What Is Privacy Protection? - Laws & Rights

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  • 0:07 Financial Privacy Protection
  • 0:59 Gramm-Leach-Bliley Act
  • 2:51 Financial Privacy Rule
  • 4:17 Safeguards Rule
  • 4:56 Pretexting Provisions
  • 5:33 Lesson Summary
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Lesson Transcript
Instructor: Ashley Dugger

Ashley has a JD degree and is an attorney. She has extensive experience as a prosecutor and legal writer, and she has taught and written various law courses.

Financial privacy protection is a form of consumer protection. It's designed to protect consumer information held by financial institutions. This lesson discusses financial privacy protection and the Gramm-Leach-Bliley Act.

Financial Privacy Protection

Think about your checking account for a moment. What type of private information does that account involve? Certainly your birth date, Social Security number, account routing number, and the amount of money you make monthly. If I had complete access to your account, I would likely also know things like:

  • Where you shop
  • How much debt you owe
  • Account numbers on your credit cards and utility accounts
  • Where you buy your groceries
  • Where you get your hair done
  • Where you buy your gas
  • Where your kids go to school

You leave a financial trail wherever you go. Financial privacy protection is a form of consumer protection. It's a collection of laws and regulations designed to protect the privacy of consumer information held by financial institutions, like banks and brokerage firms.

Gramm-Leach-Bliley Act

The main law governing financial privacy protection is the Gramm-Leach-Bliley Act, or GLBA. This federal law was enacted in 1999 and is named for the three congressional co-sponsors of the act. The act is extensive and complicated with lengthy provisions. Generally speaking, though, it specifies how financial institutions must handle consumers' private information.

The GLBA opened channels to allow the flow of financial information between different financial institutions. However, the act also placed strict guidelines on the use of this information in order to safeguard the privacy of the financial information. Under the act:

  • Information must be securely stored.
  • Consumers must be well-informed about the use of their information.
  • Consumers must be allowed to opt-out of certain information sharing.

The act applies to all U.S. financial institutions. This means it applies to companies that offer any type of financial product or service, such as loans, investment advice, or even insurance. But note that the act only requires these companies to protect non-public personal information they collect about individuals. The act doesn't limit most information collected through commercial activity or business transactions, but it limits things that aren't publicly available, like a retailer's list of its credit card customers. The act has three main sections:

  • The financial privacy rule
  • The safeguards rule
  • The pretexting provisions

Let's take a quick look at each of these sections.

The Financial Privacy Rule

The GLBA's financial privacy rule requires companies to give individuals privacy notices and the right to opt-out of some information sharing. You may recall receiving this type of privacy notice from your credit card company or bank. The privacy notices must clearly explain the company's policies on information sharing. The company must tell the individual what type of non-public financial information they collect and explain how they use and share that information.

How often you receive a privacy statement depends on your relationship with the company. If you're a customer, then that means you have an on-going relationship with the financial institution. In that case, they must automatically send you an annual privacy notice as long as you remain a customer.

The privacy notice must explain how individuals can opt-out of information sharing for information that's largely immaterial to other financial institutions. For example, you might not want your non-public financial information, such as account numbers, payment history, or balances, shared with a third-party. Unless a financial institution is buying your loan, they likely don't need this type of information. The company must offer a practical way for individuals to opt-out, such as a toll-free telephone number.

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