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Caveat emptor with Fannie Mae and Freddie Mac

By Paul M. Weyrich
web posted July 2, 2001

If you're like me, you receive a flood of notices from banks that are full of fine print. Most of these statements end up being tossed by people into their wastebaskets without a moment's thought as to what the fine print actually says. But that can be a mistake: That fine print can be dangerous to your privacy when the notices are coming from financial institutions.

Now, a flood of notices are arriving at your house because by July 1, and once a year from now on, every financial institution you do business with should have sent you a notice of their privacy policy. And they must also extend to you the right to "opt-out" if you do not want your personal data to be shared or sold to another company or institution.

This has all come about because of Title V of the Gramm-Leach-Bliley Financial Services Modernization Act which was passed in 1999 and included the "opt-out" provision. After all, it's perfectly understandable that many people will not want their personal financial information being shared without a chance to say otherwise. Congress should respect the principles of consent and individual choice.

Even so, there are many instances in which people may want information to be exchanged and with very good reason. Many people, particularly those on fixed incomes, might want to receive an offer from a company that provides them with frequent flier miles on credit card purchases. For an older couple, that can make the difference between being at their grandchild's birthday party or missing it.

What's good for the goose though should be good for the gander - particularly when that gander is in the form of two enterprises sponsored by the Federal government, Fannie Mae and Freddie Mac.

These two government-sponsored enterprises, which receive over $10 billion a year in federal subsidies, are exempt from the Title V privacy standards of Gramm-Leach-Bliley that now apply to all private-sector financial institutions. That's bad enough, but Fannie Mae and Freddie Mac actually lobbied Congress at taxpayer expense to exempt themselves from the privacy rules by which their commercial competitors must abide.

In other words, the bank you do business with to get a home mortgage must extend to you the right to say "no" when it comes to releasing your financial information to other entities. But you should realize, while you're busy sifting though some of the more than 2.5 billion privacy notices that banks and other financial institutions will be sending out as required by law, that if you buy Fannie Mae and Freddie Mac securities, they might be able to sell your information no matter what you wish.

Now, Fannie Mae and Freddie Mac are starting to retail securities to small investors. Right now, the brokerage houses dealing the securities for Fannie Mae and Freddie Mac must abide by Title V. But what happens if information collected by the brokerage houses is provided to Fannie Mae and Freddie Mac, which do not have to give consumers the choice to opt-out? If consumers decide to opt-out in their dealings with their commercial brokerage houses, but Fannie Mae and Freddie Mac still have the information, could things fall through the cracks? Think how difficult it often is to get your name removed from telemarketing lists.

There's a lesson in that.

"Consumer beware" is always good advice. The fact that you will now have the choice to opt-out means you now have the tools to exercise vigilance over how your information is distributed. It pays to know your rights when it comes to your financial privacy and a good way to start learning is the Privacy Rights Clearinghouse in San Diego. You can visit their website at www.privacyrights.org. Take the Clearinghouse's information, read it carefully, and then use it when privacy statements arrive. Why not even send the Privacy Rights Clearinghouse the financial statements you receive to allow their experts the ability to compare differences between company policies.

But that vigilance you extend to what companies operating in the free market are doing should also extend to your government too. Government-sponsored enterprises like Fannie Mae and Freddie Mac may be cloaked in benevolent packaging, but in reality they are not hesitant at all to trample on the freedoms of the citizenry they are supposedly serving. So, remember, if you're buying Fannie Mae and Freddie Mac securities, it really is consumer beware!

Paul Weyrich is president of the Free Congress Foundation.

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