Firms acting in bad faith on privacy law by trying to undo it in Congress, she says

San Francisco Chronicle

WASHINGTON — Sen. Dianne Feinstein, struggling to win a vote to save California’s new landmark financial privacy law, accused the financial industry on Tuesday of acting in bad faith by agreeing to the new law in Sacramento — then quickly trying to undo it in Congress.

“It’s diabolical,” Feinstein said in an interview.

Feinstein and California’s other Democratic senator, Barbara Boxer, are trying to convince colleagues to back their amendment to the federal Fair Credit Reporting Act that would transform key parts of California’s new privacy legislation into federal law. The senators are trying to incorporate into the federal act the state’s ban on financial institutions’ sharing customers’ financial information with affiliated companies.

That ban was included in the state privacy law that Gov. Gray Davis signed in late August, after financial institutions dropped four years of opposition to a bill sponsored by Sen. Jackie Speier, D-Hillsborough.

“They (financial institutions) agreed with Speier in their negotiations in Sacramento and then came back here to wipe it out,” Feinstein charged.

California’s ban on affiliate sharing would be wiped out permanently by legislation that passed the House 392-30 last month. The Senate Banking Committee included a similar federal pre-emption of California’s new law when it unanimously approved its version of a bill that also includes new provisions against identity theft.

Privacy advocates say that barring companies from sharing customers’ financial data and buying habits with affiliated companies will curb the epidemic of identity theft, stop snoops from prying into people’s lives and shield consumers from being bombarded with unwanted offers for all kinds of services.

Information sharing

But representatives of financial institutions say affiliate information sharing is an important tool in consumers’ ability to use ATM or credit cards around the country and help make mortgages and car loans more readily available. They strongly deny Feinstein’s contention that they dropped their opposition to Speier’s bill because they knew the sharing provisions would be killed in Congress.

“From day one we have told them in Sacramento that you will have a problem with the Fair Credit Reporting Act,” said James Clark, senior vice president of the California Bankers Association.

“We told them that any proposal to interfere with affiliate sharing is pre-empted by federal law,” added Clark.

The Senate is expected to take up the renewal of the sweeping credit reporting legislation, which advocates say has made mortgages, credit cards and other loans much more available to American consumers, either late this week or early next week.

Feinstein admitted that her amendment, which would turn California’s standard for affiliate sharing into the national rule, faces an uphill fight. “I think it’s going to be very hard to win,” she said.

The Feinstein-Boxer amendment, by seeking a new national standard, would remove one of their opponents’ key arguments — that California was undermining the national credit system and hurting consumers by creating a tougher law that could discourage the free flow of information.

The fair credit law is popular among Republicans and Democrats, and has created little public stir on Capitol Hill, except among Californians. But it has been the object of fierce lobbying by industry and consumer groups. Among the provisions most sought after by the industry is the provision that sets a national standard allowing the sharing of information among affiliate companies.

Senate vote

A Senate vote against the amendment would represent a victory for the banks, insurers and retailers over the consumer groups that fought for four years to pass California’s financial privacy law.

Privacy advocates agreed with Feinstein’s charge against the financial institutions, which have spent millions of dollars lobbying against the new state law and efforts in Congress to let California’s law take effect as scheduled next July.

“I am not surprised because the banks and insurance companies have never been honest in this,” said Richard Holober, executive director of the Consumer Federation of California. “They reached an agreement knowing they would undo it in Washington.”

Jerry Flanagan of the Santa Monica-based Foundation for Taxpayer and Consumer Rights held out little hope for California’s affiliate-sharing ban.

“We’ve got our backs against the wall,” he said in a telephone interview from New York.

To show how easy it is to get people’s financial information under current law, Flanagan’s group spent $700 to hire a skywriter Tuesday. Over Midtown Manhattan, the pilot spelled out five of the nine digits in the Social Security number of Charles Prince, CEO of Citigroup, the financial giant that has more than 2,000 affiliated companies under its umbrella. The group bought Prince’s Social Security number online for $30.

Clark, of the bankers’ association, said Congress could more properly address the sharing issue next year if it considers changes to the Gramm-Leach- Bliley Act of 1999, which also deals with financial issues.

“We still believe in a single national standard, especially in this age of e-commerce,” Clark said.