Committee Kills Bill to Protect Consumer Data

One of the most significant consumer measures being debated in California this year, a bill preventing financial firms from selling a customer’s information without written permission, was killed in committee Wednesday night amid vocal opposition from the banking and insurance industries.

But another far-reaching consumer protection measure, a bill to limit predatory home loans targeting senior citizens and the poor, cleared the Assembly despite similar, equally stiff industry opposition. It now moves to the state Senate.

The privacy bill, AB 203 by Assemblywoman Hannah-Beth Jackson (D-Santa Barbara), would have barred companies from selling or distributing personal customer information to their affiliates or others without the customer’s written consent.

Under new federal legislation intended to lift barriers between banks and insurance companies, financial institutions can share that data with their corporate siblings unless customers take the initiative to have their information protected.

“They can use that information for any purpose,” Jackson said. “They don’t have to ask you for your permission, and chances are you won’t know about it.”

Though the companies are required to tell customers that they have the right to refuse, consumer activists and state Atty. Gen. Bill Lockyer contend that the notices now being sent are indecipherable and intended to be mistaken for junk mail.

They would like California lawmakers to pass an “opt-in” law that would require customers to specifically agree before their data could be used for anything other than the purpose for which it was originally provided.

“I find it distressing that the keepers of private data have become peepers and reapers of personal information,” Lockyer said.

But representatives of more than two dozen powerful companies and trade groups, from American Express to Pacific Life Insurance Co., came out in force against the bill when it went before the Assembly Banking and Finance Committee.

The committee, chaired by veteran Assemblyman Lou Papan (D-Millbrae), has not been kind to consumer legislation in recent years. In fact, it killed a similar privacy measure by then-Assemblywoman Sheila Kuehl last year. Wednesday’s outcome was no different, as the bill got five votes, one short of the number needed for passage.

But the decision did not take place without an exhaustive hearing--and drama. Assembly Speaker Bob Hertzberg (D-Sherman Oaks) appointed Assemblyman Dario Frommer (D-Los Feliz) to the 11-member panel just for the day of the hearing. Frommer filled in for Assemblyman Carl Washington (D-Paramount), who was in Los Angeles, where he is running for the City Council.

Frommer was lobbied extensively by supporters and opponents of the bill in the hours before the hearing. And when Papan called a one-hour recess midway through the session, Frommer was lobbied some more. But he ultimately abstained.

Papan, who has been bombarded with e-mails in recent weeks from supporters of the legislation, made no secret of his disdain for it. But other members sympathized with Jackson, including Assemblywoman Elaine White Alquist (D-Santa Clara), whose husband was recently a victim of identity theft after someone obtained his financial information.

“It’s been a year and a half, and we have still not brought this to closure,” Alquist said. “And for those of you that have not experienced it, it is a nightmare.”

A bill similar to Jackson’s, SB 773 by state Sen. Jackie Speier (D-Daly City), remains alive in the Senate. The predatory-lending bill, AB 489 by Assemblywoman Carole Migden (D-San Francisco), seeks to stop companies in the sub-prime lending market that prey on the poor and elderly with high-cost home loans. It applies to borrowers who make 120% of the state’s median income or less, and defines a high-cost loan as anything 5% or more over the interest rate on U.S. Treasury bonds.

Companies making such loans would be barred from several practices that consumer advocates consider predatory, including “flipping,” or making subsequent loans to cover the original loan, and “packing,” charging customers for other services without informed consent. Most importantly, the companies would be prohibited from making a loan without regard to the borrower’s ability to repay it.

Like Jackson’s privacy bill, the predatory lending bill faced strong opposition from the financial services industry. But Migden, the powerful head of the Assembly Appropriations Committee, was able to muster the 41 votes needed for passage in the lower house after narrowing the bill’s focus.

“What I was trying to target was the elderly person who is beguiled into making a loan that ruins them,” Migden said. “The opponents say that it’s up to the people to be educated enough to see through these things, but I believe you have to protect the unsophisticated consumer.”