House. I would like to remind everyone that I supported that Inslee amendment at the time. However, I do feel that first a comprehensive, rational discussion must be engaged in before we proceed further with issues relating to privacy. Such discussions and debates are necessary to ensure that any new legislation does not create unintended consequences, such as inhibiting an institution's daily operational needs, which is frequently cited as a concern by the industry. Our hearings this week largely will focus on privacy as it relates to the financial services industry. Our financial services industry is growing rapidly. Services are being offered in many different ways, including over the Internet, which raises a host of privacy issues that this subcommittee, I believe, is compelled to address. The hearings this week are intended to be only the beginning ofa series of hearings in order to give due attention and hopefully proper legislation in the future on this issue ofprivacy. The debate has raised many questions regarding the extent to which we as consumers can trust that our financial, medical and other personal information is maintained in a confidential manner. A breakdown in that trust would result in severe consequences for the business world and for our economy. I think the business world and the financial services industry must understand that there is the danger of consumer backlash here. Consumers want to know who is collecting their information, what kind of information is being collected, and who has access to that information. For exam- ple, consumers may not object if their information is being shared so they can be offered a product or a service, but consumers do want to know under what circumstances such information is being shared. That raises the disclosure question: What is the definition ofdisclosure? Further, consumers want to know how they can maintain a rea- sonable degree of control over who collects their personal information. And that, of course, leads to the sharing of information with third-party question and the question of information-sharing with affiliates. The industry has expressed significant concerns about new legislation that would have, as I stated, "unintended consequences" on their business operations. This is the time for industry to be precise as to what they expect the unintended consequences of limiting information-sharing with third parties to have on their business operations. Rather than general rhetoric, I hope that we can be quite precise. I am sure those on the panels today and tomorrow will do that. The industry received a wake-up call last month when the Minnesota attorney general filed suit against U.S. BanCorp for practices relat- ed to snaring customer account information with third parties. The information was used for the purpose of marketing non-financial products and services, such as marketing of low-cost medical and dental plans that could be paid for by automatic debits from consumers checking accounts or automatic charges to their credit cards. Once aware ofthe practice, consumers expressed outrage. In a clear demonstration of market discipline, many institutions re- acted to the U.S. BanCorp announcement by revamping their pri-