Panel Defeats Bill to Boost Privacy Rights

Hopes for financial privacy reform this year dwindled Monday as California lawmakers voted down a measure that would have severely limited the release of confidential bank account information.

The bill, which would have forced banks to get customers’ approval before disclosing personal information about them to outside companies or corporate affiliates, failed to win enough votes to advance out of the Assembly Banking and Finance Committee.

The defeat of AB 1707, along with two similar Senate bills that stalled at their first hearing earlier this month, left privacy advocates complaining that heavy lobbying and campaign contributions from the financial services industry make privacy reform unlikely in the Legislature.

Supporters of the bills predicted that the issue eventually will be put directly to voters as a statewide referendum.

“The buzz out there right now is about an initiative,” said Beth Givens, director of the Privacy Rights Clearinghouse, a San Diego consumer group. “Given the public opinion in favor of privacy protections, a ballot measure stands a good chance of passing.”

Givens noted that it took a 1972 ballot measure to make California one of the only states with a constitutional guarantee of privacy.

Though no organizations have announced plans to offer a privacy-related initiative, the California Public Interest Research Group, which backed an unsuccessful 1996 campaign finance reform ballot measure, said it is considering such a move.

Assemblywoman Sheila Kuehl (D-Santa Monica), who sponsored AB 1707, blamed industry lobbying for her bill’s demise.

“This was a full court press by financial institutions,” Kuehl said, noting the nearly two dozen bank, insurance and business lobbyists lined up to speak against the bill at Monday’s hearing. But the strong opposition may backfire, Kuehl warned, particularly if an initiative includes more stringent controls.

Kuehl introduced the bill in response to revelations last year that several large California banks had been selling or disclosing customer information, including account balances and Social Security numbers, to telemarketing firms.

The bill was endorsed by California Atty. Gen. Bill Lockyer, whose office is investigating the information-sharing practices of several national banks.

The banking industry complained that Kuehl’s bill, which would have required that banks get written permission each time they wished to share customer data, would be too costly to implement.

Pat Wagner, president of New World Federal Credit Union, testified Monday that Kuehl’s bill would hurt small financial institutions by preventing them from using third-party partners to offer insurance and other products to their customers.

Banking industry representatives urged lawmakers to delay imposing any new requirements until proposed federal privacy regulations are implemented later this year.

Joined by the insurance and securities industry, banks launched an aggressive national lobbying campaign this year to defeat privacy reform bills in California and about two dozen other states that sought to adopt tighter rules than those approved last year by Congress. Lobbyists for the Financial Services Coordinating Council, formed by five leading financial services trade groups, traveled the country to speak out against the state bills.

Most of the state measures have failed or stalled, including legislation in New York and Washington. Privacy advocates in Washington state already have turned to the initiative process.

California was considered one of the nation’s last legislative battlegrounds this year, but Kuehl’s bill fell well short of the eight votes it needed to advance out of the Assembly Banking and Finance Committee. The final vote was 3 to 3, with other committee members abstaining.

Two similar Senate bills, SB 1337 and SB 1372, failed to get past their first hearing before the Senate Finance, Investment and International Trade Committee, although one bill was sponsored by the committee’s chairman, state Sen. Tim Leslie (R-Tahoe City). Leslie has amended his bill and plans to have it reconsidered next week.