I have read though the Privacy regulation (specifically http://www.fdic.gov/news/news/financial/2000/fil0034.html ) and only find one area of discussion of my question, page 44 of http://www.fdic.gov/news/news/financial/2000/fil0034a.pdf – but no answer.

Here’s my question: Is there a notice and opt-out exception to allow a bank to give another bank payoff, current balance, or other similar type of information when the ‘asking’ bank is working through a loan application? For example: a person applies for a loan at Bank A. Bank A reviews the application and sees that the applicant wants to payoff a loan at Bank B and at Bank C. None of the banks are affiliates. Bank A calls Bank B and Bank C for current payoff balances. If Bank B and Bank C tells Bank A the payoff balance, has sharing of nonpublic personal information to a non-affiliated third party occurred? Have Bank B and Bank C violated the privacy rules if they have provided notice the customer they do not share nonpublic personal information to non-affiliated third parties?

The way I see it, yes, Bank B and Bank C are in violation of the reg. However, others believe the above example is in the section .14 exception.

How does anyone here see it? Am I making a “problem” where there isn’t one?

I don't think the other banks violated the regulation. By providing the payoff they are assisting their customer in completing a transaction they initiated. I had heard that the Fed had ruled that situations such as you describe would not violate the regulation for the above reason but I can't give you a reference to cite. Even if it isn't a violation, I think it would be prudent for the other banks to ask for an authorization form from the consumer. That way you cover the bases. As for looking for problems that may not exist - don't stop.

This is strictly my opinion.

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Allan D. Virr, CRCM

I was just reading an article published on the Kirchman Corporation website. The article stated

"If Bank A is refinancing a loan held by Bank B, and Bank A requests a loan payoff statement from Bank B, Bank B may NOT respond to the request without the customer's consent."

The article continued to say this was because there is no financial product in which the bank providing the payoff is directly invovled, thus the providing of information would be subject to optout.

http://www.kirchman.com/compliance/alerts/ea0101-2.html

I agree with Andy- if you are in an Opt Out Bank, I think you can qualify it as an exception based on the fact that the information is being used to complete a customer's request of for a loan. However, this is an extremely argumentative portion of the privacy bill, and you can pretty much split the decision right down the middle.
I think it would be in your best interest to get customer consent in some written form....you do not want to deal with a customer who never "formally" consented to the release of their information and they are denied the loan....angry customers blame everyone for their denial except themselves.
You also have this issue- loan A is made to Mary and Bob, Bob is seeking to refinance the loan in just his name since he has better credit than Mary and can get a better deal alone. Bob handles all of the household finances, and had no problem with you requesting payoff from his other bank. But, Mary, has no idea you will be digging into her personal information and when she finds out, she blows a gasket....then what do you do? You have virtually lost 4 customers---Mary and Bob, b/c Mary insists the accounts be moved and she is telling her sister who will move her bank accounts and her best friend. You get the idea.
Getting written authorization is just the best way to go- in my opinion. One simple form, easy to sign, takes 2 seconds, and you are done.
Good Luck in whatever you decide to do.

p.s. Kirchman---from what I can find out they have been taking the most conservative narrow approach to any one entity out there when it comes to Privacy...in my personal opinion.

Two comments:

1) Check state law. Although federal privacy law has preemptive language, it's easy to see that there is some abiguity on this question. If state law requires the "losing" lender to provide a payoff figure, what is your call going to be?

2) Considering the ambiguity of this topic, do you really want to risk being accused of obstructionist tactics by your soon-to-be former customer and/or the acquiring lender? The BOB could be wrong on this one.

FWIW - I think some of the considerations of the Privacy rules range from the sublime to the ridiculous.

Does anyone, in any frame of common sense, think that Congress intended that Banks should withold payoff information, and thereby obstructing a transaction that would be beneficial to the consumer, in the name of Privacy?

Let's get back to the original intent of the regulations, namely that Banks should not be "selling-out" their customer information to the highest bidder, and Banks should have measures in place to prevent sensitive information from getting into the wrong hands.

A final thought for everyone, and perhaps as a matter of documentation, when accepting an application to refinance a loan with another bank, obtain a customer signature on a release or consent form (this is usually done all the time on Mortgage transactions anyways) so that you can FAX or mail the customer authorization to the Bank where you are requesting a payoff.

Well, Bonnie, that's what you might call the "Law of Unintended Consequences" at work. When the legislature legislates and regulators regulate, something always happens that neither the legislators nor the regulators intended. Such are the vagaries of laws and regulations.

In plain "English," there ain't nothing simple no more!

[This message has been edited by John Burnett (edited 12-19-2000).]