Wednesday, June 10, 2009

A more positive take on Obama Administration's stance on CA's Financial Privacy Law

An article I wrote was just published on the California Progress Report that analyzes the pro's and con's of the recent brief submitted to the Supreme Court by the Obama Administration. The brief, thankfully, recommends that the Court not review the banking industry’s appeal of California's landmark financial privacy law - at least until further experience in California reveals financial burdens for the banks or legal conflict.

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

In other words, according to the Administration, its “defense” of SB 1 was simply a practical matter: ‘Since California's law did not cause harm to banks and was limited only to California, the Supreme Court should not spend any time reviewing the case.’

For those that don't know, in 2003, the passage and signing of SB 1 (Speier) 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. Since that time the banks have been working non-stop to overturn the law.

Their work paid off, at least to the extent that the Supreme 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 (SB 1). On March 9th, the Supreme Court invited the Obama Administration to voice its opinion.

While the Administration's position, and recommendation to the Court, is an improvement over that taken by President Bush - who was actively supporting the banks appeal, arguing that California should not be permitted to regulate banks' privacy practices - the brief doesn't necessarily translate into a victory for privacy advocates.

For more on why I believe this to be the case, check out my piece in the California Progress Report.

There is however, a more positive take than mine (and again, I do believe SB 1 is safer than it was absent the Administration's recommendation...I just wish it would have gone further) on the Administration's brief, and it comes from Chris Larsen, CEO, Prosper Marketplace and co-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.

Here's what he wrote on his blog:

While we understand the concern that strong Federal preemption could weaken some State consumer protections, we actually see the Obama view as very positive. We founded “Californians For Privacy Now” to address a lack of Federal will to act on financial privacy rights following the 9/11 attacks. Just before the attacks, a Federal financial privacy law looked very promising with several Senators and Representatives interested in backing Federal legislation. In fact, on the morning of September 11th, 2001 we were just entering a meeting with nine Senators to discuss our views on privacy when the horrible news hit. The meeting was cancelled and Federal Privacy legislation went into a deep freeze.

The only option left was to seek a bill or ballot initiative in California that would set a strong example and convince the banks that they couldn’t use 9/11 to dodge consumer privacy rights. Fast forward eight years and that is basically exactly what we have - a strong California bill that the Administration believes is workable and an apparent strategy to work on a national version to ensure all Americans are equally protected. It seems likely that the administration is also signaling to the banks that if they support a national standard, there is a way out of their worst nightmare, which is facing 50 different versions of data privacy rules. Preemption is a problem when good state ideas are preempted by weak or non-existent Federal rules, as we’ve had up to now. The hope from the Obama administration is that you can get both strong consumer protection and an efficient unified national market.

It goes without saying that I would LOVE to see a uniform, national standard on the issue of financial privacy that mimics California's SB 1 (or something close to it). I have put some feelers out to some of my legal expert friends on how they interpreted the Administration's brief and what it might mean in the future - both in terms of SB 1 and that of the nation at large. In some ways at this point, its anybodies guess.

Stay tuned...

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