Hot on the heels of a new federal privacy protection law, the Federal Trade Commission says it plans to step up enforcement of privacy laws -- even when it comes to companies that unintentionally mislead consumers about privacy issues.

Financial institutions -- including mortgage lenders -- retain some of your most sensitive, personal information and until recently your financial account holders have had few restrictions on sharing and selling your information.

That changed effective July 1, 2001 when, Title V, the consumer privacy protection provision of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (FSMA) began requiring financial companies not only to disclose privacy policies to consumers, but also to give consumers the opportunity to request the companies not share personal information under certain conditions.

The far-reaching and complicated FSMA repeals restrictions on banks affiliating with securities firms and allows them to create financial holding companies, conglomerates that can engage in a host of financial services including banking, insurance, securities, investments and other related activities.

(Editors Note: The law was designed to create a more open and competitive financial market, but it also has the real estate industry and the banking industry at loggerheads over whether a real estate brokerage is a financial institution. If so, that would give banks the right to sell real estate and real estate brokerages would have to abide by privacy disclosure law. The real estate industry says real estate brokerage is not a financial institution, banking says real estate brokerage is a financial institution. The debate, considered the most hotly contested issue of the new law, is likely to rage on throughout the year.)

Weeks after FSMA's privacy provisions took effect, the FTC, which is responsible for enforcing some of the new law's provisions, told ZDNet.com protecting consumer privacy is Job One.

FTC Gets Tough

"It's clear to me that the FTC has a very important role, and privacy is a very important issue and there are serious privacy problems. We are in the process of developing an agenda about what the FTC can do. I've spent a lot of time with the staff. I've spent more time on privacy than any other issue -- a lot more time," FTC chairman Timothy Muris said during a ZDNet.com interview.

The international law firm, Dechert said the FTC is prepared to take action against unintentional misrepresentations because intent is not an element of statutory violation. It also said stepped up enforcement is likely for other privacy laws, including those related to Web sites, non-bank financial institutions and consumer reporting agencies that collect personal information.

"Companies should audit their internal practices and review statements they have made about their privacy practices (including but not limited to their privacy policies) to ensure that they are consistent with each other and conform to the conventions established by FTC advertising law governing the interpretation of statements and claims," said Dechert, which has 700 attorneys in 12 cities in Europe and the U.S. practicing law in dozens of commerce and industry areas including privacy issues.

In addition to enforcing provisions of FSMA, the FTC also enforces Section 5 of the Federal Trade Commission Act (FTCA), which prohibits unfair and deceptive acts and practices in virtually all industries, the Children's Online Privacy Protection Act (COPPA), and the Fair Credit Reporting Act (FCRA), developed to promote accuracy and ensure the privacy of personal information used in consumer reports.

"We'll certainly have more investigations than there were when I got here, on the privacy issue. I'm not saying the FTC wasn't active, I'm just saying we'll be more active," Muris told ZDNet.com.

That's good news to consumer advocates who haven't been happy with the disclosures some financial companies are sending to consumers in response to FSMA's new privacy provisions.

Earlier this year, mortgage lenders, credit card companies, savings and investment firms and other financial institutions began including the newly required disclosure statements along with customers' regular monthly statement mailings.

New Privacy Protections

Unfortunately, consumers often toss the small-print laden inserts into the circular file the materials aren't always easy to understand.

"'Because we value your privacyŝwe may sell your personal financial information.' Does this make sense?" asks Beth Givens, director of the San Diego, CA-based Privacy Rights Clearinghouse.

"Of course, not. But, that is precisely the message many banks and other financial companies are now sending to their customers. However, this message -- blurred by fine print, big words, long sentences and marketing jargon -- is far from clear," Givens added.

FSMA's Title V specifically says, in part, each financial institution, in a "clear and conspicuous manner," must:

• Disclose to existing customers the institution's privacy policy -- how the institution shares, sells or otherwise passes on consumers' private information to both affiliates and third parties, such as telemarketers.

• Disclose to existing customers, consumers' right to "opt-out" or not allow the financial institution to share private information with certain nonaffiliated third parties. The disclosure must explain to consumers how to exercise that right.

• Disclose to existing customers the institution's policies developed to prevent fraudulent access to consumers' confidential financial information.

• Disclose the same information mentioned above to new customers at the time of establishing a relationship with a new customers and to annually disclose the above mentioned information to all customers.

The Fair Credit Reporting Act says you also have a related right to opt-out of credit bureaus sharing your information -- often with those who send you preapproved credit card offers.

Call a single number (888) 567-8688, and listen carefully to the recording to give information that will prevent all major credit reporting agencies from sharing your information with marketers.

Unfortunately, under FSMA, to prevent individual financial services companies from sharing your information, you must contact each one directly, following the sometimes confusing instructions in the FSMA mandated disclosures.

"Whether the privacy notices accomplish what they were intended to do hinges on two big questions: Will consumers recognize the notices among the daily deluge of advertisements? Even if they do, will they be able to understand what companies are actually saying? If the notices that have come out so far are any indication, the answer to both questions is a resounding 'No'," says Givens.

For more articles by Broderick Perkins, please press here.

Published: August 31, 2001

Use of this article without permission is a violation of federal copyright laws.

A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.