FTC Moves to Protect Financial Data Privacy

In the wake of recent online privacy problems involving the sharing of customer information with third parties, the Federal Trade Commission (FTC) has asked for public comment on new proposed privacy rules for financial institutions.
The rules spell out the principles under which companies can give out consumers' financial information and specifically state that people must be allowed to insist that their records are kept private.
"What it means is that if companies expect to get good accurate data and not scare off consumers, they need to give consumers a lot of reassurances that they're acting in consumers' best interests," said Christopher Kelley, an analyst at Cambridge, Mass.-based Forrester Research Inc.
And companies might have to give out more incentives to encourage customers to part with their personal financial information, he added. Such incentives might include offering lower interest rates on credit cards.
The rules don't just apply to credit-card issuers, banks and brokerages, however.
Under the proposed rules, the term financial institution is extended to mean a variety of companies -- not just banks, but also retailers and manufacturers -- that engage in financial activities. Those activities include brokering or servicing loans and providing financial data processing and transmission services, the FTC said.
This is worrying some companies across the Web. Search engine Ask Jeeves Inc., for example, included a clause in its February Securities and Exchange Commission (SEC) filing warning investors about possible fallout from the new privacy regulations.
"It's a pretty standard clause for Internet companies," said Heather Staples, an Ask Jeeves spokeswoman.
However, some critics are already saying that the rules don't go far enough. "The proposed regulations, given the underlying statute, aren't bad," said Mark Rotenberg, director of the Electronic Privacy Information Center, a Washing- ton nonprofit advocacy group. "The problem is that the underlying statute simply included insufficient safeguards for privacy."
Rotenberg said he expects more action later this year from Congress and state legislatures to expand the consumer privacy protections outlined in November's Gramm-Leach-Bliley Act.
The FTC will accept public comment until March 31. It can be submitted by e-mail to GLBRule@ftc.gov .