It’s high time for lenders to stop “sharing” borrowers’ personal information with affiliated companies in defiance of their loud, clear and repeated indications that they dislike this practice and believe it violates their personal privacy.

Federal law allows financial institutions to utilize opt-out procedures for consumers who don’t want their own name, telephone number, household income and other data to be shuffled about among other companies without their knowledge. Opt-out means the consumer’s consent to data reuse is assumed, unless the consumer complies with the opt-out procedure.

The opt-out option should be eliminated because lenders have implemented it in ways that are too little and too late to protect consumers’ privacy.

Opt outs typically force consumers to complete and return a privacy form or make a telephone call to gain the privacy protection they should have as a basic right. The opt-out forms usually are tiny, insignificant-looking documents that arrive in as snail mail. There is no glossy brochure about how to protect privacy rights. Nor is there a handy pre-addressed envelope that would encourage a prompt reply. Even worse, the opt-out form usually arrives weeks after the initial transaction and a “processing” period of weeks or even months gives the institution plenty of time to violate the consumer’s privacy before the opt-out demand takes effect.

The push to cross-sell more products to newly acquired customers is a core strategy of the modern financial conglomerate, and it has been pursued with contempt for even minimal regard for privacy. Current laws contain far too many loopholes for affiliated companies. The joint marketing agreement essentially enables institutions to do almost whatever they want with information about their customers.

Institutions should be required to obtain the consumer’s explicit consent before personal data can be distributed, and that requirement should apply equally to affiliated businesses and unrelated companies, regardless of whether they’ve signed a joint marketing agreement. Opt-in forms no doubt would arrive speedily with both a return-mail envelope and an enticing brochure about how data-“sharing” benefits the consumer.

Online lending pioneer E-Loan has shown the way with its opt in-only policy on the use of personal data. E-Loan is no one-trick pony that doesn’t have opportunities to use such information for a variety of purposes, but CEO Chris Larsen, a noted privacy advocate, believes strict privacy safeguards are a competitive advantage for the company.

Financial institutions say the federal privacy laws are confusing and compliance is difficult. That might be true as long as aggressive data-sharing is the norm. If data were shared or sold only with the consumer’s express permission, the rules wouldn’t be at all confusing and compliance would be no sweat.

No consumer permission, no data distribution. It should be that simple.


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