End of Nevada bank privacy probe remains weeks away

Phil Levine

Friday, Nov. 12, 1999 | 11:25 a.m.

Privacy legislation

Sen. Richard Bryan, D-Nev., said he and colleagues in the Senate and House introduced a bill giving customers the right to order their banks and other financial institutions not to disclose or share confidential customer information with their affiliates.

The bill also would prohibit disclosure of customer information to unaffiliated third parties unless the customer has consented to disclosure after receiving notification.

These financial privacy measures were not included in major financial overhaul legislation that is expected to lead to a wave of mergers of securities, insurance and banking companies.

"It should be a fundamental right of every consumer to be able to decide for themselves who has control over their own personal financial information," Bryan said. "Would you want your insurance company telling your mortgage loan officer that your wife was just tested for a terminal illness?"

It will be several weeks before state officials determine whether a handful of Nevada's largest banks engaged in deceptive trade practices by selling confidential and sensitive customer data to third parties.

"We are still finalizing negotiations with the financial institutions over confidentiality arrangements and which documents they will turn over," said Nevada Deputy Attorney General Grenville Pridham. "Within the next several weeks, we should have a chance to look at those documents and have a better sense of what, if any, laws were broken."

Attorneys general in more than 20 states are investigating whether several banks that issue credit cards are breaking the law by selling the customer information.

Pridham declined to identify which Nevada banks are under investigation, but said the inquiry involved "at least three or four" of the state's largest financial institutions.

Officials at Nevada's largest banks have denied any misuse of customer information.

Under Nevada law, banks suspected of involvement in "bait and switch" activity -- using customer information for purposes other than the one agreed to by customers -- could be charged with engaging in deceptive trade practices.

If found guilty, the Nevada banks could face a $2,500 civil fine for each violation; that figure rises to $10,000 per violation if an elderly individual is involved. Pridham said there's no cap placed on the total fines paid, although the court usually takes into consideration the company's net worth.

Similar fines vary slightly from state to state, though most would be in the $2,000 to $3,000 range, he said.

California Deputy Attorney General Susan Hendrickson said her state's law is similar to Nevada's, allowing for individual civil penalties "up to $2,500." Though she would not confirm or deny her office's involvement in the bank investigation, Hendrickson said California officials had "growing concerns" about protecting consumer information.

Pridham said it was still too early to tell if any fines will be levied in this case. However, he said state attorneys general have several options for establishing restitution in such matters.

"In the case of large financial institutions, we could say 'all we want is one week's worth of their annual profit' and that would be a substantial amount of money," he said. "Civil penalties don't carry with them the same burden of proof as do punitive damages."

Given the unlimited potential for fines, Pridham said it's not unusual for companies to settle out of court. That was the case earlier this year, when U.S. Bancorp agreed to pay $500,000 to the state of Minnesota and $2.5 million to charities to settle an investigation into its marketing practices. In agreeing to the fine, the bank admitted no wrongdoing.

Another incentive for banks to settle out of court: if the attorneys general and the banks can't achieve a mutually acceptable agreement, each state would then have the right to individually sue the financial institutions.

When the banks finally do release the requested documents, state attorneys general will pool their acquired information, Pridham said.

Pridham said the limited number of Nevada banks under investigation should provide no solace for the rest of the state's financial institutions.

"These types of investigations typically start out small, but as the investigation proceeds they tend to involve more parties," he said. "That will be especially true if we find these (deceptive trade) practices took place."

One reason for that, Pridham said, is the willingness of banks under investigation to provide information "that can be used directly against their competitors."

"I suppose that willingness comes from not wanting their competitors to get an unfair advantage in the market," he said.