Friday, September 5, 2008

Part of state's financial privacy law upheld!!

This is great news!!! At CFC we were very active in establishing the financial privacy law - the broadest of its kind in the nation - that has been tied up in court for more than three years. As usual, particularly in the Bush era, the federal government and big business continue to be persistent in trying to lower the privacy protection bar (just as they have with environmental regulations). In this case, the banks have been arguing that the California statute conflicted with a federal law that set nationwide standards for regulating consumer credit reports.

The good news today is that the court has reinstated a key component of the original financial privacy law - allowing consumers to prevent banks from sharing information with affiliated companies about a customer's savings account or buying habits. What's especially important about this provision is that because regulatory controls over an increasingly consolidated industry have been so drastically loosened, some banks have literally thousands of affiliates in a wide range of fields.

Thus, it wasn't enough to require opt-in for sharing with unaffiliated companies...we needed to be able to opt-in for sharing to affiliated companies as well. And the court has ruled that in BOTH cases we deserve to be in control of who sees OUR information!

Before I get to the San Francisco Chronicle story, here's our official statement:

California Consumers Win Major Financial Privacy Victory!

by Richard Holober, Consumer Federation of California

California consumers just won a huge privacy victory. The federal court ruled that California’s Financial Privacy Law give consumers the right to stop banks and other financial institutions from sharing our personal information with affiliates,” Richard Holober, Executive Director of the Consumer Federation of California stated.

Big banks fought this legislation from 2000 until 2003. After consumer and privacy advocates collected 600,000 signatures to place a privacy initiative on the ballot, banks acquiesced to avoid a disaster at the polls. Senate Bill 1 of 2003 (Speier) became law and California established the nation’s strongest financial privacy protections.

Financial institutions then ran to court to overturn the law. In 2005 the Court of Appeals for the 9th Circuit ruled that federal law pee-empted portions of SB 1 and remanded the matter to the Federal District Court to determine the extent of the preemption. Yesterday the 9th Circuit ruled that the District Court erred in ruling that federal law preempted California from all regulation of personal information sharing within a family of affiliated financial institutions, finding instead that California consumers have the right to restrict the sharing of information that is not related to credit reports.

“This ruling is significant because some large financial institutions have hundreds or even thousands of affiliates. Californians can now tell their banks not to hand out private information regarding what they earn, buy or borrow to hundreds of strangers who have no right to that information,” Holober stated.

The Consumer Federation of California was a founder of Californians for Privacy Now, which sponsored the 2003 ballot initiative drive that pushed the legislature and governor to adopt California’s Financial Information Privacy Act (SB 1).

The San Francisco Chronicle reports:

But in a 2-1 ruling Thursday, the Ninth U.S. Circuit Court of Appeals in San Francisco said portions of the California law had nothing to do with consumer credit and could be salvaged. Those provisions require banks to give customers a chance to object before sharing with affiliates any information that does not involve a customer's fitness for credit, insurance or employment.

For example, Deputy Attorney General Catherine Ysrael, the state's lawyer in the case, said customers provide personal and financial information to banks that maintain their accounts, and their credit card statements might reveal buying patterns that a bank could turn over to affiliated retailers. The law allows customers to block the sharing of such information.


One part of the 2004 law that was not challenged, and has remained in effect, requires banks to seek customers' permission before selling or providing private financial information to unaffiliated companies that are under separate ownership.

But the core of the law was its requirement that financial institutions allow customers to block information sharing with affiliated companies.

Click here to read the rest of the article.

And click here to read the pdf of the court's ruling.

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