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Many Banks Giving State Extensive Customer Data

Privacy: Law demands records of 'deadbeat parents,' but small firms hand over information on all account holders.


Scores of California banks, thrifts, credit unions and life insurers have begun turning over confidential information about their customers--including account balances and Social Security numbers--to state officials in an effort to comply with a new federal law designed to catch parents who fail to pay child support.

The program, which took effect this spring, requires financial institutions nationwide to help locate so-called deadbeat parents by searching their customer databases every three months for matches against state-provided lists of child-support debtors. If matches are found, the names, account balances and other information must be given to state officials, who can then seize the assets.

But in California, many small community banks and credit unions say they cannot afford the time or the technology necessary to check millions of customer records regularly, and unlike some other states, California is not helping financial institutions shoulder the costs. As a result, about half of the participating institutions are taking advantage of a provision that enables them to simply hand over the names and account balances of all their customers, forcing the state to look for matches itself.

In California--home to some of the nation's toughest laws protecting individual privacy from government intrusion--the new program is raising red flags.

"This is a further impingement on the confidential nature of those records," said Beth Givens, project director of the Privacy Rights Clearinghouse in San Diego. "The option of allowing a bank to provide its entire customer database to the state should never have been allowed."

Though Givens said she is sympathetic to efforts to collect delinquent child support, she worries that the program will compromise the privacy of millions of Californians who have done nothing wrong.

The program comes at a sensitive time in California, where many residents increasingly feel that their financial privacy is under attack. Last month, the state's employment department ditched plans to begin selling confidential salary data about 14 million Californians after it received a flood of complaints. Shortly thereafter, the state's largest banks admitted that they had been selling or disclosing sensitive information about their customers to telemarketing firms.

"The government already has a Big Brother file on everyone," said Ann Kaufman, a bank customer in Rancho Palos Verdes. "They don't need to get any more information."

The goal of the new law--which established the Financial Institution Data Match program--is to stem the rising problem of delinquent child support. In 1998, California parents failed to pay $8.7 billion in court-ordered child support.

Under the data match program, bank account information is sent to the state Franchise Tax Board. Though the tax agency already collects some information about taxpayers' bank accounts, the new program significantly broadens the scope of individual financial information the board receives, and it provides the data on a more timely basis.

Officials at the tax board said they would only use the new information for the purposes of collecting past-due child support. The agency said it will keep the data confidential and vowed not to use it for tax collection purposes, such as verifying tax returns or identifying tax dodgers.

"We deal with all kinds of very personal information already," said Denise Azimi, a spokeswoman for the tax board. "It's very secure, and we could not use it for tax administration purposes."

The law, however, does require the tax board to share the information with local district attorneys who also are working to collect delinquent child support. But Azimi said the tax board would only give the district attorney's offices bank account information about individuals who owe child support and not release the more comprehensive customer lists it receives.

So far, 191 of the state's participating financial institutions are screening their records themselves and 197 are turning over their entire customer databases to the state.

Tax board officials have steadfastly refused to identify which financial institutions are giving their full customer lists to the state.

Though the law protects institutions from being sued by customers for releasing the information to the state, some institutions remain concerned about their liability, according to a June legislative report by the tax board.

Most large banks said they had decided to conduct the searches internally and provide only the matches to the state, citing privacy concerns and fears of a customer backlash.

"It was unacceptable to let the data out of our control," said Kathleen Shilkret, a spokeswoman for Wells Fargo.

Other institutions that said they plan to conduct internal searches were Bank of America, Washington Mutual, Union Bank and City National Bank. Los Angeles-based Imperial Bancorp said it has not decided which method to use.

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