Magazine article American Banker

California Senate Oks 'Opt-In' Data Bill: Vote Threatens to Undo What Looked like an Industry Victory

Magazine article American Banker

California Senate Oks 'Opt-In' Data Bill: Vote Threatens to Undo What Looked like an Industry Victory

Article excerpt

The California state Senate voted 23-12 Monday to approve privacy legislation that would require financial institutions to get written consent from their customers before sharing their information with affiliates and third parties. This burdensome "opt-in" bill would go well beyond federal privacy protections, which put the onus on customers to "opt-out" of information sharing -- and only when data are shared with third parties. However, the federal Gramm-Leach-Bliley Act of 1999 specifically allows states to enact tougher measures, and industry leaders have long considered California the one most likely to move on the issue.

The politics of privacy can change quickly. Just last week industry lobbyists were celebrating when the state Assembly's banking committee defeated a similar opt-in bill -- by just one vote. The Senate vote will now force the Assembly to reconsider the matter.

A spokesman for state Sen. Jackie Speier, who sponsored the legislation, said that getting the bill through the Assembly would be an uphill battle but added, "We are cautiously optimistic this can be sent to the governor this year."

Privacy advocates agreed.

"There is a good chance this bill gets through because the citizens of California are demanding privacy," said Daniel L. Jacobson, legislative advocate for the California Public Interest Research Group. "Our only hurdle is a couple of the biggest financial institutions in the country that are opposed to it, but that is not insurmountable."

James L. Pitts, executive director of the Financial Services Coordinating Council's privacy project, said California's reputation as having a leading-edge Legislature has been tainted by the state's energy deregulation debacle. "My argument is that California did energy deregulation, too, and you can see there the unintended consequences of not-well-thought-out legislation," he said.

Stopping the bill in California is crucial, according to Mr. Pitts, because other states could follow its lead. Currently no state has gone beyond Gramm-Leach-Bliley, but if California does enact a tougher law, privacy hawks in Congress may be emboldened, he said.

Mr. Pitts said privacy advocates could argue that if financial institutions can offer an opt-in in a large state such as California, then a nationwide opt-in law would not be onerous. "They would say, 'If you can figure out how to do it there, why can't you do this nationally?' " he said. "It would give privacy advocates another arrow in their lobbying quiver. If it does pass, the dynamics change a little bit everywhere."

The banking committee in the Assembly approved another bill last week that goes a step beyond Gramm-Leach-Bliley by requiring institutions to issue opt-out notices before sharing customer information with affiliates. …

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