Magazine article American Banker

Wells' Privacy Fix:Cut Down on 'Affiliates'

Magazine article American Banker

Wells' Privacy Fix:Cut Down on 'Affiliates'

Article excerpt

As state and federal lawmakers wrestle with restricting how banking companies share information with their affiliates, one company has come up with a partial solution: eliminate affiliates.

In what it called a preventive measure, Wells Fargo & Co. on Monday applied to the Office of the Comptroller of the Currency to combine its 19 national bank charters into one. The San Francisco banking company has been battling with California lawmakers, who have been battling among themselves over a bill that would make the state's privacy protections stronger than federal laws.

Stanley Stroup, Wells Fargo's chief legal officer, said in an interview Tuesday that the charter consolidation has been in the planning "for several months, but it's been prompted by the uncertainty over the outcome on the debate over privacy legislation on the state and federal level."

Wells acknowledges that the move would help it save money, as it has for other super-regional banks in recent years. But it also says the main driver has been the chance that financial privacy legislation could force changes it does not want to make.

"If restrictions in future legislation are imposed based on affiliates, combining charters gives us fewer affiliates and makes it easier for us to serve customers without undue restriction," he said through a spokeswoman Wednesday.

For at least four years Wells and other banking companies have been fighting attempts in California to pass financial privacy laws that would be more restrictive than the federal rules. Several versions of the bill have failed to make it through the Legislature.

On Tuesday, a federal judge in Oakland handed the banks another victory, ruling that the Fair Credit Reporting Act preempted parts of local ordinances that would have required an "opt-in," or explicit permission from customers for a bank to share information with affiliates. The judge upheld the parts of the ordinances that required banks to get permission to share information with outside parties.

Bank of America Corp., which has some roots in California but is headquartered in Charlotte, says a major concern was that the ordinances could have restricted how it shared information between affiliates outside of California. "We're gratified we'll be able to provide customer service by sharing information internally," a spokesman said.

The Wells spokeswoman echoed those comments.

There is no pending federal legislation about restricting affiliate sharing, though several politicians have supported the idea. Bankers have long feared that lawmakers would tack it onto pending legislation to renew an expiring section of the credit law that prevents states from passing laws on various issues, but the bill made it through the House Financial Services Committee last week with no such amendments.

Consumer groups have vowed to fight. Californians for Privacy Now, which is backing a ballot initiative, announced Wednesday that it had collected 500,000 signatures, but it plans to hold on to those signatures until Aug. 20, to give the Legislature one last shot at passing a bill. (The secretary of state's office must receive 373,816 valid signatures before an initiative is put on the ballot.)

Wells' charter consolidation would be irrelevant if state Sen. Jackie Speier gets her way. The San Francisco Democrat has backed a bill that has made the most headway in the Legislature so far, but several of her attempts in the past four years have failed at passage. …

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