[Congressional Record Volume 145, Number 82 (Thursday, June 10, 1999)]
[Extensions of Remarks]
[Pages E1233-E1234]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    CONSUMER TELEMARKETING FINANCIAL PRIVACY PROTECTION ACT OF 1999

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Thursday, June 10, 1999

  Mr. LaFALCE. Mr. Speaker, I am today introducing legislation to 
restrict the sharing of credit card account numbers and other 
confidential information for purposes of telemarketing to consumers. My 
legislation responds to widespread negative-option telemarketing 
schemes that were brought dramatically to the public's attention this 
week in a speech by the Comptroller of the Currency and in a major 
lawsuit announced yesterday by the Minnesota Attorney General. I am 
pleased to join in sponsoring this legislation with my colleague from 
Minnesota, Bruce Vento, the Ranking Member of the Financial Services 
Subcommittee, and my Banking Committee colleagues Barney Frank, Paul 
Kanjorski, Ken Bentsen and Jay Inslee.
  While negative option telemarketing schemes appear to have been in 
operation for several years, their significance and breadth only 
recently came to light in news stories and state Attorneys General 
investigations. They remained hidden largely because most consumers 
don't realize they have been victimized and, for those who do, many 
assume the problem is a random mistake. Most consumers find it hard to 
believe that their bank or credit card company would systematically 
sell their private account numbers to questionable marketing 
operations. This is not the way banking has traditionally been 
conducted.
  Consumers should have confidence that their credit card and bank 
account numbers will not be sold to the highest bidder. They should not 
feel they have to scrutinize their credit card statements for 
unauthorized charges. And they should not have to fear that every sign 
of interest or request for information in a telemarketing call will 
lead to automatic charges on their credit cards. This is unfair to 
consumers and potentially damaging to our banking system.
  These telemarketing schemes operate in the following manner. A bank 
will enter into an agreement with an unaffiliated firm that provides 
telemarketing services to companies offering a variety of discount, 
subscription, service or product sampling memberships. The bank 
provides extensive confidential personal and financial information 
about its customers in return for a fee and commissions on sales made 
by the telemarketing firm. The information goes far beyond the names 
and addresses of customers, including specific account numbers, account 
balances, credit card purchases and credit scoring information. This 
information enables the marketer to profile the bank's customers and 
offer ``trial memberships'' that are targeted to each customer's 
interests, income and buying habits.
  What makes the whole thing work is the fact that the telemarketer 
already has access to the consumer's credit card account. If the 
consumer indicates any interest in a ``trial'' membership, or even in 
receiving additional materials, their credit card account is 
automatically charged for the membership without the customer ever 
disclosing their account number or even knowing that they have 
authorized the charge. In many instances, the customer never notices 
the charge, or only sees it when it automatically converts into a 
continuing series of monthly membership or product charges. The 
consumer then has to take actions to stop the charges (hence the term 
``negative option'') and attempts to have the charges refunded to their 
account.
  According to state officials, consumers typically have considerable 
difficulty obtaining refunds for these charges, or even getting their 
bank to remove continuing charges from their account. Many have had to 
contact their State Attorney General before the bank or telemarketer 
would refund the charges.
  While the Comptroller of the Currency this week identified this 
practice as an example of banking practices ``that are seamy, if not 
downright unfair and deceptive'', they do not appear to violate any 
federal law or regulation. The Fair Credit Reporting Act (FCRA) 
currently exempts from regulation any information that a bank derives 
from its routine transactions and experience with customers. This 
permits a bank to provide credit related information to credit bureaus 
without itself being regulated as a credit bureau. Until recently, 
banks did not routinely share confidential customers information out of 
concern for maintaining customer confidence. Clearly, this has changed. 
The other applicable federal statute, the federal Telemarketing Act and 
the FTC's Telemarketing Rule, also provide only limited protection 
since telemarketers are required only to show some taped expression of 
interest or consent before charging a consumer for a membership or 
service. However, few consumers understand that agreeing to a ``trial'' 
offer will lead to automatic and repeated charges to their credit card 
account.
  Banking regulators also have been limited in their ability to respond 
to this problem as a result of amendments made to the Fair Credit 
Reporting Act in 1996 that restrict regulatory agencies from conducting 
bank examinations for FCRA compliance except in response to specific 
complaints. Even then, the statute limits the regulator's ability to 
monitor compliance only to regularly scheduled bank examinations. 
Authority to interpret FCRA to address such practices also is limited 
to the Federal Reserve Board, which often does not have direct 
regulatory contact with most of the institutions involved.
  The absence of federal regulation has permitted bank involvement in 
negative option telemarketing to become far more widespread than first 
assumed. The action brought yesterday by the Minnesota Attorney General 
cited several bank subsidiaries of US Bancorp. Newspaper articles have 
described identical operations involving other national telemarketing 
firms and a number of major national banks and retailers. Documents 
filed with the SEC last year by the telemarketing company cited in the 
Minnesota action claimed that the company had ``over 50 credit card 
issuers'' as clients, ``including 17 of the top 25 issuers of bank 
credit cards, three of the top five issuers of oil company credit cards 
and three of the top five issuers of retail company credit cards.''

  Comptroller Hawke was entirely correct in citing this as a widespread 
problem that raises potential safety and soundness concerns for the 
banking system and also as an example of ``practices that cry out for 
government scrutiny.''
  The bill I am introducing today would address this problem from 
several perspectives. First, it amends the Fair Credit Reporting Act to 
limit the current exemption for sharing of confidential transaction and 
experience information about customers. Under the bill, information can 
be shared for purposes of telemarketing only if (1) the information to 
be shared does not include any account numbers for credit cards or 
other deposit or transaction accounts and (2) the bank provides clear 
and conspicuous disclosure to the consumer of the type of information 
it seeks to share with a telemarketer and provides the consumer with an 
opportunity to direct that the information not be shared.
  Second, the bill addresses the limitations on current regulatory 
enforcement by removing the 1996 limitations on the ability of bank 
regulators to undertake examinations and enforcement actions to assure 
FCRA compliance. It broadens FCRA rulemaking authority to provide for 
joint rulemaking by the OCC, OTS and FDIC as well as the Federal 
Reserve. And it extends rulemaking authority for the National Credit 
Union Administration for

[[Page E1234]]

purposes of compliance by federal credit unions.
  Mr. Speaker, my bill does not attempt to take on the entire issue of 
financial privacy. It is narrowly targeted to address only the problem 
of sharing information for purposes of telemarketing. However, it 
offers meaningful privacy protections that are urgently needed by 
consumers and which Congress can, and should, enact into law at the 
earliest opportunity.
  I urge the Congress to adopt this important and needed legislation.
  The text of the bill follows:

                                 H.R.--

       Be it enacted by the Senate and House of Representatives of 
     the United States in Congress assembled,

     SECTION 1. SHORT TITLE.

       Short Title.--This Act may be cited as the ``Consumer 
     Telemarketing Financial Privacy Protection Act of 1999''.

     SEC. 2. LIMITATIONS ON THE SHARING OF CONFIDENTIAL 
                   INFORMATION FOR PURPOSES OF TELEMARKETING TO 
                   CONSUMERS.

       Section 603(d)(2)(A)(i) of the Fair Credit Reporting Act 
     (15 U.S.C. 1681a(d)(2)(A)(i)) is amended by inserting before 
     the semicolon at the end thereof the following:

     ``, and any communication of that information by the person 
     making the report to any other person for the purpose of 
     telemarketing to the consumer, if--
       ``(aa) it is clearly and conspicuously disclosed to the 
     consumer the information that may be communicated to such 
     persons and the consumer is given the opportunity, before the 
     time that the information is initially communicated, to 
     direct that such information not be communicated among such 
     persons; and
       ``(bb) the information to be communicated does not include 
     an account number or other form of access for a credit card, 
     deposit or transaction account of the consumer for use in 
     connection with any telemarketing to the consumer''.

     SEC. 3. ENHANCEMENT OF FEDERAL ENFORCEMENT AUTHORITY.

       Section 621 of the Fair Credit Reporting Act (15 U.S.C. 
     1681s) is amended--
       (1) in subsection (d), by striking everything following the 
     end of the second sentence; and
       (2) by striking subsection ``(e)'' and inserting in lieu 
     thereof the following;
       ``(e) Regulatory Authority.--
       ``(1) The Federal banking agencies referred to in 
     paragraphs (1) and (2) of subsection (b) shall jointly 
     prescribe such regulations as necessary to carry out the 
     purposes of this Act with respect to any persons identified 
     under paragraph (1) and (2) of subsection (b), or to the 
     holding companies and affiliates of such persons.
       ``(2) The Administrator of the National Credit Union 
     Administration shall prescribe such regulations as necessary 
     to carry out the purposes of this Act with respect to any 
     persons identified under paragraph (3) of subsection (b).''.

     SEC. 4. REGULATIONS.

       The Federal banking agencies referred to in paragraphs (1) 
     and (2) of subsection (b), not later than the end of the 6-
     month period beginning on the date of the enactment of this 
     Act, shall issue joint regulations in final form to implement 
     the amendments made by this Act. The Administrator of the 
     National Credit Union Administration, not later than the end 
     of the 6-month period beginning on the date of enactment of 
     this Act, shall issue regulations in final form to implement 
     the amendments made by this Act with respect to any Federal 
     credit union.

     

                          ____________________