Direct marketing and banking groups were pleased at Tuesday’s federal court ruling that struck down parts of California’s financial privacy law that required bank customers to get permission to use their data to market to affiliates.
“We’re pleased with the decision because it’s in line with what the Direct Marketing Association calls for: a single national standard and not a lot of different ones in the states,” said spokeswoman Stephanie Hendricks. “We weren’t directly involved in this case but we were watching it closely.”
“The American Bankers Association is pleased with the court’s decision to uphold [Fair Credit Reporting Act] preemption authority in the case of ABA v. Lockyer,” said Edward L. Yingling, CEO of the ABA in a statement.
Yingling continued, “In his opinion, Judge England found that no portion of SB1’s affiliate sharing provision survives FCRA preemption, and even if it did, it would not be severable under California law.” The ABA was one of three groups that sued the California Attorney General to overturn the law. On Tuesday, a U.S. District Court judge in Sacramento struck down a portion of a California law that restricts banks from selling consumers’ private information to their affiliates, ruling that the state law is pre-empted by federal rules, according to news reports.
The ABA the Financial Services Roundtable and Consumer Bankers Association had sued California Attorney General Bill Lockyer, arguing that the federal Fair Credit Reporting Act already regulated their ability to sell such information to affiliates in other lines of business.
The federal act lets banks and other financial institutions share information with affiliates about customers’ “credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.”
The 2003 California financial privacy law forced companies to offer consumers the right to opt-out of sharing such information.
The bill goes back to 2003 when then-governor Gray Davis signed the bill SB-1 into law, creating one of the toughest such laws in the country [Direct Newsline, Aug. 27, 2003].
That bill mandated that banks obtain a consumer’s permission before sharing information with outside companies, “particularly non-financial ones,” said Robert Herrell, staff director for the Democratic state senator Jackie Speier who authored the bill.
Generally, the bill converts the opt-outs allowed under the Gramm-Leach-Bliley Act, a federal law, to opt-ins, and changes the no-opts to opt-outs, Herrell said.
“We all know that when California leads, America follows,” Davis said. “Today, California is setting a new course for consumers in America.”
But at that moment, there was speculation that the California law might be superseded by federal law, However, he warned that there will be a fight in Washington to override the provisions in the bill.
The current ruling still leaves in place portions of the state law that force financial institutions to get permission before sharing personal financial information with nonaffiliated companies.
It was unclear at deadline whether Lockyer would appeal this decision.
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