BofA, Wells Fight Local Financial Privacy Rules

In a preemptive strike against local financial privacy laws, Bank of America Corp. and Wells Fargo & Co. asked a federal judge Friday to block cities and counties from limiting banks’ ability to share information about customers with other institutions.

Attorneys for the banks and for the Bay Area municipalities that have passed privacy laws made their arguments before U.S. District Judge Claudia Wilken in Oakland. The judge said she would issue a ruling later.

The banks want her to invalidate laws in Daly City, San Mateo County and Contra Costa County that are to take effect Sept. 1. Unlike the federal Graham Leach Bliley Act, which allows banks to share financial information with third parties unless customers expressly forbid it, the local laws require customers to give their explicit OK before banks may provide the information to other companies -- or even their own affiliates.

“In other words, it puts the onus on the banks to get our permission first” before turning over financial information to other institutions for marketing purposes, said San Mateo County Supervisor Michael Nevin, the former Daly City mayor who has backed the ordinances.

The banks’ immediate objective is a court ruling that the local laws are preempted by three federal laws, including the Graham Leach Bliley financial deregulation act adopted by Congress in 1999.

Under that law, banks are allowed to share financial information about customers with their own affiliates and with third-party financial firms, primarily insurance companies with which they have so-called joint-marketing agreements.

Charlotte, N.C.-based Bank of America and San Francisco-based Wells Fargo say they already strive to protect their customers’ privacy. BofA never releases financial data to outside companies, and Wells releases data only to insurers with which it has joint-marketing agreements.

BofA believes its privacy policies are a significant advantage in attracting privacy-minded consumers, spokesman Harvey Radin said.

The banks’ suit is just one front in their battle to establish that only federal lawmakers and regulators may exercise control over the banking practices of nationally chartered banks.

In similar legal actions, BofA, Wells and other national banks have argued that their sole regulator is the U.S. Office of the Comptroller of the Currency.

The banks contend that the only consistent way to regulate the industry is through national standards and that barring information sharing with affiliates would make it impossible for them to provide high-quality service to customers.

“How does a national bank operate if individual states and even municipalities can each impose their own privacy rules?” said Wells Fargo spokeswoman Mary Trigg. “It’s just too expensive with a patchwork approach like that.”

But attorneys for the local governments argued that Congress intended to allow state and local entities to make tougher laws, such as opt-in laws, when it comes to financial privacy.

Nevin said the banking industry had spent $32 million to defeat a series of financial privacy laws sponsored by state Sen. Jackie Speier (D-Hillsborough), including $20 million last session.

Because such legislation has been thwarted so often, backers of the local laws believe “sometimes law has to trickle up,” Nevin said.

“And one of those times is when there’s not the incentive or the willingness in Sacramento to do the right thing.”

Five other Northern California counties -- Alameda, Solano, Marin, Santa Cruz and San Francisco -- have passed privacy ordinances and have been or expect to be sued soon, Nevin said.

He said he hoped that the local laws, popular with telemarketer-weary constituents, would create enough pressure that state legislators would be forced to adopt a strong privacy law.