California Opt-In Bill Makes Headway

California, the most ferocious of all states on the privacy issue, is about to top even the federal government.

A harsh new opt-in measure was approved today by the Assembly Appropriations Committee, and is expected to reach the Assembly floor next week. It was passed by the state Senate, and approved by two other committees earlier this summer.

Senate Bill 773 requires that financial institutions get a consumer’s permission before sharing his data with third parties. The Gramm-Leach Bliley financial modernization act demands only that the consumer be given a chance to opt out.

“The problem is that, whether it’s opt in or opt out, consumers just don’t opt,” said Oscar Marquis, an attorney with Huntoon & Williams.

The California bill also trumps federal law by requiring that consumers get a chance to opt out of data sharing with affiliates. But that isn’t the only threat.

Like Gramm-Leach-Bliley, S.B. 773 is vague on what constitutes “personal information.” This means that banks would be unable to share even basic credit-header data like names and addresses–when provided by consumers in the course of a transaction, according to Marquis.

Although he said earlier that he would sign an opt-in bill, Gov. Gray Davis has since proposed a counter measure, allowing an opt-out for non-affiliated companies with a joint marketing agreement. Davis also favors opt-out for non-affiliated firms in the same line of business, according to Stephen Shea, a consultant for the Appropriations committee.

These changes are congenial to the banking industry, but they are opposed by consumer advocates and the bill’s sponsors.

“This is unacceptable to us,” said Robert Herrell, a spokesperson for Senator Jackie Speier (D-Hillsborough), a co-author of the bill.

Meanwhile, two U.S. Congressmen, Edward Markey (D-MA), and Joe Barton (R-TEX), have reintroduced the Consumer’s Right to Privacy Act (HR-2720). It replaces the opt-out in Gramm-Leach-Biliey with an opt-in.

The California bill was introduced in February by Speier and Assemblymember Hannah-Beth Jackson (D-Santa Barbara). The Senate passed it by a 25-13 vote in June.

The bill was passed by the Assembly Banking and Finance Committee in July by an 8-2 vote after previously failing by one vote, and in August, the Assembly Judiciary committee approved it by a 7-3 vote. Today’s vote in the Appropriations Committee was 13-8.

Herrell noted that “there’s no GOP support for the bill.” But the Democrats have a 20-seat edge in the Assembly, according to Shea.

However, observers say that the affiliate opt-out could be pre-empted by federal law. The Fair Credit Reporting Act allows transactional data to be shared with affiliates, and this measure will hold sway over state laws like California’s until 2004, according to Marquis.

Because of that, “it shouldn’t be enforceable,” he said. “Somebody has to litigate that.”

The bill’s supporters argue that Gramm-Leach-Bliley doesn’t go far enough. For one thing, consumers often miss the information contained in privacy disclosure statements, they say.

To prove their point, advocates are repeating a 1999 horror story–namely, that Charter Pacific Bank sold 3.7 million of its customers’ credit card numbers to a convicted felon. He then used them to conduct almost $50 billion in fraudulent transactions.

But Marquis countered that the measure will hurt companies–and consumers.

“It doesn’t provide greater protection for privacy sensitive consumers because they can [already] opt out,” he said. “But it will hurt the consumers who appreciate benefits they get from getting catalogs and credit card offers. They won’t get them anymore.”