Secretary, Federal Trade Commission Room H-159
600 Pennsylvania Avenue, NW
Washington, DC 20580

Re: Gramm-Leach-Bliley Act Privacy Rule; 16 CFR, Part 313: Comments

Dear Sir or Madam:

The Food Marketing Institute (FMI) respectfully submits the following comments in response to the notice of
proposed rulemaking issued by the Federal Trade Commission (FTC) in order to implement the notice requirements
and restrictions on the ability of financial institutions to disclose nonpublic, personal information about consumers to
nonaffiliated third parties pursuant to Title V of the Gramm-Leach-Bliley Act (GLB Act). 65 Fed. Reg. 11174
(March 1, 2000).

FMI is a non-profit association conducting programs in research, education, industry relations and public affairs on
behalf of its 1,500 members and their subsidiaries. Our membership includes food retailers and wholesalers, as well
as their customers, in the United States and around the world. FMI's domestic member companies operate
approximately 21,000 retail food stores with combined annual sales volume of $220 billion, which accounts for
more than half of all grocery store sales in the United States. FMI's retail membership is composed of large
multi-store chains, small regional firms and independent supermarkets. Our international membership includes 200
members from 60 countries.

FMI members have a strong commitment to privacy issues and, in this regard, have developed a policy statement
for our industry regarding the use of consumer data, including guidelines on notice, choice, security and access. A
copy of our privacy statement is enclosed for your reference.

                   A. "Financial Institution" Definition Should Be Clarified To Apply Only to
                   Businesses "Significantly Engaged" in Financial Activities

Section 509(3) of the GLB Act defines a "financial institution" as "any institution the business of which is engaging in
financial activities as described in Section 4(k) of the Bank Holding Company Act of 1956." The FTC has
proposed that the "financial activities" referenced in Section 509(3) include not only the traditional financial activities
that are specified in Section 4(k) itself, but also those activities that the Federal Reserve Board has found to be
"closely related to banking." See 12 C.F.R. § 225.28. The Federal Reserve Board’s list of activities "closely related
to banking" encompasses a broad array of activities, including selling money orders and maintaining
financially-related databases. The breadth of the proposed definition would encompass institutions that are not
customarily considered "financial institutions" and subjecting these businesses to the proposal at issue would exceed
the scope of Congressional intent in enacting the GLB Act.

For example, many supermarkets offer money order sales as a service to their customers in the same way that they
cash payroll, personal or government checks. The regulatory list of financial activities also references databases.
Many supermarkets maintain internal "bad check" files that they utilize when deciding whether to accept a
consumer’s personal check. These files are not shared with third parties and are in no way used to offer traditional
financial products.

In the examples cited above, supermarkets are not maintaining deposit accounts, providing consumer access
devices for the funds, or engaging in any activity that would customarily be understood as "closely related to
banking." To avoid confusion between those retailers who issue credit, maintain consumer accounts or offer other
traditional financial services and those, like most supermarkets, who do not, the Agency should tailor the purpose
and scope of the final rule to cover only those institutions who are engaged in activities that are truly "closely related
to banking."

Both the preamble and the proposed rule suggest that the FTC recognizes the problem presented by the broadly
drafted regulations. The preamble specifically states that a financial institution must be "significantly engaged" in a
financial activity in order to qualify as a "financial institution." 65 Fed. Reg. at 1176. The preamble further
distinguishes between a retail business that offers its own credit cards directly to consumers and a retail business that
merely establishes layaway or deferred payment plans. Id. at 11177. The proposed rule states as an "example" that
an entity is a financial institution if it is significantly engaged in financial activities. Proposed § 313.3(j)(2). Finally, the
preamble asks whether the FTC should define "significantly engaged" for purposes of the final rule.

In this regard, the final regulations should be modified in at least two significant ways. First, "significant engagement"
in financial activities should be a clearly stated prerequisite to determining whether a business constitutes a "financial
institution." Second, "significantly engaged" should be defined by the FTC. The definition should exclude those
businesses who offer services that happen to fall into the lengthy list of activities that were determined for other
purposes to be "closely related to banking" if those services are only incidental to their core business. We urge the
Commission to state clearly in the final rule that a business, such as a grocery store, that maintains a "bad
check" file or provides money orders to its customers, is not "significantly engaged" in financial activities
and, therefore, is not a "financial institution" within the meaning of the financial privacy rules.

                   B. "Customer Relationship" Definition Should Be Clarified To Ensure That Use
                   of ATMs in Grocery Stores Does Not Constitute "Continuing Relationship"
                   Sufficient To Transform a "Consumer" into a "Customer"

The proposed regulations distinguish between "consumers" and "customers" and apply different privacy
requirements to each. According to proposed Section 313.4(c), a consumer becomes a customer when "customer
relationship" is established, which occurs when the "financial institution" enters into a "continuing relationship" with
the consumer.

In defining "customer relationship," the preamble states that using an automated teller machine (ATM), cashing a
check, or purchasing money orders at a bank where a customer has no other business would not establish a
customer relationship. 65 Fed. Reg. at 11176. The preamble continues to state that, "a consumer would not
necessarily become a customer simply by repeatedly engaging in isolated transactions, such as withdrawing funds at
regular intervals from an ATM owned by an institution with whom the consumer has no financial account." Id. at
11176.

As you are undoubtedly aware, supermarkets own and operate a variety of ATMs in stores. Some stores do not
surcharge customers or else they reimburse the surcharge if the customer makes a grocery purchase. Consumers
who wish to avoid ATM charges often utilize these machines as well as the option of surcharge-free cash back at
the point-of-sale (checkout lanes) as their primary way of withdrawing funds from their checking accounts.
Additionally, grocery stores often offer to cash personal and payroll checks at rates significantly below check
cashers and some financial institutions. These services are offered as customer conveniences, not as financial
products. Consumers who avail themselves of these "isolated transactions," even if on a repeated basis, should not
be construed as having established a "customer relationship" for purposes of this proposed rule.

                   C. Financial Privacy Rules Must Not Hinder Development of Electronically
                   Converted Check Technology

In addition to our concerns about the possible scope and definitions in the proposed rule published by the FTC, our
industry has also provided comments to the Board of Governors of the Federal Reserve with respect to their
financial privacy regulations. Our comments related to how the Federal Reserve’s proposed rule might hinder the
development of an exciting new payment type: the electronically converted check. We would like to share these
comments with the FTC, as well.

The supermarket industry currently accepts hundreds of millions of paper checks annually and the number is
increasing each year. We are committed to finding less expensive, more efficient alternatives to the paper check and
other forms of payment. Toward this end, we have been in the forefront of efforts to develop "converted checks."

A converted check is a paper check that is presented by the customer to the retailer for payment and then
converted to an Automated Clearing House (ACH) transaction at the point-of-sale (POS). The store’s POS
equipment reads the magnetic ink character recognition (MICR) line on the customer’s check and initiates an ACH
transaction for the amount of the customer’s order. The customer then signs a receipt (similar to a credit card
receipt) authorizing the transaction amount to be debited electronically from the customer’s checking account via the
ACH system. The paper check, which has now been voided so it cannot be used again, is then returned to the
customer along with a copy of the signed authorization.

The concern we have with the potential application of this proposed rule is on the back end of the check conversion
process. Currently, if an account has insufficient funds to cover the amount of a check at the time that the paper
check is presented, the paper check is returned to the retailer by the financial institution. Using the name, address
and telephone information printed on the face of the check, the retailer can contact the consumer to make other
arrangements to collect payment for the order or to resubmit the paper check for payment. Similarly, supermarket
retailers will need access to consumers’ identifying information (name, address, telephone number) from financial
institutions in the case of electronically converted checks that were not collectable when presented through the
ACH. The ability to retrieve identifying information from a financial institution in the case of an uncollected converted
check is critical to the future growth of this form of payment and a reduction in paper checks. FMI encouraged the
Board of Governors of the Federal Reserve to allow financial institutions to share identifying information under these
circumstances as well as with other forms of payment processed through the ACH network and also to encourage
and require the dissemination of this information.

Facilitating the electronic check conversion process will help achieve some of the most important goals of the
financial privacy regulations. Specifically, the electronic check conversion process significantly reduces the amount
of personally identifiable information that is held by an unaffiliated third party. Paper checks printed with name,
address and telephone number are now no longer held by the retailer or the financial institution and instead are kept
by the customer. Personally identifiable information would only be retrieved from the financial institution for the small
number of electronically converted checks that are returned due to insufficient funds. Thus, encouraging electronic
check conversion will further the overall goals of the financial privacy regulations.

                              1. Financial Privacy Restrictions Should Not Apply to Converted Check
                              Transactions

Title V of the Gramm-Leach-Bliley Act contains several exclusions that should prevent the notice and
non-disclosure requirements from applying in the case of converted checks that have been returned electronically
due to insufficient funds (NSF). The statutory exclusions are reflected in proposed Section 313.10, "Exceptions to
notice and opt out requirements for processing and servicing transactions." Specifically, proposed Section 313.10
states that the notice and opt out requirements would not apply to processing transactions at the consumer’s request
or to effect, administer or enforce a transaction requested or authorized by the consumer. The converted check
example highlighted above is clearly authorized by the consumer and the information requested of the financial
institution is clearly necessary to administer and enforce the transaction, thereby seeming to fall within the outlined
exclusions.

Nonetheless, we have two specific concerns in this area. First, financial institutions should not only be allowed to
share identifying information with retailers in the case of NSF checks that have been submitted electronically,
financial institutions should be required to share this information as a standard practice. Second, in spite of the
exclusions in Section 313.10, we are concerned that, without further clarification, financial institutions will simply opt
not to supply the information due to confusion surrounding what information is allowed to be shared in this instance.
In that case, the growth of electronically converted checks at the point-of-sale will be severely limited.

                              2. FTC Should Adopt Alternative "B" Definition of "Publicly Available
                              Information"

The proposed rule sets forth two alternative definitions of "publicly available information." Under Alternative "A,"
information will not be considered "publicly available" unless the information is obtained from one of the public
sources listed in the proposed rule. In contrast, Alternative "B" treats information as publicly available if it could be
obtained from one of the public sources listed in the rules. Proposed Section 313.13(n-o-p); 65 Fed. Reg. at
11190-91.

Although the financial privacy restrictions should not apply in the converted check situation described above, the
FTC should adopt the Alternative "B" definition of "publicly available information" because it would be helpful in
encouraging financial institutions to continue to provide retailers with name, address and telephone information for
consumers whose electronically converted checks have been returned unpaid due to insufficient funds. Alternative
"A," which would require the financial institution to look up the name, address and phone number of a consumer in a
telephone directory or other publicly available information source rather than to retrieve the same information from
the account, would effectively put an end to the information sharing necessary for this new technology to succeed.

D. Conclusion

To summarize, we encourage the FTC to clarify the scope and definitions of the final rules to ensure that they apply
only businesses that are significantly engaged in financial activities. Retailers, such as supermarkets who provide
ATM access or money orders to consumers as ancillary services, are not "significantly engaged" in financial activities
and, therefore, should not be considered "financial institutions" subject to the proposed rules. FMI and its members
are concerned about privacy issues and have addressed the matter through the privacy policy that was adopted by
the Board of Directors (copy enclosed).

Additionally, we strongly encourage the FTC to work with the Board of Governors of the Federal Reserve to not
only allow, but to require as a standard business practice of financial institutions, the sharing of identifying
information in the case of checks or other forms of payment processed through the ACH network that have been
submitted electronically and then returned to the retailer due to insufficient funds. Our industry feels that this action
would help us to reduce the increasing number of paper checks presented at retail stores and also the hundreds of
millions of dollars in losses caused by returned checks at the retail level. Moreover, since retailers will not need to
retain personally identifiable information for converted checks if this information can be readily obtained from
financial institutions in those rare cases in which it is necessary, the overall goals of the financial privacy regulations
will be furthered by ready retailer access to this information on an "as needed" basis.

                                          * * *

We appreciate the opportunity to provide comments on these important issues. Thank you for your consideration.

    Sincerely,

    George R. Green
    Vice President
    General Counsel