NEWS FLASH!  Federal Act Being Considered to Prevent States from Enacting Laws such as the Recently Signed California Financial Privacy Information Act (SB1)

On September 10, 2003, the U.S. House of Representatives voted for H.R.2622 to renew and expand the Fair Credit Reporting Act of 1996, which bars states from passing stricter privacy laws than those enacted by the federal government and ensures that federal standards for sharing consumers' information are law across the country. On November 5, 2003, the U.S. Senate voted for a companion measure (S.1753) with some amendments to H.R.2622. Previously, the Fair Credit Reporting Act of 1996 was set to expire in July 2004. Reauthorization and modification of the Fair Credit Reporting Act of 1996 are before the House-Senate conference committee for final passage.

U.S. Senators Barbara Boxer and Dianne Feinstein voted against reauthorization of the Fair Credit Reporting Act of 1996 and sought to extend a key part of SB1 (Speier/Burton), California Financial Information Privacy Act of 2003, to consumers nationwide, but lost following an intense lobbying effort by the financial industry.

SB1 (Speier/Burton), California Financial Information Privacy Act

SB1 passed in the California State Senate and Assembly in August 2003 and was signed into law by Governor Gray Davis in September 2003. Unlike current federal law, SB1 requires that financial institutions obtain a consumer's consent prior to sharing personal financial information with an unaffiliated third party. As passed, the bill requires financial institutions to give consumers the opportunity to "opt out" of sharing personal financial information with a financial institution's affiliates.

SB1 has been among the most debated and lobbied issues in California in recent years with the financial industry opposing the bill. The bill had been rejected four times by the Assembly, when finally a consumer rights group collected 600,000 signatures to place an initiative similar to SB1 on the March 2004 ballot. Before the initiative went to voters, SB1 was passed.

Background/Consumer Privacy and Local Government Ordinances

While SB1 and other consumer privacy legislation were in legislative process, local governments led efforts for consumer financial information privacy. In August 2002, a year prior to the passage of SB1, local jurisdictions began enacting ordinances to better protect consumers from the selling or sharing of their personal information. Local ordinances that would have required financial institutions to request and obtain consumer permission before releasing their financial information to a nonaffiliated third party or affiliate (referred to as an "opt-in" approach) were adopted by Contra Costa, San Mateo, and Alameda Counties, and the City of Daly City.

These local ordinances would have been more protective then current practice and disclosure which are based on the federal Gramm-Leach-Bliley Act. The act requires financial institutions to notify consumers of their privacy policy at the beginning of the transaction. According to the Gramm-Leach-Bliley Act, consumers have the option to prevent the sharing of personal information with third parties (referred to as an "opt out" alternative). However, the complaint has been that most consumers are not aware of this option because notification is often buried in fine print with confusing terminology. Local ordinances would have reversed this process and required financial institutions to seek a written waiver before releasing consumers' information.

On September 10, 2002, Bank of America and Wells Fargo filed a lawsuit to block these local ordinances from going into effect. Despite the lawsuit, local ordinances were partially upheld by a federal judge in a July 29, 2003, ruling. The ruling stated that affiliated financial companies could not be restricted from sharing consumer financial information. However, the ruling did allow state and local governments to enact laws that prohibit banks from providing consumer information to outside companies, unaffiliated with the banks, unless a consumer gives advance consent.

If the Fair Credit Reporting Act of 1996 is reauthorized by the House-Senate conference committee, it would supersede the local government ordinances and California state law SB1. Otherwise, SB1 would provide the consumer financial information privacy that local governments have sought.

ABAG's Position

During the long debate by state legislature over adopting California financial privacy legislation, the Association of Bay Area Governments (ABAG) took the position of strongly supporting efforts by Bay Area local governments to ensure consumer financial privacy. ABAG encouraged consistency and uniformity in the adoption and enforcement of local ordinances. This website was developed to provide a clearinghouse of information on Bay Area local ordinances, consumer financial information privacy contacts, as well as information and resources on consumer privacy issues and legislation.