THIS WEEK IN
Prepared by Norwood & Associates
Compromise Reached
on Privacy Legislation
An exuberant Senator Speier stood with representatives of consumers groups; insurers, banks and credit unions on Thursday to announce a compromise had been reached after four years of effort. Governor Gray Davis, who participated in the press conference by telephone, said he would sign the bill. SB 1 (Speier) failed to pass out of the Assembly Banking and Finance Committee in July and was thought to be dead for the year.
The financial services industry, however, continued to look for a way to restart negotiations. After the bill's failure, a United States District Court issued a mixed decision, which in part allowed local jurisdictions to regulate information sharing between banks and other third parties. Without a comprehensive bill such as SB 1, financial institutions could face a growing patchwork of conflicting laws from counties and cities.
In addition, privacy advocates successfully gathered almost 600,000 signatures to place a draconian initiative on the March 2004 ballot banning information sharing without first obtaining express written permission. Chris Larsen, the founder of E-Loan who funded the initiative drive, said he would not submit the signatures if a legislative solution could be reached. The financial services industry, especially insurers chaffing under the restrictions of Proposition 103, recognized a flexible legislative solution was preferable to the more restrictive initiative process.
The details of the compromise have not been released. However, the framework of SB 1 is left largely in place. Some of the changes which were announced included eliminating enforcement actions by district attorneys, allowing the transfer of more information to affinity card partners, simplification of the private notice, and pushing back the effective date to July 1, 2004.
The most controversial part of SB 1 regulating sharing of information with affiliates is expected to remain largely unchanged. However, the financial services industry appears to be increasingly confident these provisions are preempted by the Fair Credit Reporting Act. Thus, even though opposition to SB 1 has been removed, litigation to knock out some of its provisions is likely.
The deal still faces some significant hurdles. While most of the major trade associations have removed their opposition based on the outline of a deal, other companies are waiting to see the actual language before making a judgment. In addition, the moderate Assembly Democrats remain a wildcard. The history of SB 1 is quite stormy, and the moderate Assembly Democrats will be sure to closely read the bill before signing off. Senator Speier and the bill's supporters haven't counted votes yet because many legislators are still on summer vacation. However, she is assuming the bill will pass since most of the opposition has been removed.
Chris Larsen is keeping the pressure on. He said a legislative solution must be reached by Tuesday, August 19, or he will submit the signatures for an initiative the next day. He said waiting any longer would make it too difficult to qualify the initiative for the March 2004 ballot.
Not all opposition has been removed. The Foundation for Taxpayer and Consumer Rights, a.k.a. Harvey Rosenfield, is opposed to the bill. They called the bill "watered down" and a "half-loaf", and suggested the Governor was going to sign it for political reasons. They suggested the Governor could still fix the bill in the two days before Chris Larsen's deadline passes.
Harvey Rosenfield
Endorse Recall Effort
Harvey Rosenfield, a registered Independent and the author of Proposition 103, was so angered by Governor Davis' signature of SB 841 (Perata) that he considered running for governor himself in the recall election. SB 841 (Perata) allows auto insurance consumers to take their persistency, or loyalty, discount with them when they change insurers. The bill, supported by Mercury Insurance, was opposed by the Department of Insurance and Rosenfield's consumer group, the Foundation for Consumer and Taxpayer Rights. They argued the bill violated Proposition 103 because it made insurance more expensive for previously uninsured consumers.
Governor Davis vetoed a similar bill last year after the Governor's fund raising practices became an issue in the November 2002 election. The Governor conditioned this year's signature on the author's commitment to seek follow-up legislation before the session ends September 12. The follow-up bill would provide for a sunset date and a study by a neutral party over a five-year period to see if the persistency discount adversely affects low-income and previously uninsured individuals more so than the currently allowed loyalty discount.
The proposed sunset date and study are apparently not enough for Mr. Rosenfield. While he ultimately decided not to run for governor, he said he would support the recall effort.
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© Copyright 2003 by Norwood & Associates