Part of Financial Privacy Law Is Blocked

The U.S. 9th Circuit Court of Appeals blocked a portion of California’s landmark financial privacy law Monday, ruling that banks had a right to sell their customers’ private information to affiliated companies.

The appellate panel said that federal law preempted a portion of California’s 2003 privacy law, the toughest in the nation, but left most of it intact.

The part of the California law at issue is a section that gives consumers the right to block banks from selling their personal information to affiliates that are not in the same line of business. That could include a bank sharing data with an insurance company owned by the same corporation.

Three trade associations challenged that aspect of the law, but it was upheld in July by a federal judge in Sacramento. That judge ruled that a 1999 federal financial-privacy law allowed states to enact stricter rules.

The American Bankers Assn., the Financial Services Roundtable and the Consumer Bankers Assn. appealed. They said the federal 2003 Fair and Accurate Credit Transactions Act preempted California’s restrictions on how affiliated companies could share customer data.

A three-judge panel of the 9th Circuit agreed, reversing the lower court ruling and sending the case back to the district judge. The lower court judge, U.S. District Judge Morrison C. England Jr., will now determine whether any aspects of the California law dealing with this kind of information swapping may still be legal considering the 2003 federal law.

Specifically, England will decide whether any consumer information can be shielded from affiliated firms under the state law. Given that the appeals court sent the case back for further review, Monday’s ruling is not the “smashing preemption victory” that bankers had sought, said Tom Dresslar, a spokesman for Atty. Gen. Bill Lockyer.

“We’re going to fight as hard as we can to save as much of [the law] as possible,” Dresslar said.

The Consumer Bankers Assn. declined to comment while its attorneys reviewed the decision. The American Bankers Assn. and Financial Services Roundtable did not immediately return calls seeking comment.

The law still requires financial institutions to get permission from customers before sharing information, such as a customer’s bank balance or spending habits, with a nonaffiliated firm. Customers also can opt out of having their information shared with 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.

The 9th Circuit decision leaves two-thirds of the state law in effect, provisions that are tougher than federal law, said state Sen. Jackie Speier (D-Hillsborough).