Opening Statement
Of Rep. James A. Leach
Chairman, House Banking and Financial Services Committee
Hearing on Pretext Calling, Identity Theft

The Committee meets this morning to examine the threat to financial services consumers from persons using illegal means to obtain private bank account balances and other financial information of persons and to consider the merits of a particular legislative proposal to combat identity theft put forward by two respected Members of the Committee.

At the dawn of the 21^st century, Americans’ financial privacy – indeed their very financial identities – are at risk as never before. Whether the threat involves cyber-intrusions into large corporate databases by hackers seeking to download credit card numbers or other account information, or less technologically sophisticated techniques such as "dumpster-diving" to retrieve credit card receipts or bank statements. The most confidential pieces of a consumer’s financial profile appear to be easily available to a growing number of financial scam artists.

The Federal Trade Commission, which will testify later this morning, reports that calls to its recently established identity theft hotline are now averaging over 1,000 a month, one of several indications that the identity theft problem is fast reaching epidemic proportions. In such an environment, the importance of vigilance by financial services providers and their customers in deterring and detecting unauthorized access to confidential financial data cannot be overemphasized.

Complicating the job of the FTC and other enforcement agencies is the increasingly international character of identity theft, underscored by several recent episodes of intrusions into U.S. corporate databases by hackers operating in Eastern Europe and elsewhere around the world. The Secret Service, which is also represented at today’s hearing, testified before this Committee several years ago about the growing presence in this country of organized criminal groups, many with Russian or Nigerian origins, that have engaged in large-scale identity theft schemes targeting U.S. citizens.

What steps are being taken to protect consumers from these crimes, which wreaks havoc on individual credit ratings and result in a profound sense of violation for those who are its victims? Is there a need for additional laws, or is it a matter of stronger enforcement of existing laws? These are among the questions the Committee has before it.

This is the latest in a series of hearings the Committee has held on issues of financial fraud and identity theft in this and prior Congresses. In 1998, this Committee was the first to focus congressional and public attention on the problem of pretext calling, a practice closely related to identity theft that involves the use of false and deceptive methods to obtain personal financial information.

We welcome back before the Committee today one of the witnesses at that earlier hearing, Robert Douglas, a private citizen in Alexandria, Virginia, who was instrumental in first making the Committee aware of the threat to financial privacy posed by practitioners of pretext calling.

Prompted in large part by the information shared by Mr. Douglas and other witnesses at the Committee’s 1998 hearing, I introduced legislation making it a Federal crime to obtain or attempt to obtain customer information of a financial institution by false pretenses, such as by misrepresenting the identity of the person requesting the information or otherwise tricking an institution or its customer into making unwitting disclosures of such information. These provisions were incorporated in last year’s Gramm-Leach-Bliley financial modernization legislation and went into effect upon the signing of that law on Nov. 12, 1999.

In the ten months since, the Committee has received sporadic reports that federal regulators have not paid adequate heed to the strictures of the legislation. To determine, in an admittedly unscientific way, whether it remains possible to find someone willing to break the law to obtain private financial information of an individual, an informal survey was conducted by Committee staff over the recently concluded August recess, assisted by Mr. Douglas.

Staff identified and contacted businesses advertising their ability to locate bank accounts, determine bank account balances, and find other financial assets assumed by most consumers to be confidential. Subjects were selected at random based upon searches of the Internet, telephone book yellow pages, and classified advertisements in legal trade journals.

Posing as a potential customer, a member of the Committee staff, Ms. Alison Watson, placed a series of calls in which she purported to be someone whose live-in boyfriend had recently disappeared, cleaning out their joint bank account and absconding with other assets in the process. The staff member asked each firm whether it could assist her in locating her ex-boyfriend and any bank accounts in which he might have placed the funds removed from their joint account.

Of 26 calls placed in an uninterrupted three-hour period, eleven were completed. Of the eleven companies reached, every one of them confirmed their ability and their willingness, for a fee, to obtain bank account and other financial information. Put another way, three hours of calling to randomly selected vendors yielded the names of eleven firms willing, and, in all cases, eager to sell bank account information on a private citizen, with few, if any, questions asked.

Although two of the eleven firms made vague reference to "privacy laws" that they said would complicate their efforts to locate assets, none mentioned the existence of statutory prohibitions on the services they were offering to provide. Based upon this survey, it appears that the fraudulent practices first highlighted by the Committee in mid-1998 are continuing largely unabated.

In short, bank account information and other aspects of consumers’ financial profiles apparently remain freely available to anybody willing to pay for them. What we have are outfits unafraid to break the law, in fact even continuing to advertise their law-breaking talents. The victims are those individuals whose account information is obtained, but it is also our civil society that is based upon trust and respect for the privacy of one another.

While no money may instantly be changing hands and no one’s life is immediately at risk from gun-toting thieves, these are cases of robbery of bank information and potentially of bank accounts. For many Americans, account information may be almost as valuable as their actual balance and the impact of knowing that our private financial records are so readily available is frightening. Law enforcement agencies need to take these crimes more seriously. Mr. Douglas will expand on the survey later during his testimony.

Our first witnesses this morning will be two distinguished Members of this Committee, Ms. Hooley and Mr. LaTourette, who are the primary sponsors of H.R. 4311, the Identity Theft Prevention Act of 2000. This legislation, cosponsored by 37 other Members of the House, reflects a very thoughtful approach to the identity theft problem, and deserves serious consideration by this Committee. We will hear later from several witnesses with differing perspectives on some of the bill’s specific provisions, but I want at the outset to commend Ms. Hooley and Mr. LaTourette for their work in developing this very important piece of pro-consumer legislation.

Before turning to our distinguished colleagues at the witness table, let me recognize the Ranking Minority Member, Mr. LaFalce, for any opening remarks he might wish to make.

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