Union Tribune

November 5, 2003

Push to save California's privacy law is thwarted
Senate expected to back weaker federal rules


WASHINGTON The Senate yesterday thwarted an effort to preserve key provisions of California's landmark financial privacy law, all but ensuring they will be replaced by weaker federal rules.

On a 70-24 vote, lawmakers defeated an amendment offered by California Democratic Sens. Dianne Feinstein and Barbara Boxer modeled on the state law. The measure would have allowed consumers nationwide to keep banks and other financial services companies from sharing information about them such as account balances and spending patterns with affiliated companies, although the measure included several exceptions.

Instead, the Senate today is likely to approve a permanent extension of a federal law that bars states from setting their own rules on how corporate subsidiaries share consumer data. That would effectively override the California law, which was set to take effect July 1.

While the Senate legislation contains several new consumer safeguards, it would not go as far as the California law in allowing consumers to prevent affiliated companies from sharing information. The House approved similar legislation in September.

Feinstein and Boxer argued that their proposal would have protected consumers from intrusive marketing, unfair credit and insurance decisions, and the threat of identity theft.

"Most Americans are not aware that their personal information travels instantaneously from their bank to thousands of affiliated companies," Feinstein said. "You should have the opportunity to say, 'I don't want anybody to know how much money I have in the bank. I don't want them to know where I shop.' "

Boxer said: "People deserve to have their financial privacy protected. . . . We believe the state of California has it right."

Consumer groups backed the amendment. Banks, insurance companies and other businesses lobbied against it, arguing it would interfere with commerce.

Retailers, for instance, said the amendment could inhibit the prompt extension of credit limits by blocking access to some financial information about customers.

"The Feinstein-Boxer amendment could adversely affect retailers' ability to offer basic customer service and access to credit that customers have come to expect," said Steve Pfister, vice president for government relations for the National Retail Federation.

Feinstein accused foes of the California law of rushing to Congress to block it after dropping their opposition in Sacramento.

"They agreed to the (state) bill, and now they're back here to wipe it out," she said.

The sponsors of the legislation pointed to several consumer safeguards in the bill. Those provisions include allowing consumers to ask affiliated companies not to share information about them for marketing purposes, requiring credit bureaus to place fraud alerts on the accounts of identity theft victims and entitling people to a free copy of their credit reports once a year.

"I think what's in the bill is a significant improvement over existing (federal) law and I think there's an arguable case that, in fact, it may provide more protection to the consumer than the amendment," said Sen. Paul Sarbanes of Maryland, the top Democrat on the Senate Banking Committee.

Sarbanes noted that the Feinstein-Boxer amendment contained several exemptions, including one that would have allowed affiliated companies to maintain common databases of consumer information.

The Senate did accept amendments offered by Boxer and Feinstein that would tighten the marketing safeguard and medical privacy provisions in the underlying bill.

The legislation in Congress apparently would not affect another component of the California law that requires companies to get customers' permission before sharing their data with nonaffiliated enterprises, a process called "opt-in."

While consumer groups acknowledged the federal legislation contained some new safeguards, they vowed to continue lobbying for stricter rules on sharing of information.

"We are extremely disappointed Congress failed to give consumers control over the sharing of their most personal financial information," said Janell Mayo Duncan, legislative and regulatory counsel for Consumers Union. "Consumers not banks and insurance companies should decide who has access to their personal financial information."

When Gov. Gray Davis signed the California financial privacy law in August, it was hailed by consumer groups as the toughest in the nation. But it was apparent even then that the federal Fair Credit Reporting Act could trump the state law unless Congress allowed key provisions of the act to lapse.

Those provisions, which were set to expire Jan. 1, bar states from having more stringent laws than the federal government regarding information-sharing by affiliated companies. The Senate and House legislation would make those provisions permanent.

Senate approval of the bill would set the stage for final negotiations with the House.