Government eyes `asset searchers' Reviews banks' reliance on firms that track debtor data
Article from: The Boston Globe Article Author: Ross Kerber, Globe

The federal government, expanding its campaign to prevent unauthorized leaks of sensitive financial information about consumers, is reviewing bankers' reliance on "asset searchers," investigative firms paid to track down data on debtors and others who owe money to lenders.

The government so far has focused on rogue asset searchers suspected of tricking bank service representatives into disclosing confidential information over the phone.

But the acting comptroller of the currency, Julie L. Williams, says she is also concerned about banks themselves, which often hire asset search firms when loans go sour or in other instances when lenders want to know if customers are hiding assets. In response to complaints, her agency is reviewing banks' use of these firms. Also in response to a complaint, it is probing into the past use of asset-searchers by Fleet Financial Group Inc., which severed its ties with such firms earlier this year because of concerns about their practices. The comptroller, whose office supervises nationally chartered banks like Fleet, may also issue new guidelines to specify just who banks can retain for their research. "I don't think it's appropriate for banks to be hiring people to get information by surreptitious means," Williams said in an interview. "Financial institutions ought to look at the sorts of information that they're getting and make an assessment of whether that information is the type they should be using." As part of its efforts to bolster privacy, the agency already has suggested banks study issuing new PIN codes and taking other steps to make it more difficult for outsiders to learn information by posing as customers. Banks can expect further regulations if they don't do more themselves to protect private data, Williams has said. Concerns over the sanctity of customer data come at a delicate time for the financial industry. Companies are spending hundreds of millions of dollars to develop computer systems, telephone-service centers, and other infrastructure to track individuals' banking habits and to sell new services. Banks concede that unauthorized leaks of financial data are a problem, and have supported calls to tighten penalties against those who obtain data through deception. In many cases, officials suspect, asset-search firms take advantage of the large telephone call- centers that many banks have opened in recent years. The centers are meant to simplify many routine financial transactions, such as checking account balances, moving funds from one account to another, or even applying for home equity loans. But Fred Tilley, a BankBoston Corp. security executive, said that telephone representatives often could use more training to be wary of illegitimate contacts. In addition, he notes, an emphasis on customer service can make representatives too quick to respond to deceptive calls. Evidence of suspicious calls gathered by Tilley has already led the Massachusetts attorney general's office to bring civil charges against several investigators. Court filings by the AG's office include a tip sheet from one former asset-searcher on how to impersonate bank customers over the phone. One suggestion: asking that accounts be looked up by Social Security number, an easily obtainable piece of information, rather than by account number. Despite such concerns, little attention so far has focused on the demand side of the market for customer information, or just who the asset-search firms serve. In fact, a majority of banks hire outside asset-search firms, often to research customer assets when loans go bad, according to the American Bankers Association. Several asset-search companies say financial institutions turn to them because they are more adept at reviewing public records such as probate court filings, divorce or bankruptcy proceedings, or vehicle records. At Pathfinder Group in Manassas, Va., for instance, company president Terry Gilbeau says his firm is often hired by banks or their attorneys because his services are cheaper than finding records through traditional court proceedings, which often cost thousands of dollars. The firm doesn't use illegal methods and doesn't need to, he says, because of the public sources that are available. But government officials suspect that the information on offer from some of these firms is too specific to be obtained without a consumer's consent. In the case of Fleet, the comptroller's office plans to look deeper into charges that the bank made improper use of at least one asset search firm in Connecticut, Summer Associates Information Services Inc., whose owner allegedly made deceptive phone calls. The charges stem from a complaint from a New York businessman, Paul Bedford, involved in an unrelated commercial dispute with Boston-based Fleet. Bedford said he got to know Summer's owner, Keith Wofsey, through some deception of his own. After being introduced by another asset-searcher he knew, Bedford said, he told Wofsey he was interested in purchasing part of the business, when in reality he only wanted to obtain evidence that might bring Fleet unwanted attention and give him leverage in his dispute with the bank. Wofsey, an accountant who says he has shut down Summer, denies making deceptive calls but declines to discuss further his dealings with Fleet. He says Bedford owes him money, a charge Bedford denies. From Summer, Bedford obtained documents showing Fleet hired the firm in 1996 to check up on a Newton developer after he defaulted on some loans. Fleet says it had the right to hire Summer under the terms of its settlement negotiations with the developer, but says that after he complained the bank stopped using the search firm. That was the only time Fleet did business with Summer, said bank spokesman James Mahoney. In addition, he said, Fleet ceased doing business with all asset-search firms in early 1998 to gain more control over the methods used to gather information. In response to Bedford's concerns, an official in the comptroller's office sent an Oct. 13 letter in which she told the businessman: "Based on the material you supplied and the response received from Fleet Bank, we did not identify any violations of federal banking laws, regulations, or guidelines." However, the official told Bedford that documents he supplied had been forwarded to examiners who supervise Fleet directly, and that they will "more thoroughly investigate the issues you raised during their future examinations." Connecticut prosecutors are also reviewing Bedford's complaints as part of a broader probe into asset-search firms, according to the state's attorney general, Richard Blumenthal, though he adds that Fleet is not a target of the investigation. Fleet's Mahoney declined to comment on the letter from the comptroller's office, but said he isn't surprised by the agency's interest. "This is a hot topic in the banking industry, and we'd expect them to be looking at it here as well as at all other banks they examine," he said.