Bankers Vow to Fight New Privacy Statute

California’s landmark financial privacy law took effect Thursday, with bankers promising to renew their fight to overturn restrictions on how they can share customer information.

The new law requires financial institutions to get permission from customers before sharing information, such as a customer’s bank balance or spending habits, with a nonaffiliated company.

Customers can also opt out of having their information shared or sold to companies with joint marketing agreements, such as a small bank that has a contract with another firm to offer its customers credit cards.

Three trade associations sued to overturn a part of the law that requires banks to give consumers the chance to stop the sale of information to an affiliate that’s not in the same line of business. For instance, the state law says a customer could stop a bank from sharing data with an insurance company owned by the same corporation.

U.S. District Judge Morrison C. England upheld the law Wednesday, dismissing the suit filed by the American Bankers Assn., the Financial Services Roundtable and the Consumer Bankers Assn.

England said the Gramm-Leach-Bliley Act, a 1999 law that specifically address financial privacy, allows states to enact stricter rules.

On Thursday, the trade groups said they would appeal the decision.

The bankers contend that the Fair and Accurate Credit Transactions Act, passed by Congress in 2003, preempts California’s restrictions on how affiliated companies can share customer data.

“The court has ignored Congress, has ignored the FACT Act and has used outdated cases to justify a poor decision,” said Joe Belew, president of the Consumer Bankers Assn. “We are confident that this flawed District Court decision will be overturned on appeal.”

Rich Whiting, head of the Financial Services Roundtable, said the court’s decision “would curtail the ability of consumers to obtain the services and benefits of dealing with integrated financial services firms.”

The author of the law, Sen. Jackie Speier (D-Hillsborough), said she wasn’t surprised the banking industry was fighting the law. “They’re not going to lose $400 million a year they get from selling our financial information without a fight,” she said. “This is very reminiscent of the fights I had for four years getting the bill passed.”

But, she said, the law is now in effect, “so score one for the good guys.”