Davis Backs Privacy Measure

After ducking three years of legislative debate on financial privacy, Gov. Gray Davis waded into the fray Tuesday by endorsing a bill that would sharply limit the ability of banks and insurance companies to sell their customers’ personal financial information.

Davis announced his support for SB 1 by state Sen. Jackie Speier (D-Hillsborough) as the legislation faces a key Assembly vote Monday. The bill, which won Senate approval in March, died in the Assembly last year amid intense industry opposition.

“I believe this bill is properly balanced,” Davis said at a Capitol news conference. “It affords legitimate consumer rights to the citizens of this state and still allows commerce to be conducted in an open fashion.”

Consumer advocates agreed, even with amendments demanded by Davis, which would limit some of the restrictions Speier sought to impose on companies.

“Today is a good day for California consumers,” said Consumers Union policy analyst Shelley Curran.

The California debate over consumer privacy is being watched closely by financial institutions, members of Congress and state lawmakers across the country, consumer advocates said.

Speier described the governor’s support as critical as the fight over financial privacy heats up before the Assembly’s Banking and Finance Committee hearing Monday.

Both Davis and Speier predicted a tough fight in the Assembly, where the bill last year fell three votes short of the 41 needed for passage after banking and insurance firms hired dozens of lobbyists to pressure lawmakers.

Business groups on Tuesday continued to voice concerns with the amended bill.

“I think that they’ve made some progress in the bill,” said Fred Main, senior vice president of the California Chamber of Commerce. “Whether they’ve made enough, that’s what we’re trying to think about.”

Main, however, conceded that the governor’s public support “makes it more likely that the bill gets to his desk.”

Public opinion polls show strong support for restrictions on the use of personal financial information, which includes the sale of such information as Social Security numbers, income and bank account balances.

The Consumers Union and other groups are gathering signatures for a March 2004 ballot initiative aimed at restricting the trade in personal financial information, in the event that the Legislature fails once again to act. With the fate of the Speier bill uncertain in the Assembly, Davis urged initiative supporters to continue gathering signatures.

Seeking Support

For Davis, the decision to embrace a major bill still pending in the Legislature -- something he does sparingly -- comes as he attempts to shore up flagging popular support in the face of a Republican-led effort to remove him from office. Davis downplayed the timing of Tuesday’s announcement, saying there was “no grand strategy” but rather that he and Speier had worked out some of their differences.

In fact, while Davis has avoided taking a public position on the Speier bill over the last three years, senior aides have been engaged in lengthy negotiations with the senator and her staff. The governor’s support was sealed with Speier’s agreement to accept amendments that will continue to allow companies to share personal financial information with their affiliated companies, with notable restrictions, Davis and Speier aides said.

Speier praised Davis for risking the anger of business groups by announcing his support and pledging to throw the weight of his office behind SB 1 in the Assembly.

“It’s been a day I’ve been hoping for for a very long time,” said Speier, with Davis standing beside her. “It takes a lot of guts to do what [Davis] is doing here today.”

Under the amendments accepted by Speier, which will be made public today, financial institutions still would be able to share personal financial information with affiliated companies if they meet four tests: the affiliated firm is a wholly owned subsidiary; the company is in the same line of business; it bears the same brand name; and it is regulated by the same government entity.

This would allow State Farm’s automobile insurance subsidiary, for example, to share information with its homeowners insurance subsidiary without giving consumers the right to block the transfer of that information. But State Farm’s insurance subsidiaries would have to seek consumer approval to transfer personal financial information to its banking arm or other subsidiaries in different lines of business, a Speier aide said.

The sale or transfer of medical information still would be subject to consumer approval under the amended bill, the aide said.

“We still are concerned that the language doesn’t go far enough on the affiliate sharing,” said Main.

Still, he added, “we think we can get a workable, reasonable bill.”

Companies caught mishandling information could be fined $2,500 per customer and up to $500,000 for mass violations unless the offenses were deliberate -- in which case there would be no limit. If an incident results in the theft of a consumer’s identity, penalties would double.

Davis defended the amended bill as practical and said it “does not disrupt the information-age economy,” as some opponents charge.

“Californians don’t want their private, personal information bought and traded like baseball cards,” he said. “This measure will allow consumers to have much more control over their bank accounts, their spending habits and their personal financial information.”

Related Bill Pending

Another Senate bill on consumer privacy is pending in the Assembly. SB 27, by Sen. Liz Figueroa (D-Fremont), would require businesses to reveal the source and nature of personal financial information they have on a customer.

The Speier bill seeks to give consumers control over the use and sharing of their personal financial information, going well beyond federal law. All financial institutions would be required to send a form to customers every year in which consumers would be allowed to deny a company the right to sell or otherwise share that information, except in the case of affiliated companies covered by the amendments.

Last week, in a preemptive strike against pending changes in financial privacy laws, lawyers for Bank of America Corp. and Wells Fargo & Co. asked an Oakland federal judge to prevent local governments from restricting banks from sharing customers’ information with telemarketers. The banks are challenging financial privacy measures passed by Daly City, San Mateo County and Contra Costa County that are set to take effect Sept. 1.