WASHINGTON - A recent ruling upholding "opt-out" information-sharing restrictions on credit bureaus should not make it harder for banks to access credit reports or offer pre-approved credit but could hamper their efforts to track down delinquent borrowers, experts said Tuesday.
In an April 30 decision released Monday, a federal judge here upheld a portion of the Gramm-Leach-Bliley Act's privacy regulations that, starting July 1, will prohibit financial institutions, including credit bureaus, from selling or sharing such personal customer information as name, address, and Social Security number unless the customer has been given an opportunity to block the transfers, or "opt out."
The decision will affect credit bureaus more, given the limitations it will impose on their ability to sell data. Because banks have more than ample customer information, their marketing efforts are not likely to suffer as much as a result of the decision as those of non-banks that use bureau-provided data.
The ruling came in a lawsuit brought against the Federal Trade Commission and federal bank regulators by credit bureaus led by Trans Union. The bureaus argued that the law covers only "personally identifiable financial information," such as income level and assets, not the nonfinancial data found in credit reports, such as name, address, Social Security number, phone number, and date of birth.
Banks did not join in the suit, and most institutions have already sent their customers copies of their privacy policies and given them an opportunity to block all of their information - both data that personally identifies them as well as information about their finances - from being shared outside the company for purposes other than protected business uses.
"We don't share our customer information with third parties, so it won't affect our privacy policies," said a spokesman from Wachovia Corp.
Cliff Bussard, group vice president and direct marketing manager for SunTrust Banks Inc., said the ruling won't change its policy either. "The information they are being prohibited from selling is information we already have and have limited for internal use only," he said. "Legitimate financial services companies should benefit from this ruling, because most do not engage in mass-market, blanket solicitation."
David Medine, a former Federal Trade Commission lawyer who practices privacy law as a partner in the Washington office of Hogan & Hartson, said banks have little incentive to let credit bureaus sell the information they receive from banks - because "banks don't get paid for this information, but credit bureaus profit from the sale."
In fact, Mr. Bussard applauded the ruling. "As the world currently exists, you can purchase a lot of information right now," he said. "It is a laudable goal for regulatory agencies" to curtail some information sharing, "because it leads to the potential for fraudulent activity."
Though the ruling upholds the prohibition on credit bureaus from selling certain consumer information, the case did not raise the issue of banks running credit checks to make lending decisions, and observers said banks would still be able to do so.
"The standards for a bank to get a credit report and permissible purposes for getting a credit report are not affected by this decision," said Julie Williams, chief counsel at the Office of the Comptroller of the Currency, which worked with the FTC and other federal bank regulators in preparing their defense. "We are very happy with the decision."
Mr. Medine said that "there is a credit reporting exemption in Gramm-Leach-Bliley which allows information to flow" between banks and credit bureaus. Therefore the ruling "will have no impact on banks' ability to evaluate the creditworthiness of applicants for credit card, mortgage, or other loans, because Gramm-Leach-Bliley" expressly allows such information to be shared for legitimate use in consumer reports, he said.
Mitch Haws, vice president of investor relations at the credit bureau Equifax Inc., which was represented in the suit by the Individual References Services Group, agreed that his company's ability to sell credit reports will not be affected.
"This whole thing had to do with credit header information, not the entire report that lenders get."
The so-called credit header at the top of a report usually includes a consumer's name, address, Social Security number, and other personal information. The bureaus have not decided if they will appeal the ruling.
The regulation also should not curtail banks' ability to make pre-approved credit solicitations. The Fair Credit Reporting Act allows financial companies to use information in credit reports if they are making "firm offers of credit or insurance that are not initiated by the customer."
However, Gramm-Leach-Bliley will restrict the way credit bureaus sell lists of addresses and phone numbers, which banks use for marketing as well as "skip-tracking" to find customers who are delinquent on their loans.
That restriction will affect banks "to the extent that it makes it more difficult for some of these services to compile information, and to the extent that banks use the services to get marketing lists," Ms. Williams said.
