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If you thought very little else about your customer relationships could be regulated, you were wrong. Customer privacy something that bankers have traditionally prided themselves in - is now the subject of an entire title of the financial modernization law and a 96-page interagency proposed rule released for comment on February 3. A final rule was issued on May so.
As a result of more than 30 years of consumer regulation, the banking industry is possibly the most regulated of U.S. industries. It was especially hard to swallow when bankers were told they had to tell the truth when lending and taking deposits. Now they are told that they must safeguard the privacy of their customers' financial information. Have the vast majority of bankers ever doubted that?
HOW DID WE GET HERE?
At least three influences have brought us to the point where the government feels inclined to set financial privacy standards: information technology, competition, and a few missteps.
Information Technology
At the moment when computer technology made it possible to collect, store, retrieve, and manipulate customer information, the challenge to privacy took on new meaning. Electronic data processing made banks much more operationally efficient, and it became possible to serve many more customers through a wider variety of channels at a lower cost. The information that used to reside in file folders and in bankers' heads was piled into huge databases, the varied uses for which quickly became evident. Many of those uses, like targeted marketing and better customer service, have been wholly positive. But in some sectors of the economy, information as a tool and a commodity may have begun to overshadow its essential ownership.
Competition
No bank today is insulated from competition, which not only comes from other banks in a given market area, but also from out-of-state institutions, nonbank service providers, and, now, dot.com banks. Out of necessity and good business sense, banks have adopted many new information-based marketing strategies. In the search for new customers and broader existing relationships, banks have learned how to leverage the information at their disposal. Indeed, customer information is at the heart of customer relationship management.
For obvious reasons, other businesses are keenly interested in the information that banks possess about their customers. As...