California Reviewing 3 Banking Privacy Bills

California takes center stage today in the national privacy debate as hearings begin in Sacramento on the first of three bills that could lead to the nation’s toughest rules for protecting bank records.

The bills were born out of consumer outrage expressed last year when many large banks admitted to selling or disclosing financial information about their customers to telemarketing firms.

In response, California legislators introduced three separate bills recently to require that banks get their customers’ approval before sharing private information with third-party marketing firms or with affiliated companies, such as a credit card or mortgage unit.

AB 1707, sponsored by Assemblywoman Sheila Kuehl (D-Santa Monica), faces its first hearing today before the Assembly Judiciary Committee.

Two similar bills are working their way through the state Senate: SB 1337, by state Sen. Jackie Speier (D-Daly City), and SB 1372, by state Sen. Tim Leslie (R-Tahoe City).

Lawmakers in other states are monitoring the progress of the California bills, which could become models for stricter regulation elsewhere.

California is one of 22 states seeking to enact stricter privacy protections in response to last year’s federal legislation that many, including the Clinton administration and privacy advocates nationwide, now say is inadequate.

“The federal law left a huge privacy gap,” said Beth Givens, project director of the Privacy Rights Clearinghouse, a consumer group in San Diego.

The federal law, passed as part of the financial modernization bill that allowed banks to merge with insurers and securities firms, requires that banks give customers a chance to “opt out” of having their financial information shared with third parties. But banks were left free to share such information with their affiliates.

Legislators in California and elsewhere are pushing for tougher laws that would require banks to get customer authorization before sharing any information, known as an “opt-in” provision, and the restrictions would cover disclosures to both third parties and affiliates.

Kuehl worries that as banks merge with securities and insurance companies, the combined entities will be able to swap their customer data to create detailed financial profiles, including such things as a person’s income, credit card debt, stock holdings and home value.

“Don’t consumers have a right to know exactly what banks are doing with this information?” Kuehl said.

Bank industry leaders say the new protections would be costly to implement and stifle the development of new products and services.

“It would be hugely expensive if banks had to send out notices every time they provided a customer’s name to a list,” said Greg Wilhelm, lobbyist for the California Bankers Assn., a trade group. “The strength of the new economy is based on the availability of vast amounts of varied information.”

Joining the CBA in opposing the bills are Bank of America, Wells Fargo, Visa, American Express, America Online and First American Financial Corp.