Privacy bill undercuts state law
HALTS LIMIT ON FINANCIAL DATA SHARING
By Michael Bazeley
Mercury News

The U.S. Senate is about to take up a bill that would give consumers some additional safeguards. But if it passes, it could significantly undercut the landmark financial-privacy law enacted in California in August.

The bill would override a provision of the California law that restricts financial institutions' ability to share customers' personal information with affiliated companies.

California Sens. Barbara Boxer and Dianne Feinstein are pushing an amendment that would keep the state law intact and extend its rules to the rest of the nation. But aides and privacy-rights advocates acknowledge that adoption of the changes is an uphill battle.

``A major component of California's law may soon become useless,'' said Travis Plunkett, legislative director for the Consumer Federation of America.

After four years of wrangling, California lawmakers passed the strictest financial-privacy law in the nation in the summer.

Set to take effect July 1, 2004, it requires financial institutions to get customer permission before sharing information with third parties. It also gives consumers the right to stop -- or opt out of -- having their information shared among affiliated companies.

But even before it passed, the legality of the California law was questioned, because of provisions in the Fair Credit Reporting Act.

Sharing information

The federal law pre-empts laws passed by states and cities. In particular, the FCRA says states cannot restrict how companies share information with affiliates, a federal district judge in Oakland ruled in July.

Consumer groups had hoped Congress would let that provision of the FCRA expire at the end of the year, meaning California's law would be allowed to stand. But with this bill, Congress is now poised to renew the pre-emption provision indefinitely.

The same financial-services groups that lobbied against the California law -- the American Bankers Association, the American Financial Services Association, Citigroup and others -- are pushing the renewal of the FCRA pre-emption. They have argued that allowing states to enact their own privacy laws would create a confusing mosaic of rules and regulations that would drive up costs for businesses.

``Consumers and businesses are both well-served by a uniform national standard,'' said Chris Hammond, spokesman for Wells Fargo Bank. ``The FCRA has worked so well for so many years, why change it?''

The House passed a bill last month renewing the FCRA on a 392-30 vote. Some Republican lawmakers said at the time that they did not think the federal law should be changed to allow California to set the national standard for financial-privacy rules.

The Senate is expected to take up its version of the measure this week. However, Boxer asked Monday that discussion of the bill be postponed so the California congressional delegation can help deal with the state's devastating wildfires.

The bills do offer some additional protections for consumers: They would be able to request free copies of their credit reports once a year. And consumers would be able to stop credit bureaus from reporting negative information that is the result of an identity theft.

The bills also have no effect on another part of California's privacy law that requires banks and other financial institutions to get customer permission before sharing information with third parties.

``There are things in the bill that are positive,'' said Shelley Curran, a lobbyist for Consumers Union. ``But if you couple that with the fact that states are permanently pre-empted from enacting stronger protections, it's not worth it.''

Restricting the flow

The Senate version of the bill does allow consumers to opt out of any marketing that is based on information shared among affiliates. But consumer advocates say that is not as good as restricting the information sharing itself.

They worry that companies will be able to secretly share information with affiliates to deny consumers credit.

``It's about stopping financial conglomerates from sharing information that could affect the ability of people to get credit, or to get it at a fair rate,'' said Plunkett, of the Consumer Federation of America. ``What we're worried about is profiling, where you show up to apply for credit, and you get a higher rate and you have no idea why.''

The bill also includes an exemption that allows financial institutions and affiliates to market to consumers if they have an existing business relationship.

``What does that mean?'' said Feinstein spokesman Scott Gerber. ``If I purchased something from them five years ago?''


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Contact Michael Bazeley at [email protected] or (408) 920-5642.
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