In Reversal, Banks Accept Privacy Bill

SACRAMENTO -- Faced with the threat of a statewide ballot initiative next year that appeared to be popular among voters, financial groups Thursday abandoned their fight against legislation that could become the strongest financial privacy law in the nation.

The deal represents a complete reversal of the financial industry’s four-year opposition to legislation by Sen. Jackie Speier, a Hillsborough Democrat. And it gives lawmakers just a few days to pass the measure.

If enacted, the measure would require insurance companies, banks and other businesses to get a customer’s permission before sharing or selling his or her financial information such as spending habits or bank balance.

It would also allow customers to opt out of allowing the companies to pass the information along to affiliates.

Three similar bills have been killed in as many years after financial heavyweights, such as Wells Fargo & Co. and Bank of America Corp., spent millions of dollars to defeat them.

This year, Speier’s bill stalled in the Assembly banking committee.

The compromise measure would take effect July 1 instead of January and give companies more than one way to get customer permission to share information.

Chris Larsen, a Silicon Valley businessman who has pumped $1 million into the initiative push, has said that if lawmakers didn’t pass the legislation by Wednesday, he would turn in 600,000 signatures to qualify that measure for the March 2004 ballot.

“We were preparing to fight an initiative so this last-minute negotiation is really a benefit for all of us,” said James Clark, spokesman for the California Bankers Assn.

Dozens of financial companies and trade groups have agreed to the compromise, Speier said.

At least one consumer organization said it opposed abandoning the ballot initiative, which would also require banks to get permission to share information with affiliates.

“Californians deserve the right to vote to protect their privacy if the Legislature cannot deliver a comparable safeguard,” Jerry Flanagan, the Northern California director for the Foundation for Taxpayer and Consumer Rights, wrote in a letter to Gov. Gray Davis.

Bankers and lawmakers, however, said they would prefer the legislative solution.

“The initiative would conceivably be challenged in court ... in part because it’s very simple and straightforward,” Speier said. “If you look at [the bill] it is a very complex piece of legislation that attempts to address workability issues for commerce and consumer issues as well.”

The compromise follows a federal court decision allowing counties and cities to set up their own restrictions on the sharing of information.

“It wasn’t until the double-whammy of both the initiative qualifying and the court decision ... that everyone recognized maybe the better part of common sense was to come together and negotiate a responsible bill,” Speier said.