June 10, 1999
 
 
 

                   Minnesota Attorney General Accuses
                   U.S. Bancorp of Illegal Sales of Data

                   By JOSEPH B. CAHILL
                   Staff Reporter of THE WALL STREET JOURNAL

                   The Minnesota attorney general accused U.S. Bancorp of illegally selling
                   information on hundreds of thousands of customers to a telemarketing
                   partner, just days after the U.S. comptroller of the currency blasted banks
                   generally for such practices.

                   The lawsuit, filed in a Minnesota federal court Wednesday, charges U.S.
                   Bancorp, Minneapolis, with violating the federal Fair Credit Reporting Act,
                   as well as state consumer-fraud and deceptive-advertising laws. Attorney
                   General Michael Hatch contends that the bank broke the federal law when
                   it provided a range of information on its customers to a telemarketing firm
                   and then committed fraud and false advertising when it told customers in
                   account agreements that it would keep such information confidential.

                                        A spokesman for U.S. Bancorp called the
                                        charges false and said the company would
                                        "vigorously defend" itself.

                   The case against the nation's 13th-largest bank marks the first time a major
                   bank has been charged with such violations in providing customer data to
                   telemarketing firms, a growing practice in the banking industry. As margins
                   shrink and growth slows in traditional lending, banks have come to view
                   their massive customer lists as potential profit centers. Many banks,
                   including Citigroup's Citibank unit, Bank One Corp. and Wells Fargo &
                   Co., provide telemarketers access to customer information in exchange for
                   commissions or other compensation.

                   But the practice collides with increasing concerns about privacy in the
                   information age. While banks are permitted to sell customer names and
                   other basic data to telemarketers, certain information is protected by
                   federal law. Earlier this week, John D. Hawke, comptroller of the
                   currency, called the sale of customer data to telemarketers "seamy" and
                   legally questionable. The controversy is reaching a boil just as Congress
                   considers financial-reform legislation, raising the possibility that lawmakers
                   may restrict a practice the industry hasn't aggressively policed on its own.

                   Telemarketing ventures, hawking everything from discount-dental plans to
                   credit insurance, also expose banks to potential liability for the actions of
                   marketing firms over whom they have little control. For example, Mr.
                   Hatch said in an interview that most of the 1,000 U.S. Bancorp customers
                   surveyed by his office told investigators they hadn't agreed to purchase the
                   discount-club memberships and other products that were charged to their
                   accounts.

                   "They got slammed," Mr. Hatch said, using a term that describes some
                   long-distance telephone companies' practice of shifting customers'
                   accounts without their knowledge. Separate charges relating to the alleged
                   "slamming" may be added to the complaint or may be filed in a separate
                   action, he said.

                   The U.S. Bancorp spokesman said the company records all telemarketing
                   calls to verify a customer's acceptance of the offer, and routinely refunds
                   money to people who complain of unauthorized charges.

                   U.S. Bancorp didn't deny receiving commissions on the sales of products
                   by its marketing partner, Member Works Inc. That company wasn't
                   charged in the complaint. The U.S. Bancorp spokesman asserted the bank
                   didn't actually sell the customer data, but used it together with Member
                   Works to identify prospects and decide what products to offer them.

                   The attorney general alleges that the bank broke the Fair Credit Reporting
                   Act when it sold customer data derived from outside sources, such as
                   credit bureaus, to telemarketers. The complaint also charges that U.S.
                   Bancorp let Member Works automatically withdraw funds from checking
                   accounts without written permission from the customer, as required by
                   federal banking regulations. The company spokesman contended that the
                   regulation doesn't apply to the transactions in question.

                   If proven, the violations carry stiff penalties, $1,000 per customer in the
                   case of the Fair Credit Reporting Act. Assistant Attorney General David
                   Ramp said "half a million" customers were affected, suggesting a potential
                   fine in the hundreds of millions of dollars.