New paper blizzard menaces privacy

Nation's Housing

February 13, 2000|By Kenneth Harney

With the publication of proposed new federal regulations last week, American homebuyers and mortgage applicants got the first glimpse of their financial privacy future. And the future appears to be filled with -- paper.

Get ready for:

Waves of detailed disclosures mailed to you by your mortgage lender, insurance companies, stockbrokers, equity loan bank, credit card issuers and many others outlining what they do with your private account information.

A barrage of "educational" campaigns by your creditors designed to convince you that sharing your personal mortgage and other financial data with affiliated -- and nonaffiliated -- companies is in your economic best interest.

Confusing new choices for you as a borrower: Do you automatically "opt out" when your lender discloses that it sells your private account information to nonaffiliated third parties? Do you judge potential mortgage lenders based on whether they pledge to keep your application information out of the hands of telemarketers?

American homebuyers and mortgage borrowers are poised to become central players in the emerging national experiment with federally mandated financial privacy controls because they routinely have to reveal more financial data than other consumers in order to obtain their home loans. And that data is highly prized by marketers.

Under a new law enacted last fall, virtually every company with whom you have even a slight financial relationship -- including your travel agency -- will have to disclose to you what it does with your account information. Beginning later this year, companies must explain their privacy procedures to you either upfront, at application, or at least once a year, plus every time they change their policies.

If they sell, exchange or provide access to your private data to "nonaffiliated" companies outside their corporate family, they must disclose that fact and offer you the right to "opt out" of their data-sharing.

For instance, if the mortgage company that services your loan routinely provides electronic slices of customer files to life insurers and stockbrokers, it will now have to tell you that in writing. If you don't want your personal files exposed to outsiders, you'll be able to check a box, e-mail or send a pre-stamped letter back to the mortgage company saying so.

How will all this work in practice? Richard Fischer, a partner with the Washington law firm Morrison & Foerster, which represents banking institutions, foresees a "paper blizzard" that could incite currently peaceful mortgage customers across the country. Fischer predicts that the constant flow of disclosures to homeowners is likely to "create a new level of sensitivity about financial privacy. People are going to have their antennas up; they're going to know about opting out." And "they're going to blame the mortgage company" when they receive dinnertime phone pitches from outfits who actually got their information on the homebuyer from public sources, such as the county courthouse.

Fischer worries that many mortgage customers may opt out when they're offered the chance, thereby undermining "the very efficient information system that keeps prices low and competitive in the financial services industry."

By this, he means the marketing of financial products -- property insurance, for instance, or home equity loans -- just when new homebuyers need them. The marketers of those products know when to contact the consumer because they have application or account data in hand, supplied by the mortgage lender or bank. If they don't get that information, Fischer argues, the costs of marketing their products will rise and consumers will pay higher interest rates and prices.

Major financial institutions and mortgage companies are concerned that customers might react negatively to the constant streams of fine-print privacy disclosures. Big, diversified lenders such as Bank of America and Bank One are working on educational campaigns designed to demonstrate the value of cross-selling and data-sharing. Bank of America already has decided not to share account data with any outside, nonaffiliated marketers.

Bank One's financial privacy director, Julia F. Johnson, says the keys to handling the forthcoming privacy disclosure blitz will be not only to "make this complicated subject understandable and consumer-friendly," but also to make sure that nonaffiliated firms that handle servicing for Bank One mortgage customers have similarly consumer-friendly policies.

The bottom line on the new financial privacy rules for you as a mortgage customer: Read the disclosures that roll into your mailbox. If you absolutely are opposed to third-party marketers pitching services or products based on information from your lender, then opt out. It's your right. But don't be surprised if you still get pitches from affiliates of your lender. The law says that's OK, and besides, they just might be offering you a good deal.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

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