Financial Services Act Raises Questions About Consumer Privacy Rights
In the wake of the Graham-Leach-Bliley Financial Services Act, signed into law last November allowing banks and financial services companies to affiliate, it is now more important than ever for consumers to know their privacy rights, according to Weiss Ratings Inc.
Martin D. Weiss, Ph.D., chairman of Weiss Ratings says, "The new legislation contains consumer protection provisions that are supposed to protect the legitimate privacy concerns of the individual. But passage and implementation of the specific consumer protection rules will take time, and enforcement is uncertain. Therefore, once your bank, insurer, or broker has your name and account information, the potential for abuse will be great."
The Graham-Leach-Bliley Act essentially eliminates the barriers that once prohibited banks from being affiliated with other types of financial companies such as insurers or brokerage firms. "It represents a tacit government endorsement of the wave of financial mergers that has already been under way for many years," Weiss said.
Although this new freedom for the financial services companies may result in new benefits and product offerings for consumers, Weiss recommends consumers take the following precautions:
Precaution No.1 Know your privacy rights. Financial institutions will be legally required to disclose their privacy policies clearly and conspicuously, in writing or electronic form, whenever a customer sets up an account, and annually thereafter. Make sure your banker, broker, or insurance agent provides you with this information and that you understand the company's policy.
Precaution No.2 Weigh the pros and cons of letting the institution sell your private information to others. Unless you take the initiative to request privacy, the institution will most likely proceed to sell your personal data to both affiliated and non-affiliated companies under "information sharing agreements." If you want to protect your privacy, request a form that lets you "opt out" of these information sharing agreements by checking off the appropriate boxes. If privacy is not a concern to you, or if you want to receive product offerings from other companies, you need take no further action.
Two caveats: First, these forms may not be available at many institutions for many months. If this is the case, send your banker, broker, or insurer a letter stating, "To protect my privacy, I wish to opt out of all present or future information sharing agreements your institution may have with affiliates or non-affiliates." Second, even after you opt out, the institution will still have the right to pass along account information to a third party that performs routine and needed services, such as transaction processing.
Precaution No.3 If you receive solicitations from your company's affiliate, don't assume that doing all your business with the same group of companies is the best or most convenient plan of action.
Banking companies are now permitted to underwrite and sell securities, sponsor and distribute mutual funds, as well as underwrite and sell insurance. Brokers are already in the banking and insurance businesses, and insurers are also branching out. However, you should review the merits of each product offering in its own right, based on the financial stability of the institution, as well as the quality and price of the product. Shop around. You may find an unafilliated company that is safer and offers a better deal.
Precaution No.4 Don't feel pressured to give your business to an insurer that is related to your bank. In order to get your insurance business, your bank may try to give you the impression that your existing or pending loan could be affected by your purchase of insurance from its affiliate. In reality, your bank cannot legally deny your loan or alter its terms if you choose to go elsewhere for insurance.
Precaution No.5 Clearly distinguish between those bank products that carry FDIC insurance and those that don't. Your bank may already be promoting mutual funds, annuities, and a host of other financial products. But just because it's a bank, don't assume that these new products carry FDIC insurance. If you are not sure which products are covered by the FDIC, be sure to ask.
Precaution No.6 Always deal with a financially secure bank, broker, or insurer. If your company falls into financial difficulties, the quality of service can decline. If it fails, your access to funds could be delayed, your assets could be frozen or, in some cases, you could suffer outright losses. Therefore, be sure to seriously consider the company's financial safety rating before purchasing a financial product or making additional deposits. Precaution No.7. Don't assume a parent company with deep pockets will rescue a failing subsidiary.
Although an institution may be affiliated to a strong parent and carry a very similar name as the parent, each individual company has its own risks. For example, a large bank may decide to inject additional funds into an insurance subsidiary that's in financial difficulties, or it may decide not to "throw good money after bad," and let it fail. No matter what, with so many strong institutions to choose from, it doesn't make sense to take unnecessary chances with a weak company. So always consider the rating of the individual affiliate you are doing business with.
Weiss issues safety ratings on over 16,000 financial institutions, including banks, securities brokers, insurance companies, and HMOs, taking into consideration the ratings of affiliated companies. Weiss also rates the risk-adjusted performance of more than 10,000 mutual funds. It is the only major rating agency that receives no compensation from the companies it rates. Revenues are derived strictly from its product sales to consumers, businesses, and libraries.
The attached table presents the largest banks, insurance companies, and brokerage firms that are currently on the Weiss Recommended List of Companies and those with the weakest rating in each category.
Largest Recommended Institutions(1)
Weiss Safety Total Assets
Name State Rating ($000)
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Banks
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Bank Of New York, New York NY B+ $60,242,491
Branch Bkg & Trust Company,
Winston-Salem NC B+ $29,351,209
City NB, Beverly Hills CA B+ $6,924,060
Emigrant Savings Bank,
New York NY A+ $6,869,746
First American National Bank,
Nashville TN B+ $21,936,271
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Hudson City Savings Bank,
Paramus NJ A+ $8,367,942
Keystone Financial Bank NA,
Harrisburg PA B+ $6,732,117
Sanwa Bank California,
San Francisco CA A- $8,883,074
Union Bank Of Ca NA,
San Francisco CA A- $32,204,442
Wachovia Bank NA,
Winston-Salem NC B+ $61,841,288
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Brokerage Firms
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A G Edwards Inc MO A- $3,610,637
Albert Fried & Company LLC NY A+ $164,589
City Securities Corporation IN A $35,579
Crowell Weedon & Co CA A- $170,740
DLJDirect Inc NJ A+ $32,077
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Doft & Co Inc NY A+ $30,751
Fahnestock & Co Inc NY A $665,219
Folger Nolan Fleming Douglas
Inc DC A $44,091
Howard Weil Labouisse
Friedrichs Inc LA A $46,208
Morgan Keegan & Co Inc TN A- $1,421,138
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Life And Health Insurers
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John Hancock Mutual Life Ins
Co MA A- $60,810,321
Massachusetts Mutual Life Ins
Co MA A $62,965,671
Metropolitan Life Ins Co NY A- $184,503,912
Minnesota Life Ins Co MN A $15,580,536
Nationwide Life Ins Co OH A- $76,426,884
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New York Life Ins Co NY A $68,122,342
Northwestern Mutual Life Ins
Co WI A+ $84,010,465
Pacific Life Ins Co CA A $44,134,716
State Farm Life Ins Co IL A+ $26,337,794
Teachers Ins & Annuity Asn Of
Am NY A+ $109,246,816
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(1) To qualify as a Weiss Recommended institution, a company must earn
a rating of B+ or better. The recommendation refers strictly to the
financial security of the company and does not imply a recommendation
of the company's specific products in terms of their benefits or
costs.
Lowest Rated Institutions
Weiss Safety Total Assets
Name State Rating ($000)
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Banks
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American Bank, Wichita KS E- $252,549
Belmont NB, Wheeling WV E- $373,115
Community State Bank, Houston TX E- $60,048
Farmers & Merchants NB,
Bridgeton NJ E- $425,416
First City Bank, Columbus OH E- $53,472
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First Commercial Bank NA,
Seguin TX E- $131,350
First NB of Nevada, Laughlin NV E- $123,968
First State Bank, Oklahoma
City OK E- $131,271
New York NB, New York NY E- $114,012
Unity Bank, Clinton NJ E- $435,944
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Brokerage Firms
---------------
Donaldson Lufkin & Jenrette
Secs NY C $57,930,909
Dresdner Kleinwort Benson
North America NY C $17,092,815
EBI Securities Corporation CO C $6,520
Ernst & Co NY C $746,823
GKN Securities Corporation NY C- $11,427
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Interfirst Capital
Corporation CA D+ $2,861
Joseph Charles & Associates
Inc FL C $7,641
Norwest Investment Services
Inc MN C $1,198,613
Wilbanks Securities Inc OK C $23
York Securities Inc NY C $2,322
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Life And Health Insurers
------------------------
American Chambers Life
Insurance Co OH E $37,467
Educators Mutual Ins Asn UT E+ $44,358
Key Life Insurance Co Inc IN E+ $62,642
Landmark Life Ins Co TX E+ $50,218
Mid-South Ins Co NC E- $87,727
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National Foundation Life
Insurance Co DE E+ $52,008
National Heritage Insurance
Co TX E $947,837
Provident Indemnity Life
Insurance Co PA E+ $53,794
Suntrust Insurance Co AZ E+ $37,520
Tandy Life Insurance Co TX E+ $62,524
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Definition of the Weiss Ratings:
A = Excellent B = Good C = Fair D = Weak E = Very Weak