With his sortie against Fleet Mortgage on Thursday, Minnesota Attorney General Mike Hatch emerged as a public crusader for consumer privacy — and the latest gadfly to take on the big financial services companies.

However, unlike Mr. Hatch’s other big-bank target, Fleet has vowed to fight his suit and tersely refuted the charges as “inflammatory” and “inaccurate.” The suit against Fleet — which alleges that it shared customer information with telemarketers and charged fees on mortgage accounts without authorization — is the fourth public action Mr. Hatch’s office has taken on privacy in two years and the second against a major financial institution.

“Mr. Hatch clearly has been a real activist, and is using a theory of a law to hold Fleet liable,” said Dan Forte, president and chief executive officer of Massachusetts Bankers Association. “He’s been out front on these issues, and he has made this a high priority on his agenda.”

In 1999 the attorney general alleged in a lawsuit that U.S. Bancorp had earned over $4 million by illegally sharing detailed customer information with MemberWorks Inc., a telemarketer. U.S. Bancorp quickly announced a new privacy policy and settled the suit three weeks after it was filed.

Privacy remains a festering issue in the debate over the shape of modern financial services. Over the last two years the issue has received lots of attention from Congress, public-interest lawyers, and consumers. Indeed, regulators have yet to hash out the details of the Gramm-Leach-Bliley Act’s privacy provisions.

But the heightened emotional and political passions the topic incites have limited what financial institutions can do to defend themselves.

What’s more, the privacy fight contributed to a particularly tough year for financial firms in the area of consumer protections, as issues ranging from predatory lending to bias in insurance underwriting to credit-card late-fee abuses garnered increased scrutiny. While some firms, including several credit card providers hit by class actions, quietly rolled with the punches and succumbed to pressure to settle out of court (see related story on page 1), for now Fleet appears to be one of the few willing to fight the charges.

In the latest suit, Mr. Hatch charges that the FleetBoston Financial Corp. unit shared its customers’ home mortgage account numbers, contact numbers, and other personal information with telemarketing companies.

The suit alleges that telemarketers sold membership organizations that purportedly offered discounts on and coupons for services ranging from car maintenance to legal fees, the suit charges. Fleet and the telemarketing firms allegedly led consumers to believe that they were agreeing to free trials in a membership club.

“Fleet bills the customer’s mortgage account for the club unless the customer affirmatively acts to cancel within 30 days,” the suit says. The charges appeared without any written consent from the homeowner, and Fleet retained a percentage of the sales as profits, according to the suit.

Minnesota Assistant Attorney General Prentiss Cox said the suit is similar to the action against U.S. Bancorp in that the office is alleging misrepresentations and violations of the consumer protection laws in the sharing of personal financial data, but he said there are two key differences.

First, Mr. Cox said, Fleet, whose alleged activities he called “appalling,” shared mortgage account numbers, which consumers do not understand can be billed for items wholly unrelated to principle interest, tax, and insurance. Second, “we allege that Fleet is liable under Minnesota consumer protection laws for the deceptive telemarketing program in which they fully participated with the telemarketer.”

Fleet said that the Minnesota Attorney General’s office announced the suit before providing the company with a copy of the lawsuit or an opportunity to discuss the allegations. The company said that the charges contain allegations that are “inaccurate and are based on incomplete facts,” and that it would vigorously defend itself.

Mr. Cox said the attorney general’s office sat down to talk with Fleet officials, but the company “made it very clear that they were going to continue to solicit and charge consumers as long as we just continued to talk to them.” He also said Fleet made a decision to continue its business conduct, even though it was aware of the concerns.

Fleet has known for some time that its customers believe they have been charged for these membership programs without authorization, Mr. Cox alleged.

Bert Ely, a financial institutions consultant with Ely & Co. in Alexandria, Va., said that the debate and concern over privacy escalated dramatically last year, but he cautioned that regulatory and statutory specifics remain unclear and should be given a chance to play out.

“One wonders to what extent is the Minnesota Attorney General ahead of the curve or maybe off on a tangent that does not reflect current law or can be reasonably divined from current law,” he said. “And he may even be going beyond where things seem to be headed.”

One thing, however, appears certain: Financial institutions, observers say, must be incredibly careful with the information they share and the partnerships they form, regardless of public policy.

“This is a big issue that needs to evolve over the next few years, and we will see more legislation filed,” Mr. Forte said. “We’re telling our members to get geared up. The privacy rules from Graham Leach Bliley are coming into effect. Get up and ready, and give them a chance to work.”

Mr. Ely said banks must be very careful how information-sharing arrangements are set up, and in some cases the companies should seek clarification of the rules. “But we are dealing with an elected public official, and politics can never totally removed from this process,” he said. “To the extent that some cynicism might arise in certain quarters over what’s behind this thing, that would be understandable.”

Rodrigo J. Alba, director of residential finance/regulatory affairs for the Mortgage Bankers Association, said that Gramm-Leach-Bliley’s privacy regulations were written broadly and often without any regard for the intricacies of a mortgage transaction.

“These novel and elusive provisions will provide very fertile ground for the class action bar and over-zealous enforcement officials to come after lenders and financial institutions,” he said. “Make no mistake about it, the new mandates, even if confusing and untested, will serve as a basis to tightly scrutinize activities of all lenders and financial institutions.”

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