Current Issue Contents IMF Search Back Issue Index IMF Publications Home Page     Inside Mortgage Finance June 25, 1999 Battle Over Consumer Privacy Could Affect Mortgage Servicing Sales, Cross-Selling Plan The raging debate in Congress over consumers’ rights to protect the privacy of their financial information could lead to legislation that would adversely affect sales of mortgage servicing rights and other mortgage activities, industry experts warn. At the annual meeting of the Electronic Financial Services Council in Washington, various representatives from the mortgage industry questioned legislators’ understanding of the soundness of a privacy amendment that has been attached to H.R. 10, the financial services modernization bill now awaiting floor action. Although Democrats and Republicans disagreed about the extent and hastiness of privacy legislation, both sides agreed that some measure of privacy legislation is needed in the age of e-commerce. "The tide is running real high to do something about [privacy] in Congress right now," said Rep. Jay Inslee, D-WA. The House Commerce Committee recently added to H.R. 10 a series of privacy amendments offered by Rep. Edward Markey, D-MA, and Rep. Paul Gillmor, R-OH, that would broadly limit financial institutions’ ability to share information. According to the sponsors, more disclosure and less information sharing is necessary in the growing e-commerce arena. Markey’s amendments would require banks to give customers the right to "opt out" of information sharing with affiliated firms or outside companies. Lenders would also have to establish consumer privacy policies and disclose them to consumers. Industry opponents of these provisions say they would force lenders to undertake expensive computer-system modifications and disrupt mortgage-related activities among affiliated firms. For years, mortgage bankers have been told that they have not effectively leveraged the mountain of consumer information at their disposal in one of the most important financial transactions for many households. Mortgage companies have started to market home-equity loans and other financial services, both directly and on behalf of affiliated operations, more aggressively and anticipated cross-selling revenues now figure more prominently in the pricing of mortgage servicing rights. The concern is that just as lenders are using advanced technology to boost the profitability of existing customer relationships, new privacy requirements may dampen their feasibility. "I support what has taken place in the global telecommunications marketplace, but we can’t ignore other factors that are affected by those powerful forces in our society," Markey told members of the EFSC, an industry group formed to work on compliance issues in online financial services. Markey said banks think that they have consumers’ best interests in mind and don’t want to give consumers the ability to reject future services. However, the issue comes down to the right of every American to know what information is being gathered, how it will be used now and in the future and the right to say "no." Markey and other privacy supporters said that consumers should have to ‘opt in’ when it comes to sharing financial information with third parties. "I think the industry should begin to accept the fact that they won’t completely be able to have access to all of this information for themselves," he added. "The financial services industry has [instituted] a ‘my way or the highway’ approach to push Glass-Steagall [reform] through with no privacy protection. I think the industry is largely in denial and doesn’t want to deal with the fact that privacy is an issue." According to the EFSC, many financial services institutions believe the privacy provisions in H.R. 10 are not well-defined and may make it difficult for financial institutions to sell mortgage loans or servicing rights in the secondary market without consumer consent. Republicans said the potential effects of enacting legislation with such a hurried provision are why broad privacy issues should be considered at a later date, separate from H.R. 10. The House Banking Subcommittee on Financial Institutions and Consumer Credit has scheduled hearings for late July to more thoroughly address the issue of privacy, said Rep. Marge Roukema, R-NJ. Roukema likened the debate over consumer privacy to the ongoing effort to reform the Real Estate Settlement Procedures Act. "It keeps going on and on and every time you think you have everyone at the table, somebody walks away," she said. © Copyright 1999, Inside Mortgage Finance Publications, Bethesda, MD All rights reserved. Photocopying or electronic distribution of this web page or any of its contents without prior written consent of the publisheris a violation of federal copyright law and subject to a maximum penalty of $100,000 per infringement.