Financial Services Companies Say They’ll Act To Improve Privacy Notices
Life insurance companies and other financial services providers say they are committed to improving the effectiveness of the annual privacy notices mandated by the Gramm-Leach-Bliley Financial Modernization Act.
John Dugan, legal counsel to the Financial Services Coordinating Council, last week told a Federal Trade Commission conference that the financial services industry will work with regulators and consumers to improve the usefulness of the annual notices.
The American Council of Life Insurers, Washington, is a member of FSCC.
Other members include the American Bankers Association, the American Insurance Association, the Investment Company Institute and the Securities Industry Association, all of Washington.
Dugan says much of the criticism that has been leveled at the financial services industry is due to the GLB law itself.
“The financial services industry essentially served as guinea pig for mandated notices,” he says. “Much of the criticism that has been levied against the notices is a direct result of regulatory requirements that forced the industry to include legal terms and phrases that were confusing to some consumers.”
He says FSCC will organize an industry working group to make recommendations for improving the notices.
This group, Dugan says, will hold its first meeting in January and will be comprised of privacy experts from across the financial services industry.
The group will work to simplify the terminology in the notices and minimize “legalese,” he says.
The privacy notices required by GLB have come under sharp attack from certain quarters. The notices are intended to advise consumers of their right to opt out of information sharing between their financial institutions and certain third parties.
Consumer advocate Ralph Nader recently filed a petition with the FTC calling for new rulemaking. Nader says the current notices fail to protect consumer privacy.
Most of the notices mailed out, he says, employ dense, misleading statements and confusing, cumbersome procedures to prevent consumers from opting out.
“Such notices evince a clear failure of the Acts implementing regulations to effectuate Congressional intent,” Nader says in his petition. “Without understandable notice and convenient opt-out mechanisms, the Act provides no privacy protection at all.”
Turning to the ongoing controversy over terrorism insurance, and a possible study of the impact of a major terrorist event on the life insurance industry, an agreement appears to be in the works in the Senate.
The Senate had been deadlocked over the legislation, but it now appears a compromise has been hammered out and a bill could be on the floor of the Senate by Tuesday, sources said.
At press time, it was uncertain whether the language calling for a life insurance study had been changed from an early draft.
That draft called for a study to be conducted directly by the Treasury Department. This contrasts with the House Bill, H.R. 3210, which establishes a seven-member panel to study the life insurance-related issues.
The panel would include representatives of the primary insurance industry, the reinsurance industry and life insurance agents.
But while Congress debates issues related to the Sept. 11 terrorist tragedy, a variety of other initiatives have been sidetracked, at least temporarily.
One of those issues is tort reform. Prior to Sept. 11, tort reform advocates, including ACLI, were expected to make a major effort to reform the class action legal system, primarily by allowing defendants in major actions to have the action heard in a federal court rather than a state court.
Jack Dolan, an ACLI spokesman, says ACLI always knew this issue would face tough sledding. However, he says, the legislative agenda surrounding Sept. 11 prevented advocates from advancing the issue.
Dolan says the post-Sept. 11 agenda prevented Congress from engaging in a full-length discussion of the issue of class action legal reform, and sidetracked supporters of reform from educating members of Congress on the extent to which reform is needed.
Dolan emphasizes that class action legal reform is still a live issue, and ACLI still intends to pursue it.
Similarly, he says, ACLI still intends to pursue a variety of tax-related issues that were sidetracked in the wake of Sept. 11. These include repeal of Sections 809 and 815 of the tax code and eliminating the restrictions on consolidated returns filed by life insurance companies affiliated with non-life companies.
Dolan notes that the economic stimulus bill pending in the Senate would suspend Sections 809 and 815 for one year. However, he says, ACLI is still committed to full repeal.
Again, he says, these issues require an education effort among members of Congress, but that process was stalled due to Sept. 11.
Section 809 relates to the taxation of mutual life companies by comparison to stock companies. Section 815 involves policyholder surplus accounts held by stock companies.
As for consolidated returns, the current tax rules limit the ability of life insurance companies to offset income with the net operating losses of affiliated non-life companies.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.