Tuesday, June 30, 2009

Supreme Court Rejects Banks Appeal to California's Financial Privacy Law!!

Finally! The banking industry's 6 year campaign to overturn California's landmark financial privacy law is over...dead...kaput...or at least, so says the Supreme Court! Of course, I want to be measured in my response, so let me just reiterate what a friend of mine wrote me, "Woooo hoooo!!!"

I've written about this extensively in recent months, but I'll still give a brief review: For three years the Consumer Federation of California and other privacy advocates worked to enact a law that would give consumers the right to stop banks and other financial institutions from sharing their personal information - including with "affiliates" (which can number in the thousands).

This was achieved when Senate Bill 1 of 2003 (Speier) became law and California established the nation's strongest financial privacy protections. As soon as SB 1 was signed, the financial institutions ran to court to overturn it, arguing that other federal banking laws prevented state regulation of banks and brokerages.

In September 2008, the 9th Circuit declared the right of California consumers to stop disclosure of their personal information among affiliated financial institutions, except where such information was a consumer report. It was soon after that the Supreme Court became poised to take the Banking Industry lobby's appeal and possibly overturn portions of one of the most important victories for privacy advocates in recent memory.

On March 9th, the Supreme Court invited the Obama Administration to voice its opinion. In light of this news, a coalition of privacy groups joined forces to author an open letter to the Obama Administration urging it to defend California's landmark financial privacy law against the banking industry's legal efforts to overturn it. A copy of our coalition's letter to the President and the Solicitor General can be read here.

As we wrote, "This (case) represents a defining moment for privacy rights" the letter states. "We ask you to stand with consumers by telling the Supreme Court to reject the banks' appeal in Brown."

The Obama Administration soon weighed in on our side (all be it a nuanced and less than satisfactory brief) - and recommended the Court not take the case. Click here to read the article I wrote for the California Progress Report that analyzed the pro's and con's of the Administration's brief as related to the concept of pre-emption and the right to privacy in a broader sense.

As I wrote at the time, 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.

And now its official! As reported by the San Francisco Chronicle, the Supreme Court has rejected the banks' appeal.

Bob Egelko - who quotes our letter in the article - writes:

Without comment, the U.S. Supreme Court denied a hearing to the American Bankers Association, which had argued that the 2004 financial privacy law conflicted with a federal law setting nationwide standards for regulating consumer credit reports. The California privacy law, the broadest of its kind in the nation, allows customers to veto a bank's attempt to share certain types of information with affiliated companies. Some of the largest banks have thousands of affiliates in fields far removed from banking.


The court said federal law prohibits states from limiting distribution of a bank's consumer reports - which prospective lenders, insurers and even employers can examine - but does not prevent other types of regulation. That means consumers can stop banks from sharing such information as their credit card statements, which a bank-affiliated retailer might use to target advertising based on someone's buying patterns.

Consumer rights groups argued that customers needed those protections because of a 1999 federal law that repealed a ban on bank ownership of insurance companies, brokerage houses and other financial institutions.

"These new financial supermarkets could easily create dossiers on our buying, earning, borrowing and investment histories ... and sell or share this information for purposes such as marketing or profiling," the organizations said in a letter to the Obama administration in March, urging support for the California law.

The Justice Department responded with a filing May 29 that argued that the state law conflicted with federal regulation and should have been overturned - but that the Supreme Court should decline to review it because it wasn't imposing hardships on banks. President George W. Bush's administration had asked lower courts to strike down the California law.

Click here to read the rest of the article.

Let me end with a word of caution. The Administration’s brief still gives us more than ample reason to remain concerned and vigilant. Most assuredly, we won a big victory with the Court's decision not to take this case. But as I said back in my critique of the Administration's brief, "...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.

I suppose - if feeling exceptionally optimistic - I could conclude that perhaps the administration was signaling to the banks that if they support a national standard, they could avoid their worst nightmare of all: facing 50 different versions of data privacy rules. I've read this interpretation, though the devil would be in the details.

It goes without saying that we would support a uniform, national standard on the issue of financial privacy that mimics California's SB 1 (or something close to it). But if Obama is signaling support for a national standard that is substantially weaker than SB 1, then such a move would be no victory for privacy. Only time will tell...

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