Your lenders are spying on your clients

It’s not a new idea, of course, that people are monitoring your financial transactions. But now there is way more data being collected, analyzed and used to make decisions than ever before. A recent survey found that 54% of office workers say their employer monitors personal communications such as email or instant messenger chats.

The catch is while they may be collecting the information without your knowledge or consent, you might not even know this because an increasing number of lenders are using software to monitor customer transactions and how long it takes them to repay loans. If a client takes more than 60 days to repay a loan, for example, the lender may revoke their access to the account.

To do this, the lender must have your consent (18 U.S.C. § 1031), according to data privacy advocates and consumer protection organizations such as the Consumer Federation of America and Consumers Union. But consumers don’t always understand what they are agreeing to when they sign up for an account or loan, explains Michael Greenberger, distinguished professor at the University of Maryland School of Law and former director at the U.S. Commodity Futures Trading Commission (CFTC). “The risk of unknowingly giving consent is one of the biggest problems.”

What’s more, there may be another problem with monitoring accounts – namely, the fact that some lenders are doing it in violation of federal and state laws. The CFTC states that the Fair Credit Reporting Act (FCRA) prohibits a company taking adverse action against an individual based on information supplied by a consumer reporting agency (CRA), such as Experian or Equifax. The FCRA also prohibits creditors from rescinding or terminating an account or changing its terms without notifying the consumer first and affording them an opportunity to respond to any adverse action taken against their account.

The banking industry has been monitoring customer accounts since the early 1990s, says Greenberger. But in the past few years, more lenders are using various forms of software to track customers’ transactions and analyze them in ways that were previously impossible. “It used to be that you couldn’t tell if a particular account was being monitored unless you looked at the actual transaction logs,” he says. “Now they are often putting an indicator right in the front end of their website that lets them know whether they are being monitored.”

Leaving this kind of information open may violate federal laws. If there is no warning when the bank is monitoring your transactions and you think they are being kept in the dark, you can report the problem to regulators such as the CFTC or to a state attorney general. The problem is that once you do this, your account will almost certainly be closed (not because of what you’ve done wrong, but because of the violation of privacy). So this leaves consumers with little recourse on how to address their concerns.

On top of all this, it is difficult to imagine that bankers will always exercise restraint when they have access to so much data. The better approach is to get them to leave the personal information on their customers alone in the first place, says Greenberger. “You really have to start talking about what is an acceptable use policy of your information, and then you have to put it in writing.”

One of the reasons consumers are getting monitored in greater numbers is because many financial institutions view it as a way to save money, according to some new research. When a lender monitors customer accounts and sees that they are paying off their loans on time, they tend to offer more loans with relatively low interest rates and fees. As a result, consumers end up paying less for more credit. But if they aren’t paying off these loans, they tend to see higher interest rates and fees.

In the worst cases, consumers may be offered loans that are way beyond their ability to repay. When this happens, the lenders are almost assured of collecting the full amount of the loan and even turning a profit on the transaction. The practice of making subprime loans is illegal and has led to many businesses going under or being closed during the recent recession. So there is a very fine line to walk here in terms of monitoring whether people can pay off their loans or not on time.

Many of these companies have developed ways to monitor your loans without accessing any of your personal information, or they store it in a way that can be accessed only if you’ve given permission. But even so, it may still be a good idea to keep an eye on what they are doing with all this information. You don’t want to become a victim of identity theft or have fraudulent information attached to your credit report as the result of some unscrupulous company using it inappropriately.

Source: http://money.usnews.com/money/blogs/debt-wise/2013/02/19/what-you-need-to-know-about-financial-sites

Posted on: March 4, 2013.

Share this: Facebook

Twitter

Email

Reddit

Please check out Tribe of Mentors, my newest book, which shares short, tactical life advice from 100+ world-class performers. Many of the world's most famous entrepreneurs, athletes, investors, poker players, and artists are part of the book. The tips and strategies in Tribe of Mentors have already changed my life, and I hope the same for you. Click here for a sample chapter and full details. Roughly 90% of the guests have never appeared on my podcast.

Conclusion:

In this article we have reviewed a couple of ways in which the financial industry is closely tracking our financial transactions. This can be problematic if you do not explicitly consent to it or if you feel that your privacy is being violated. You should think about what information you would like to share with third parties and whether or not you are providing explicit consent before engaging in any financial transactions. If you cannot explicitly consent, then it may be better to engage in less sensitive financial transactions such as shopping online or at the supermarket rather than directly opening your bank account with a credit card company or using an ATM machine.