California’s Financial Privacy Law “Defended” by Obama Administration

I've got some good news (and some bad) to report regarding the ongoing fight to protect Californians’ financial privacy from the banking industry’s efforts to undermine it.

A few months ago the biggest banks petitioned the Supreme Court to overturn major portions of SB 1 (Speier) - California’s landmark financial privacy law passed in 2003. The Court is currently considering taking up the banks’ appeal of a 2008 decision by the 9th Circuit Court that upheld almost all provisions of the Act. The law gave consumers the right to stop all sharing of personal information within a family of affiliated companies, as long as it is not related to credit worthiness.

On March 9th, the Supreme Court invited the Obama Administration to voice its opinion.

Privacy Coalition Urges Obama to Defend California Privacy Law

In response to the banks appeal to the Supreme Court, in March of this year a coalition of privacy and consumer groups sent a letter to the Obama Administration urging it defend the right of California to establish its own, superior, financial privacy laws than those provided by the Federal Government. As we said in our press release at the time regarding the letter and the arguments therein:

“This case provides the Obama Administration the opportunity to reveal its views both on personal privacy protection and on the necessary role of the states in protecting consumers from unfair practices in the banking industry in the absence of adequate federal regulation…California’s financial privacy law has proven a successful model for the nation, and that it fills a regulatory vacuum at the federal level.”

Click here to read the letter signed by the Consumer Federation of California, Privacy Rights Clearinghouse, CALPIRG, Consumers Union, Consumer Action, The Older Women’s League, The California Alliance for Retired Americans, and Chris Larsen, founder of Californians for Privacy Now, the organization that spearheaded a 2003 ballot initiative campaign that turned fierce banking industry opposition into acquiescence with SB 1.

Obama Administration’s “Nuanced Support” for SB 1

First, the good news: The Administration – through the Solicitor General’s Office – filed a brief last week to the Court recommending that it not review the banking industry’s appeal - at least until further experience in California reveals financial burdens for the banks or legal conflict.

In other words, the Administration’s recommendation to the Supreme Court – and defense of SB 1 - was based primarily on the arguments that the banking industry (to date mind you) had effectively adapted to the rules set by SB 1 and that the California law did not represent the kind of dire threat with “nationwide consequences” as the banks claimed (i.e. that other states would adapt similar unfair protections).

Administration Position Not a Victory For Privacy Movement

It should be noted, that the Obama Administration's position is an improvement over that taken by President Bush - who was actively supporting the banks appeal and adamantly against the kinds of rights SB 1 offered California Consumers.

But, as one might surmise from the general outlines of the Administration’s brief I’ve provided so far, this temporary victory for SB 1 does not necessarily translate into anything to celebrate for privacy advocates. As the San Francisco Chronicle reported today:

The Obama administration has delivered a mixed verdict to the U.S. Supreme Court on California's financial privacy law…The 2004 law conflicts with federal regulation and should have been overturned by a lower court, Justice Department lawyers told the justices in a written filing. That largely agrees with banks and with the position the government took under President George W. Bush.

But the Obama administration agreed with the state and consumer groups that the California law is not imposing hardships on banks and that the high court should stay out of the case and leave the law in place.

The Chronicle also noted our take on the brief:

The May 29 filing was the last the court will receive before deciding whether to grant the American Bankers Association's request to hear its appeal in the term that starts in October. The federal government is not a party to the case, but the court requested its views and often gives them great weight.

That prospect pleased Richard Holober, executive director of the Consumer Federation of California. "California's law is a model for the nation and provides consumers much more control of their personal financial information than does federal law," Holober said Thursday. Although the administration's position is "very nuanced," he said, "they seem willing to live with the California law."

Problems with Brief: Argues for Broader Interpretation of Preemption, Offers No Defense of Principle of Financial Privacy

The Obama Administration is effectively arguing then for a broader interpretation of preemption than did the Court of Appeal. This, as a principle, represents a threat to those instances when States take it upon themselves to enact stronger consumer privacy protections (or any other issue for that matter) than what is often times the inadequate “floor” set by Federal Law.

We believe states have a rightful role as a hotbed for innovation and smart, forward thinking lawmaking. The Administration seems to be arguing that this isn’t necessarily a principle they are prepared to defend – and what could be a clearer example of this role than in the case of SB 1?

SB 1 has provided a successful model for the nation to follow, represents a landmark victory for consumers and a potentially historic precedent for privacy. Based on those criteria’s, the Administration’s brief was a deep disappointment.

Just a Temporary Victory for SB 1?

The Supreme Court could of course ignore the Administration’s recommendation and still take the case, though this is unlikely. So, for the time being, Californians right to control their personal, private financial data is secure. But, the Administration’s position gives more than ample reason for us to be concerned and remain vigilant.

Look no further than the banking industry’s response for proof of this fact:

Gregory Taylor, chief of litigation for the bankers' association, said the group is disappointed by the Justice Department's recommendation but happy with its legal analysis. That analysis would put the administration on the bankers' side if the court decided to review the case.

Yes, we won a victory for California – but no “blow was struck” for the individuals fundamental, constitutional right to privacy. Or more specific to this case, no mention was even made in the Administration's brief whether they agree with another core principle we believe in: California's right to protect the private financial information of its citizens outweighs the corporation’s right to profit off it.

Click here for more background on SB 1 and the five year legal battle that ensued.