CAC: The Consumer Outlook

The Consumer Advisory Council ("CAC") met for the second time this year and discussed the hottest topics of interest to consumers: privacy notices and CRA.

Privacy
Privacy notices continue to be a subject that is hotly debated. And consumer advocates continue to be highly critical of the notices sent out by financial institutions. Consumer advocates express concern at the low level of response by consumers to the opt-out. Explanations about this low opt-out rate ran the course from the cynical view that consumers don't bother to opt out because doing so actually does little to protect privacy, to the concern that consumers don't opt out because financial institutions don't make it easy enough.

The CAC suggested that regulators consider developing short-form template for privacy notices. Some members also recommended that the Federal Reserve conduct research on actual information-sharing practices.

Based on this discussion, institutions should take a careful look at the privacy notices they send. Look not only for compliance with notice content requirements but also evaluate whether the notice is reader-friendly and informative.

CRA
Community development activities, both lending and investments, is a topic where lenders and consumers agree on the goal but regulators have difficulty in deciding how to evaluate what an institution does to get there.

The goal is a strong community economy. When few lenders made community development loans or investments, giving credit for innovation seemed to be a good idea. Now, however, both consumer groups and lenders find that often what the community needs is the "plain vanilla" loan. Lenders are motivated by the evaluation system to ignore this need and seek innovative opportunities. The result may not support the health and long-term development of the community's economy.

Financial institution representatives on the council also discussed the importance of the institution's self assessment of community needs and suggested that examiners should give careful attention and deference to this assessment.

Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 9, 7/02