Nevada banks under scrutiny for customer privacy issues

Phil Levine

Wednesday, Sept. 29, 1999 | 11:07 a.m.

The Nevada attorney general's office is investigating whether banks are breaking the law by selling customer information to other companies.

"Attorneys general in about 20 states are currently looking into this matter," said Nevada Deputy Attorney General Grenville Pridham. "In Nevada, we're currently looking at some of the larger entities, but not to the exclusion of others. However, I can't identify which banks we are investigating as it might unfairly tarnish the reputations of banks who are not guilty."

Pridham said his office is authorized to investigate what he categorized as "deceptive trade practices." That would include examining whether banks obtained personal information from customers and then sold that information to third parties.

The ongoing investigation is still in its infancy, Pridham said.

"This investigation began less than a month ago, and the length of time it takes will depend on how cooperative the banks are with us," he said. "This is an important issue, as consumers often don't realize the data banks of personal information that are gathered when they fill out various applications and warranties."

Companies often convince consumers to fill out survey information forms -- thereby providing an array of personal data -- by offering items such as free coupons, Pridham said. If that information is used for a purpose other than the one told to consumers, the company collecting the data could be involved in deceptive trade practices.

Although he declined to list which banks or other state attorneys general were involved in the investigation, Pridham said state authorities in New York and California are participating in the probe.

Earlier this year, U.S. Bancorp agreed to pay states and charities where the bank operates $3 million to settle claims it illegally sold confidential client information to a telemarketer. The settlement was agreed to after the Minnesota Attorney General's office filed a lawsuit against the bank. U.S. Bancorp did not admit any wrongdoing in agreeing to pay the fine.

How banks strike a balance between customer privacy concerns and corporate marketing efforts is a question being debated in national banking circles.

"We have recommended privacy principles in place," said Janet Eissenstat, spokeswoman for the American Banking Association. "However, technology is changing this industry and has opened up new marketing possibilities not previously available. Quite simply, we're in a brave new world that didn't exist a few years ago."

Nationally, the ABA represents 11,500 financial institutions holding 95 percent of the industry's assets.

Eissenstat said the banking sector wants to be a leader in protecting customer privacy, but that the issue is quite complex.

"For example, smaller banks often have third-party relationships with check printers," she said. "They simply have to pass along check numbers and addresses to those companies. As well, many banks have frequent flier relationships with airlines. Those are products that have proven to be quite popular with customers."

Nevada banking officials are confident the attorney general's investigation will come up empty.

"I'd be the most surprised person in the state if they were to find any bank involved in those practices here," said Ted Wehking, executive vice-president of the Nevada Bankers Association. "For the vast majority of banks, certainly all the ones I've spoken with, the idea (of marketing customer information) never even crossed their minds."

Representatives of Nevada's two largest banks said their companies had policies in place forbidding the resale of customer information.

"Simply put, when it comes to selling any customer information to other companies, we just don't do it," said Bank of America spokesman Paul Stowell. "In fact, we are an industry leader in this area. We announced earlier this year a policy that would forbid such a practice and we do whatever we can to protect the confidentiality of our customers."

A spokesman for rival Wells Fargo echoed those comments.

"Our corporate policy is that we don't sell customer information to any third party," said Bryan Waters, president of Wells Fargo Southern Nevada operations.

Pridham said the next step in the investigation will be determined by the banks' response.

"Depending on their response, our office will determine whether to file a motion in court," he said. "At that time, the names of the banks involved would be made public."

However, Pridham said the issue of marketing personal data goes beyond the current investigation.

"For example, there is currently a bill before Congress called the Bank Modernization Act that raises several concerns for us about protecting consumer information," he said. "That bill would, among other things, allow companies to combine insurance and banking businesses. That raises many questions, such as will banks involved in the insurance business be able to share customer history in a way that might be detrimental to consumers?

The bill would require consumers to opt out from any cross-marketing efforts by financial institutions and allow "some marketing of information to third parties and affiliates," said Pridham.

"The National Association of Attorneys General has sent a letter to Congress in opposition to that clause," said Pridham. "We don't believe it should be the responsibility of consumers to opt out rather the option of opting in to such a program.

"The broad issue of sharing customer information is one that we intend to continue to follow."