FAQs about the Banks’ Lawsuit Against California’s Landmark Financial Privacy Law

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By Consumers Union on Monday, September 15th, 2003

FAQs about the Banks’ Lawsuit Against California’s Landmark Financial Privacy Law

Q: How does the California law help to protect the privacy of California residents?
A:
Last year, California adopted a new law that protects the privacy rights of California residents in several ways. First, it requires financial institutions – like banks, brokerage houses, insurance companies and others – to ask for and receive customers’ permission before sharing information about them with outside institutions. Second, it requires the same institutions to give their customers the right to be excluded from the information sharing that takes place among many of the institution’s affiliates. Under this law, consumers have much more control over how and with whom their information can be shared. The law is scheduled to go into effect on July 1, 2004.

Q: How does the California law help to protect the privacy of residents of states other than California?
A:
The financial institutions with the biggest stake in preventing California’s privacy legislation from being enacted are some of the nation’s largest institutions. Banks like Citigroup, Bank of America and Bank One are all part of the consortium of banks and other financial institutions that is suing the state of California. These institutions, many of which have hundreds of affiliates, have the most to lose if the legislation remains in place. These institutions know that it will be difficult for them to increase the privacy rights of California citizens without increasing privacy rights for all of their customers. They also know that, if the California law stands, other states will likely pass similar laws. Residents of all states will benefit from the stronger privacy policies offered by their financial institutions if the California law stands.

Q: Why do the banks want to keep this law from going into effect?
A:
The banks and other financial institutions want to block the California law because they profit from information sharing. A string of cases brought by the Attorney Generals of a number of states, including New York and Vermont, shows that many banks sell customers’ sensitive financial information to marketers and other outside institutions. Also, financial institutions with hundreds of affiliates, like Wells Fargo, can trade or sell customers’ information to their affiliates without ever notifying their customers of those transactions. Many of Wells Fargo’s affiliates are not banking-related but may profit from their access to the bank’s private information.

Q: Why did the banks call the law “a reasonable and workable compromise” initially, only to now sue over the same piece of legislation?
A:
Ironically, many of the same institutions now suing California helped to write the final version of the California law. When the California law was being drafted, the financial institutions said it was a good compromise between consumer privacy protections and the institutions’ financial goals. Since then, they worked very hard to block similar protections at the federal level and are now doing all they can to prevent California’s stronger law from going into effect.

Q: Which banks are suing California?
A:
The suit has been filed on behalf of the American Bankers Association, the Financial Services Roundtable and the Consumer Bankers Association. Banks in these associations include Citigroup, Bank of America, Wells Fargo, JP Morgan Chase and many others.

Q: Where can I find the text of the pending California law?
A:
Click here to read the law.

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