Summary of California Bill on Financial Privacy
By Consumers Union on Wednesday, June 4th, 2003
June 4, 2003
The Honorable Patricia Wiggins
Chair, Assembly Banking and Finance Committee
California State Assembly
P.O. Box 942849
Sacramento, CA 94249-0001
Re: SB 1 (Speier) (as amended June 3, 2003) – SUPPORT
Dear Assembly Member Wiggins:
Consumers Union, the nonprofit publisher of Consumer Reports magazine, urges you to support SB 1 when it is heard in the Assembly Banking and Finance Committee. This bill protects consumers by giving consumers control over their personal financial information and allows them to make informed decisions regarding the use of this information.
In November, 1999 President Clinton signed the Gramm-Leach-Bliley Act of 1999. GLBA permits financial institutions to affiliate and offer a wider variety of financial services and products. This law repealed both the Glass-Steagall Act of 1933, which placed barriers between commercial and investment banking, and the Bank Holding Company Act of 1956, which prohibited insurance underwriting activities. This dramatic change in the services offered by banks, insurers and securities firms also creates a dramatic change in consumers’ abilities to keep private their personal financial information. Congress did not include strong consumer privacy protections in the GLBA and invited states to enact needed legislation to protect consumers’ financial privacy.
Without actions by states, information that was traditionally held only by a consumer’s bank, insurer or investment firm could now be shared across various financial service providers. Under the Gramm-Leach-Bliley Act of 1999, these affiliates can share information regarding consumer accounts and practices. Further, these corporations can share information with third parties for financial marketing purposes. In either instance, the consumer has no legal right to stop this distribution of information.
The implications of the GLBA for consumer privacy are serious as decisions about services and products offered to a consumer from one financial entity might be determined by financial information provided in the past to another. As required by federal law, companies are now sending their privacy policies to consumers. As disclosed by one large institution in California, information collected and shared included but is not limited to: account balance, payment history, parties to transactions and credit card usage, employment and demographic information. This information may then be used for such decisions as whether or not a senior with limited income but with significant equity in her home will be targeted for a predatory home equity loan.
SB 1 will protect California consumers from this intrusion. It gives Californians control over their personal information and allows them to decide if they would like to have this information shared with affiliates and third parties. Specifically, SB 1:
Gives consumers the right to stop the sharing of information with some affiliated companies and third parties with whom financial institutions have entered marketing agreements (opt-out).
Under federal law, consumers have no right to control the use and sharing of their financial information among affiliates of a financial institution. Furthermore, consumers do not have the ability to stop the sharing of information when financial institutions have entered marketing agreements with financial third parties to sell financial products or services. SB 1 allows consumers to stop the sharing of this information by opting out of these practices.
The recent amendments of SB 1 do allow for some no-opt among affiliates. In order to meet the criteria for no-opt, financial institutions must meet all of the following requirements: same line of business, same functional regulator, wholly owned subsidiaries or wholly owned by the same parent company, and common brand-name.
Requires financial institutions to get a consumer’s affirmative consent before sharing information with third parties with whom they have not entered marketing agreements to sell financial products or services (opt-in).
This should reduce unwanted marketing as well as the deceptive practices of some financial institutions that result in consumers being charged for products or services without ever giving an outside party their account information.
Provides the outline for a form consumers will receive to exercise their rights.
The notices that consumers currently receive under federal law are often unclear and ambiguous. SB 1 provides a simple, model form that consumers will use to restrict the sharing of their information. If financial institutions do not use the one in statute they must meet certain criteria. In the recent amendments, the opt-in provision was removed from the standard form. Because of its removal, the bill in its current form no longer includes standards that financial institutions must meet when informing consumers of their opt-in rights. The inclusion of such standards is necessary to ensure that consumers are making informed decisions when opting-in to information sharing. We consider the inclusion of such standards a technical and clarifying amendment.
Gives the Attorney General enforcement authority for violations of this law.
Financial institutions that share information negligently could be fined up to $2,500 per violation with a cap of $500,000 per occurrence. Those who knowingly and willfully violate the law could be fined up to $2,500 per violation with no cap.
Consumers have an expectation of privacy when sharing personal information with a financial institution. Without strong consumer privacy protections in an age of mega-mergers and rapid advances in technology, these expectations will not be met, and decisions will be made based on this shared information. This has implications for consumers regarding the types of services they are offered, the cost of those services, and even whether or not they will be offered services at all.
Under SB 1 consumers will have the ability to choose whether or not to have their information shared with affiliates or third parties. It will become the responsibility of the financial institution to prove to consumers that the customer will benefit if the information is shared.
By giving consumers control over their personal financial information, SB 1 provides this needed protection for California consumers. This bill will help consumers make informed decisions in the marketplace. Therefore, Consumers Union urges you to support SB 1.
Cc:Senator Jackie Speier
Members, Assembly Banking and Finance Committee
Margaret Gladstein, Committee Consultant