Consumer Federation of California

March 23, 2009

Ms. Elena Kagan, Solicitor General
U.S. Department of Justice
950 Pennsylvania Ave., NW
Washington, D. C. 20530-0001

RE:    Please Defend California’s Financial Privacy Law
         (American Bankers Association vs. Brown – Supreme Court docket # 08-730)

Dear Ms. Kagan:

On Monday, March 9, the US Supreme Court invited the Solicitor General to voice the Administration’s opinion in an appeal of the 9th Circuit Court’s ruling upholding most of the provisions of California’s landmark financial privacy law. The case is American Bankers Association vs. Brown (Supreme Court docket # 08-730).

We support the 9th Circuit’s decision to confer far less preemptive effect than the banking industry had sought in the case. The ruling held that  the only provisions of the California privacy law that were preempted by the Fair Credit Reporting Act were those that restrict financial institutions from sharing information that meets the FCRA’s definition of a consumer report. The 9th Circuit reversed the District Court, and the court reinstated the right of California consumers to control the sharing of their personal information within a family of affiliated companies, as long as the information is not a ‘consumer report.’

The banking industry has petitioned for certiorari and asks the Supreme Court to declare the affiliate-sharing provisions of California’s law fully preempted as to the exchange of any sort of information among a financial institution’s affiliates, which may number in the thousands. This is contrary to the privacy rights and interests of consumers and to the clear declaration of Congress in the Gramm Leach Bliley Act that states were free to regulate information-sharing practices where the federal government had failed to do so. California filled a regulatory vacuum with respect to sharing of information among affiliated financial institutions by enacting SB 1, allowing consumers to direct that their personal information not be shared with affiliates.

We urge you to take the side of consumer privacy and support longstanding principles of federalism that have permitted states to enact legislation to protect their citizens, particularly where the federal government has failed to act, by urging the Supreme Court to leave the 9th Circuit’s ruling intact. We believe this is not a case the Supreme Court should review.

California’s Financial Privacy Law (SB 1 of 2003 ‘ Speier) was enacted in response to the Gramm Leach Bliley Act (GLB) of 1999. GLB repealed the Glass Steagall Act, which had erected firewalls preventing cross ownership among three segments of the financial services industry: banks, brokerage houses and insurance companies. GLB was sold as a pro-consumer bill, that would create modern financial ‘supermarkets’ providing the convenience of ‘one-stop’ shopping for all our banking, insurance, investment and retirement needs at a single bank.  Recent events in our economy show the many failures in that approach.

Consumer advocates raised fears about GLB’s potential to compromise our privacy. These new financial supermarkets could easily create dossiers on our buying, earning, borrowing and investment histories by aggregating customer data from their bank, investment and insurance components, and sell or share this information for purposes such as marketing or profiling. In addition to privacy invasion, data sharing within and among these horizontally integrated financial behemoths could create new avenues for identity theft.

Congress responded by adding some mild privacy protections to GLB, including the annual privacy disclosure notices consumers receive in the mail. GLB gave consumers minimal rights to prevent the sharing or selling of private information with non-financial institutions, but placed the onus on the consumer to notify their bank, insurer or stock broker to stop sharing. GLB also allowed states to adopt stronger privacy protections.

For three years, the big banks killed every California attempt to give consumers greater control over personal financial information sharing. Finally, after consumer and privacy advocates collected 600,000 signatures to place a tough privacy initiative on the ballot, the banks acquiesced. Our polling showed unshakable 90% voter support for the financial privacy ballot initiative. To avoid a disaster at the polls, the banks accepted SB 1 as a compromise measure.

As soon as SB 1 was signed into law, the financial institutions ran to court to overturn it, arguing that other federal banking laws prevented state regulation of banks and brokerages. In September 2008, the 9th Circuit declared the right of California consumers to stop disclosure of their personal information among affiliated financial institutions, except where such information was a consumer report.

This ruling is significant because some large financial institutions have hundreds or even thousands of affiliates. In 2003, Citigroup furnished state lawmakers a list of 3,000 affiliated entities around the world, with which sharing of personal information was completely unregulated. The 2008 9th Circuit ruling confirmed the right of Californians to tell their banks not to hand out private information regarding what they earn, buy or borrow to hundreds of strangers.

After the passage of SB 1, the banking industry effectively adapted to these rules ‘ with no apparent difficulty, and with no further complaint.

We applaud President Obama’s decision to direct the Environmental Protection Agency to reconsider the prior denial of California’s request to set its own tailpipe admission standards. This state effort to reduce pollution and address the climate change crisis was opposed by the previous Administration, as were a number of state efforts to protect consumers from unfair practices in the financial services industry, including our efforts to protect personal privacy from banking industry abuse.

The new Administration also faces a preemption policy issue in the filing of its brief in Cuomo v. The Clearing House L.L.C, and the Office of Comptroller of the Currency, No. 08-453.  In that case, the prior Administration sided with the banks against state enforcement of civil rights laws in lending.  That brief is due on March 25, 2009.  For more discussion about the issues at stake for the Administration in preemption and national banks, see: https://www.consumersunion.org/pdf/Geithner-Ltr-209.pdf.

We urge you to provide reasoned, strong leadership leading to a reinvigoration of the rights of states to protect individuals in the privacy, financial services, and other issue areas. We ask you to stand with consumers by telling the Supreme Court to reject the banks’ appeal in Brown. This represents a defining moment for privacy rights. Federal law sets a floor, and the GLB permits the states to enact stronger consumer financial privacy protections. California’s landmark law has provided a successful model for the nation. Please defend our right to keep it strong.

Sincerely,

Richard Holober, Executive Director
Consumer Federation of California

Beth Givens, Director
Privacy Rights Clearinghouse

Pedro Morillas, Legislative Director
California Public Interest Research Group (CALPIRG)


Gail Hillebrand, Senior Attorney
Consumers Union of U.S., Inc.

Ken McEldowney, Executive Director
Consumer Action

Betty Perry, Public Policy Director
Older Women’s League

Nan Brasmer, President
California Alliance for Retired Americans

Chris Larsen, CEO, Prosper Marketplace
(Co-Founder of Californians for Privacy Now)

CC: President Barack Obama