Groups, lawmakers cut financial privacy deal

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Sacramento Bee

Lawmakers, consumer advocates and business interests shared the stage Thursday to announce what all sides hope is the final chapter of a four-year battle to rewrite rules on when banks, insurers and other financial institutions can share customer information.

The groups agreed on a bill sponsored by state Sen. Jackie Speier, D-Hillsborough, that would restrict trading of consumers’ financial information, including bank balances, debts, credit card purchases, mortgage payments and life insurance policies.

“I’m here to announce that Californians have won and privacy has won,” Speier said. “No longer will the financial DNA of Californians be matched with the nearest financial institution or telemarketer.”

But the deal did not foreclose the possibility of legal challenges to the bill or a similar but more restrictive initiative proposed by privacy advocates. Representatives of a financial industry coalition who joined Speier for the announcement left open the possibility that their members could challenge the state’s authority to regulate this area of business.

Meanwhile, consumer advocates are also keeping the pressure on by promising to put the issue on the ballot if both houses of the Legislature do not approve the agreement by Tuesday, one day after returning from summer recess. Tuesday is the last day proponents can submit petitions with about 600,000 signatures to put the matter before voters in the March primary election.

Gov. Gray Davis pledged to sign the measure.

“This legislation will be a bellwether,” Davis said. “It will solidify California’s ranking as the premier state in America for guaranteeing the privacy of its citizens.”

The deal resulted from intense talks that followed the explosive death in July of Speier’s earlier privacy legislation, SB 1, in an Assembly committee. Both sides gave some ground, but the financial industry gave more, said Gail Hillebrand, a senior staff attorney for Consumers Union.

“This is clearly a major win for consumers, because the industry is dropping its opposition to affiliate sharing, and that has been the heart of the bill,” Hillebrand said.

Consumer advocates said banks caved in because of public support for the initiative and a recent court decision opening the possibility that sharing of financial information could be regulated by all 58 counties and hundreds of cities in California.

“I frankly think industry gave the most,” said Beth Givens, director of the Privacy Rights Clearinghouse.

Three groups that opposed SB 1 – the California Bankers Association, the Personal Insurance Federation of California and the Securities Industry Association – have moved to a neutral position on the new proposed bill. Other groups that made up the Financial Services Privacy Coalition said Thursday they were checking with their members to see if their position would change.

James Clark, senior vice president for government relations for the California Bankers Association, said changes were “significant” and improved some of the “workability issues.”

“We were willing to fight an initiative if the changes were not made,” Clark said.

Clark said the industry’s primary goal was to ensure the bill doesn’t “create winners and losers based on your legal structure.”

Current law allows financial institutions to share their customers’ personal information with affiliates or other companies with few restrictions.

The compromise reached this week would allow consumers to deny the right of the company to share their information with branches of the same firm. In addition, consumers would have to give their approval before a company could share their information with outside companies.

The negotiated agreement includes stiff penalties for noncompliance, including a $250,000 fine for negligent violations and a $500,000 penalty for each willful disobedience of the law. The measure also spells out that violations would be prosecuted by the state attorney general, not district attorneys.

The proposed initiative provides stronger protections, consumer advocates said, because it would require consumers to give permission before information could be shared with any entity.

But Speier said the initiative, if passed, would face higher legal hurdles. Some observers predicted the agreement would not end the long battle to regulate sharing of financial information.

“I would expect there will be legal challenges no matter what happens, whether it be a bill or an initiative,” said Chris Larsen, chairman and chief executive officer of E-Loan, who funded the initiative effort.

Meanwhile, it was unclear whether Davis’ pledge to sign the popular measure would help him politically should he sign it into law before voters have a chance to recall him in the Oct. 7 special election. Mark DiCamillo, director of the Field Poll, said the Democratic governor’s action was unlikely to make any difference.

“The voters are not recalling Davis for any particular bill,” DiCamillo said. “It takes a major development somewhere other than legislation to change their minds.”

While Clark said Davis stayed true to his position that the bill should be done in a way that doesn’t adversely affect the business community, he said he wasn’t sure it would make a difference politically.

Jamie Court of the Foundation for Taxpayer and Consumer Rights said supporters of Davis worked out the compromise in an effort to help him survive the recall. “Looks to me the governor is trying to get a win before the recall, but it looks like it will be a watered-down version of the initiative,” Court said. “If you have a watered-down version of a bill that is already watered down, you have more water than substance.”

Other advocates who played an active role in negotiations said the recall effort had nothing to do with the agreement.

“The governor was not the reason the deal was done,” Hillebrand said. “This is a four-year fight that long predates the recall. The reason it is happening now is because it is time to fish or cut bait on the initiative.”
The Bee’s Ed Fletcher can be reached at (916) 326-5548 or [email protected]

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