Congress could gut finacial privacy law;

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California’s strong regulations in danger of being pre-empted

San Mateo County Times

SACRAMENTO — California’s new landmark personal financial privacy law — hailed by both consumer advocates and a recall-threatened governor as an epic victory — appears on its way to being largely swept away by Congress.

U.S. Sens. Dianne Feinstein and Barbara Boxer, both Bay Area Democrats, and consumer groups launched an effort Wednesday to protect key parts of California’s new law, as the Republican-dominated Congress headed toward pre-empting state laws with weaker federal standards.

“California has led the way in protecting privacy, and its new privacy law would serve as a good model for national legislation,” Feinstein and Boxer said in a joint letter to Senate leaders.

The state law’s author, state Sen. Jackie Speier, D-Hillsborough, said Wedneseday night that the federal legislation would affect only part of her measure. Even so, she called the move in Congress distturbing.

“There is a privacy revolution,” Speier said, “which Congress hasn’t picked up on yet. People are mad as hell, and they want their privacy back.”

Consumers Union and seven other groups joined in their own plea to Senate banking committee leaders, who appear poised to embrace elements of a House-approved bill, calling it “unthinkable” that Congress would “permanently stifle” the state’s personal financial privacy efforts.

At the same time, consumer groups quietly eyed whether to move ahead with a financial privacy ballot initiative in California, even though they conceded that a measure approved by the state’s voters would also likely be trumped by federal law.

Activists collected the voter signatures to qualify the initiative for the March ballot, then held off when financial institutions agreed to state legislation after a four-year battle with Speier.

But consumer advocates said they now fear banks relented because of the looming federal pre-emption, not the threat of the state initiativeeffort, bankrolled by Chris Larsen, the head of Dublin-based E-Loan.

A spokesman for the industry group, the Financial Services Privacy Coalition, said it supports the federal legislation and opposes plans by Feinstein and Boxer to amend the bill.

“We always felt that a national standard was the preferable alternative,” said Fred Main, a coalition spokesman and vice president of the California Chamber of Commerce.

The state law, approved by lawmakers last month, is aimed at restricting the financial industry’s lucrative sale and trade of customers’ personal information in California, thereby squelching telemarketers, junk mail and spam.

The measure, swiftly signed by Gov. Gray Davis and slated to go into effect in July 2004, requires banks and insurers to obtain customers’ permission before selling information about them to other companies. It also gives consumers the right to opt out of allowing financial firms to share data among different divisions.

Davis, who is facing a recall election, called the measure the “crown jewel” of his consumer privacy protection efforts.

The Democratic governor said that if the federal legislation “does not explicitly allow states to enact greater privacy protection for our consumers, then at the very least, the bill should include language to ensure that California’s financial privacy law can be fully implemented.”

The House, on a bipartisan vote of 392-30 earlier this month, embraced federal standards for sharing consumers’ information that are weaker than those of California.

Specifically, the House bill continues a federal pre-emption of states’ ability to bar financial institutions from sharing customers’ data with affiliates. Unless it is renewed, the pre-emption would expire at the end of the year.

The House’s overwhelming vote came despite arguments by some California lawmakers, such as Rep. Barbara Lee, D-Oakland, that “important California protections will be basically wiped out.”

Proponents of the House bill said they intended no harm to California consumers but rather that uniform national standards on financial privacy are vital to ensure smooth working of the national economy.

Even if the federal legislation is enacted, California will still have the strictest financial privacy law in the nation, they said.

And forces on both sides of the argument point out that lawsuits, which have produced divided decisions so far, remain a wild card in the continuing debate.

Feinstein and Boxer, who expect the Senate banking committee to largely embrace the House bill in coming days, plan to attempt an amendment on the Senate floor.

If the legislation wins approval from Congress, President Bush is expected to sign it.

Lobbyists on both sides of the congressional fight are fiercely vying to influence senators.

“Republicans support states’ rights, except when it offends their campaign contributors,” said Jerry Flanagan, a spokesman for the Foundation for Taxpayer and Consumer Rights. “What the banks and the GOP really want is the ability to commit uniform privacy violations, not state’s rights to protect consumers.”

Consumer Watchdog
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