Privacy Initiative Launched

Consumer groups launched a ballot measure campaign Wednesday aimed at banning banks and insurance companies from sharing details of their customers’ finances.

The threat of a March 2004 initiative increases pressure on the Legislature, where the banking industry helped kill a financial privacy bill last summer despite polls showing that consumers overwhelming support such a law. A similar measure passed the state Senate on March 3 but faces an uncertain fate in the Assembly.

“If lawmakers once again fail to act,” said Consumers Union policy analyst Shelley Curran, “we’ll be ready with a ballot measure to take directly to the voters of California so that they can enact the reforms that they want and deserve.”

Last year the banking and insurance industries hired dozens of lobbyists to prevent California from passing what would have been the nation’s toughest financial privacy law. The current bill is weaker, but the threat of a ballot measure could escalate the stakes. Backers of the Financial Privacy Act of 2004 say they expect the industry to spend as much as $20 million to attempt to sway voters.

Fred Main, senior vice president of the California Chamber of Commerce, said businesses would rather find a compromise in the Legislature than fight an initiative. The ballot measure campaign has already attracted a $1-million donation from an executive of E-Loan, a money-lending company that competes with banks and supports tighter privacy restrictions.

“If you’ve got a million dollars in the bank and you can qualify a ballot measure,” Main said, “it’s something to be taken seriously.”

Initiative backers say they intend to gather the necessary 373,816 signatures in coming months, all the while hoping that the Legislature makes the effort unnecessary by passing a tough financial privacy law.

They say they cannot hope to raise as much money as the banks and insurance companies for an election campaign. But given public sentiment, they say, they won’t need it.

A poll of 426 voters in January by the Consumer Federation of the California Education Foundation found that 71% would strongly support an initiative to make businesses get consumer permission before selling any financial information. (The margin of error is plus or minus 5%.)

“We believe that if left unchecked,” said E-Loan Chief Executive Officer Chris Larsen, “the increasing consumer fears about who controls our most sensitive data will prove devastating to consumer confidence in our financial system and our economy broadly.”

Initiative backers have written the proposed measure and filed it with the state attorney general, who has 30 days to draft a title and summary. Backers then have 150 days to gather signatures to qualify the measure for the March 2004 ballot.

None of that may be necessary if the Legislature passes and Gov. Gray Davis signs into law the current version of SB 1 by Sen. Jackie Speier (D-Hillsborough), said Richard Holober, executive director of the Consumer Federation of California.

“If good legislation is enacted,” he said, “I think we’ll be satisfied with that.”

The bill is Speier’s third attempt in four years at a financial privacy law. It would prohibit a company from sharing information on a customer’s salary, debt history and home mortgage -- along with other data -- with outside companies unless the person gave permission. The proposed ballot measure is even tougher. It would also ban the sharing of financial data among a corporation’s affiliates without permission.

Main of the state Chamber of Commerce disputed the contention of consumer advocates that sharing financial information makes people more vulnerable to identity theft, in which a criminal uses a person’s Social Security number, date of birth or other information to open credit card accounts or borrow money.

He argued that banks and insurance companies keep information secure even when it is shared. Industry officials also argue that a ban would actually generate more junk mail and telemarketing calls as companies lost the ability to narrowly target potential customers.

The ballot initiative backers say they are not trying to leverage the Legislature. Instead, they say, they do not want to wait any longer to get a law on the books if Speier’s bill fails.

According to Speier, the proposed initiative has already changed the dynamics of the political fight, making banks and insurance companies more willing to negotiate. “The difference this year,” she said, “is that I believe that the financial services industry recognizes that the initiative is a threat.”