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Privacy Wake Up CallCommentary by J. Bradley JansenJuly 23, 2002Last month, North Dakota sent a clear message to the financial community thatprivacy matters. While some state legislators have passed opt-in privacy rules onthe selling and sharing of personal financial information, this was the firstclear popular referendum.There are several important lessons to be learned from the people of North Dakota.First of all, many financial institutions and Beltway regulators underestimate theimportance that people hold regarding their personally-identifiable financialinformation. Despite being outspent at least six to one, proponents of the “opt-in” requirement persuaded nearly three quarters of the voters to agree with them.Money for fancy ads did not override privacy concerns.Secondly, the effort made to defeat the proposal shows what financial institutionsconsider the “opt-in” approach is unworkable as a business plan. Some bankersargue they do not sell information because it would be stupid since customerswould leave them. Others maintained that the proposal would interfere with firmsthat do business globally and nationally and therefore make the state anunattractive place to do business. The patchwork of different state policiescomplicates business’ ability to appeal to customers. The choice is not onlyunworkable but unnecessary.Unfortunately, the traditional consumer financial privacy protections that existedunder common law and in a climate of business competition to respect privacy isgone. Since the implementation of the Bank Secrecy Act of 1970, the United StatesSupreme Court has ruled effectively that we do not have an expectation of privacyon the records someone else has on us.Then-President Richard Nixon gave us the BSA as part of the War on Drugs, but thelaw has been spectacularly ineffective in getting illegal drugs off our streets,but it has been effective in eviscerating the privacy expectations of ordinary,law-abiding citizens. It has ushered in the current climate of identity theft,fear of online transactions and distrust of financial institutions’ use of ourpersonal information. By removing our previous privacy expectations, the BSA hasenabled a growing epidemic of identity fraud and lowered public confidence in ourfinancial institutions.The privacy provision of the financial modernization law, Title V of the Gramm-Leach-Bliley Act of 2000, established a floor and invites states to raise it. Nowthat North Dakota has spoken, California may take up the gauntlet with the help ofa deep-pocketed funder. Should we address the problem differently, we need to doso now.The current framework of the opt-in/opt-out choice gives us two inferiorpossibilities. Until we restore our common law tradition of privacy expectationsstrangled by the BSA, a better approach to the status quo would be to initiate anew framework such as a “home state” regulation approach.Under a home state privacy regulation regime, each financial institution in thecountry would have to claim one state where it is headquartered as its domicile.The company would then follow only one set of rules and could operate throughoutthe country. Such an approach is very workable for businesses.What would consumers have to gain? The answer is everything: real choices for
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