Fierce Battle Raging Over Privacy Bill

SACRAMENTO â€”  For the second year in a row, moderate Democrats are blocking landmark legislation that would give Californians more power to prevent banks and other lending institutions from selling or sharing their personal financial data, an increasingly widespread practice in the Information Age.

Despite numerous polls showing sky-high support for strong privacy laws in the state, the Legislature has repeatedly failed to enact such a measure amid furious lobbying by a well-heeled coalition of banks, insurance firms, credit card companies and others that stand to lose from it.

Nonetheless, state Sen. Jackie Speier (D-Hillsborough) has once again succeeded in shepherding a privacy bill to the Assembly floor this year with strong backing from consumer groups, labor unions and AARP, among others. If approved, it would give California the toughest financial privacy protections in the nation, surpassing a populist law passed in North Dakota that was challenged by banks but upheld by the state’s voters.

However, a moderate bloc of Assembly lawmakers known as the Business Democrats is threatening to join Republicans to defeat the measure, SB 773, which was expected to come to a vote late Friday evening. The moderates had earlier floated a series of amendments that would have significantly scaled back the scope of the bill, but Speier rejected their changes.

Under pressure from lawmakers worried about the political repercussions of a “no� vote, Assembly Speaker Herb Wesson (D-Culver City) informed Democrats in a closed-door session Thursday night that he was not even going to allow the bill to be debated on the floor. The decision angered liberal Democrats and outraged consumer groups, and Wesson later relented, saying Speier would have a chance to have her bill heard before the legislative session ends today.

But the bill is widely expected to fail, and when it does, moderate Democrats are immediately expected to present their own, far less comprehensive version of privacy legislation.

Though the rival measure was still being put together late Friday by Assemblyman John Dutra (D-Fremont) and others, it was immediately assailed by state Atty. Gen. Bill Lockyer and other supporters of the Speier bill as little more than a political fig leaf. Lawmakers said it has virtually no chance of clearing the state Senate, whose leader, Democrat John Burton of San Francisco, strongly supports Speier’s effort.

Some of the changes being pushed by the moderate Democrats came directly from the office of Gov. Gray Davis, who said in his January State of the State speech that he hoped to sign privacy legislation this year. Administration officials insist that the governor, who has sought to cultivate a business-friendly image and has accepted more than $7 million in campaign contributions from insurers and banks since taking office in 1999, is not trying to kill the legislation.

But the officials have been calling legislators to urge them to vote against the measure unless it is altered. And the amendments--which would allow information sharing within large corporations and their hundreds, sometimes thousands, of affiliates without any customer consent--may, in fact, lead to the bill’s demise.

“He wants the bill. But he wants some changes to it,� said Davis Press Secretary Steven Maviglio. “Even with the changes, it would be by far the toughest privacy law in the country.�

Speier and Assemblyman Joe Nation (D-San Rafael), who were carrying rival privacy measures earlier this year but recently joined forces, said they would shelve their bill rather than have it watered down against their will.

Voters May Decide Issue

Hoping to place pressure on Davis and lawmakers, supporters vow to take the issue directly to voters next year if they fail once more in the Legislature. Chris Larsen, the Northern California businessman behind online lender E-Loan, has already pledged $1 million of his personal fortune to the campaign.

“Every financial interest with a lobbyist in this country is in this [Capitol] building in their tasseled loafers, doing their level best to protect their interests,� Speier said. “And their interests are not equal to the consumer interest.�

Speier’s bill, known as the Financial Information Privacy Act, seeks to give consumers greater control over the personal data they divulge to banks, lenders and others. Unbeknown to many consumers, such information is now widely sold, traded and shared among companies and their affiliates without customers’ approval, and is often used to shape the type of financial products and marketing pitches they are offered.

Targeting the Vulnerable

Such so-called financial profiling greatly concerns consumer groups, which contend that the information is often used in a predatory, even discriminatory, manner.

As an example of the practice, consumer activists point to a recent court declaration from a worker at CitiFinancial, one of the roughly 1,800 affiliates of Citigroup.

“I and other employees would often determine how much insurance could be sold to a borrower based on the borrower’s occupation, race, age and education level,� said the former assistant manager, Gail Kubiniec. “If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the coverages CitiFinancial offered.�

Financial firms acknowledge that customers are concerned about protecting their information. But they argue that a 1999 federal law already gives the public a right to financial privacy, if they choose to exercise it.

That law, known as the Gramm-Leach-Bliley Act, requires banks and others to send customers “opt out� notices informing them of their right to prevent their information from being shared with nonaffiliated firms.

“We do not want to deal with a patchwork of state laws,� said Anissa Yates of the California Bankers Assn. “Our clients are national and multinational banks, and they would have a hard time reacting to these regulations. We also think that if California passed this type of law, other states would follow with their own laws.�

However, the federal law does not cover sharing or selling within a large family of companies, which is the norm in the increasingly consolidated financial world. And the notices that do have to be sent are now so exceedingly technical that many consumer groups say they are designed to be discarded by confused customers, who do not realize they are throwing their right to financial privacy in the wastebasket.

Speier’s bill would require far simpler notices, in large type, that would directly explain the issue. Financial institutions that wanted to share clients’ information with affiliates would have to send California customers straightforward opt-out notices. And firms that wanted to share customers’ information with third parties would have to meet a tougher “opt-in� standard--obtaining written permission.

Speier’s efforts to move a privacy bill to Davis’ desk have been the subject of one of the Capitol’s fiercest fights in recent years. It has repeatedly pitted her against an old antagonist, Democrat Lou Papan of Millbrae, the chairman of the Assembly Banking Committee. This spring, a Speier-backed candidate won a heated primary race to succeed Papan, beating Papan’s chosen successor--his daughter, Gina.

Battle Is Rejoined

When Speier faced off against Papan once again earlier this month, Papan and other moderate Democrats joined with Republicans to insert a hostile amendment into her bill to allow for information sharing among affiliates.

But Speier succeeded in removing the changes from her bill in the Assembly Judiciary Committee before it moved to the full house.

All the while, the financial industry has waged a full-scale assault to kill the measure. A report this week by watchdog group Common Cause found that banks, insurers, lenders and others opposed to it have spent more than $5.4 million in lobbying fees alone during the current two-year legislative session.

The figures, which do not include campaign contributions, were only good through June and do not cover the last two months, which have seen a virtual army of business lobbyists storm the hallways of the Capitol.

“It’s a graphic example of the influence of money on politics in Sacramento,� said Jim Knox, the director of California Common Cause. “This bill has strong support among the public and is a top priority of many consumer groups, yet it can’t get through the Legislature.�