SAN FRANCISCO — Consumers across the state will be able to prevent their personal information from being shared between financial institutions under sweeping legislation signed into law by Gov. Gray Davis.
Consumer groups praised the California Financial Information Privacy Act but it still faces challenges from business groups, banks and insurance companies who are backing a bill before Congress that could undermine California’s law.
The bill-signing ceremony Wednesday at the Pacific Stock Exchange allowed Davis to grab a piece of the spotlight amid the frenzy of political maneuvering in the effort to remove him from office. The privacy legislation has been one of the showpiece acts that the Democrat hopes will resonate with voters in advance of the Oct. 7 recall election.
The Legislature approved the bill last week after four years of wrangling, though supporters have gathered enough signatures to put an even more restrictive initiative on the March 2004 ballot.
Davis said California had started a trend other states would follow.
“I predict it will sweep across America like a prairie wildfire,” he said of protections behind the bill, which takes effect July 1.
The legislation sponsored by Sen. Jackie Speier, D-Daly City, requires permission from a customer before financial institutions share information such as bank balances or spending habits with an unaffiliated company. It also allows consumers to bar a company from sharing information with an affiliated firm in a different line of business.
Speier said companies like Citigroup, with hundreds of subsidiaries, are now able to share information between unrelated institutions. Under the legislation, consumers could block sharing of their information between a parent company and subsidiaries which don’t have the same brand name or regulator.
“So, Traveler’s Insurance, which was a subsidiary of Citigroup, didn’t meet it because it’s not the same line of business – it’s insurance, not banking – and it has a different brand name,” Speier said.
Still, pending federal legislation could trump California law. A bill now in Congress would amend the Fair Credit Reporting Act and bar any state from having the authority to prevent banks from sharing private consumer information with affiliates.
National companies are concerned that having a large and influential state, such as California, create their own standards will thwart attempts at uniform national rules, said John Mangan, the director of pacific states relations for the American Council of Life Insurers, a national trade association.
“The states going in different directions creates confusion for the consumer and a more difficult operating environment for the companies,” Mangan said. “Many of our businesses are national, and they need a consistent standard.”
Jerry Flanagan, spokesman for the Santa Monica-based Foundation for Taxpayer & Consumer Rights, said financial privacy battles will move East after Wednesday’s bill-signing.
“Now the fight is in Washington, D.C. because if (President) Bush has his way, Californians’ privacy will not be protected and banks will be allowed to override the California law,” Flanagan said.