Copley News Service

WASHINGTON — Two months after Gov. Gray Davis signed the nation’s toughest financial privacy law, Congress is poised to gut a key part of the California rules and substitute less sweeping consumer safeguards.

California Democratic Sens. Dianne Feinstein and Barbara Boxer have mounted a last-ditch effort to preserve the state standards, which would take effect July 1 without federal intervention. But they’re fighting an uphill battle.

“It’s going to be very difficult,” Feinstein said.

Boxer spokesman David Sandretti added: “Obviously, there’s a lot of momentum behind this thing. We’re under no illusions here.”

At issue is legislation that Davis signed in August that allows Californians to keep banks, insurance agencies and other companies from sharing information about them – such as bank balances and spending patterns – with affiliated businesses. The process is referred to as an “opt-out.”

But legislation moving through Congress would make permanent a federal law that bars states from setting their own rules on how businesses use consumer data. Key parts of the law, known as the Fair Credit Reporting Act, would otherwise expire Jan. 1.

The House passed the legislation in September and the Senate is expected to take it up next week.

The information-sharing provisions have been the subject of intense lobbying, pitting businesses that oppose the California rules against consumer groups that want to preserve them.

The companies argue that a single national standard on data sharing needs to be maintained to facilitate transactions like mortgage approvals and credit card purchases. Otherwise, “you’ve got a patchwork of state laws that makes it very difficult to have an efficient, nationwide consumer reporting system,” said Charlotte Birch, a spokeswoman for the American Bankers Association.

Consumer groups argue that Congress should impose the California standards nationwide. They accuse the financial services industry of turning to Congress to block the rules after backing off their opposition in Sacramento.

“We’re trying to raise the decibels because this is a disastrous bill for California,” said Jamie Court, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “It strips Californians of their new privacy rights.”

To dramatize its argument that widespread corporate data sharing endangers sensitive personal information, the Foundation hired a plane to skywrite the first five digits of Citigroup Chief Executive Charles Prince’s Social Security number above the financial conglomerate’s New York headquarters on Friday.

The group earlier bought the Social Security numbers of congressional leaders and top Bush administration officials – including Attorney General John Ashcroft – from Internet sites for as little as $26.

Also Friday, a coalition of California consumer groups called on Gov.-elect Arnold Schwarzenegger to lobby on behalf of the state law when he visits Washington next week.

Despite the concerns voiced by Californians, key lawmakers in both parties apparently see the congressional bill as a step forward for consumers.

It entitles people to a free copy of their own credit reports and credit scores once a year, allows victims of identity theft to mark their reports so businesses can spot fraudulent financial transactions and allows consumers to keep some affiliated companies from sharing information about them for marketing purposes.

“I would have added more consumer protections, but I think, by and large, what we did here is quite constructive,” Sen. Paul Sarbanes of Maryland, the top Democrat on the Banking Committee, said when the panel approved the legislation in September.

But Feinstein and Boxer say the bill is riddled with loopholes. For instance, the marketing provision would not apply to consumers with a “pre-existing business relationship” with a company.

They plan to offer an amendment that would allow consumers to opt out of having their financial information shared by corporate affiliates that are not directly related. Affiliates would be considered related if they share a brand name, engage in the same line of business, are wholly owned subsidiaries of the same company and are regulated by the same agency.

Companies would be required to notify consumers of their intent to share information with affiliates.

Other amendments they are considering would tighten controls on medical information, prohibit the sale of Social Security numbers to the general public, enhance penalties for identity theft and allow consumers to find out whether they were denied credit by a financial institution as a result of information supplied by an affiliated company.

The senators also advocated a one-year extension of the current federal law to “allow the Senate to fully debate the merits of the legislation early next year” since the current congressional session is drawing to a close.

Supporters of a permanent extension are fighting the moves.

“We’re five yards from the finish line and they want to open up the bill to all kinds of amendments, despite the fact that it received overwhelming bipartisan support in the House and it cleared the Senate Banking panel unanimously,” said Birch of the Bankers Association.