Feinstein, Boxer's financial privacy proposal shot down
Senate rejects effort to preserve state's new disclosure law

Edward Epstein, Chronicle Washington Bureau

-- California's two senators were routed Tuesday in their effort to preserve a key part of the state's new financial privacy law that bans financial institutions from sharing customers' bank and credit card balances, shopping habits, work history and other personal data with companies under the same, sometimes vast, corporate umbrella.

The 70-24 vote to table an amendment offered by Democratic Sens. Barbara Boxer and Dianne Feinstein was no surprise, because their proposal was opposed with vigorous lobbying by powerful banking, insurance, retailing, credit card and securities industry forces.

But advocates of California's new law said that even with the Senate vote,

which follows passage of a House bill that took an even tougher stand against California's law, the state will have the nation's strongest financial privacy law when it takes effect July 1.

The senators tried Tuesday to amend legislation renewing the 1996 Fair Credit Reporting Act, which is expected to be approved later this week with broad bipartisan support. Proponents say the overall act has helped consumers and the economy by making mortgages, auto loans and credit cards more readily available to people across the country. The bill also contains new identity theft protections.

The financial industry argued the Feinstein-Boxer amendment would devastate the sharing of information that has helped make consumer credit more available and less expensive.

At issue is the new California law's crackdown on so-called affiliate sharing. The measure, passed after a four-year battle, would severely limit financial industry giants like Bank of America, which has 1,323 companies in such businesses as mortgage lending and insurance as part of its vast conglomerate. The state law would allow consumers to block sharing of their information for just about any reason among those companies.

'A weak privacy standard'

The Senate bill, which passed the Banking Committee by voice vote last month, blocks affiliate sharing only to protect customers from being bombarded by unwanted marketing offers. "This is a weak privacy standard built for businesses at the expense of consumers,'' Feinstein said. She said affiliated companies would still be free to share information about customers' history and habits to create internal credit reports, deny health or life insurance policies and make hiring decisions.

Advocates of California's law also say that unbridled affiliate sharing makes the growing crime of identity theft easier.

The unsuccessful Feinstein-Boxer amendment used California's law as the basis for creating a national standard.

"I don't expect the bank I do business with to give my information to thousands of affiliates. And guess what? I don't think the majority of Americans do either,'' Feinstein said on the Senate floor.

Boxer said the Senate provision, which strengthens current rules on affiliate sharing and permanently bars any state from adopting tougher rules, was too weak.

"Your bill oughtn't be a ceiling,'' she said to the Banking Committee's leaders, Sen. Richard Shelby R-Ala., the committee's chairman, and Sen. Paul Sarbanes of Maryland, its ranking Democrat. "Not all wisdom resides here.''

Constant complaints

Shelby, who has a reputation as one of Congress' strongest privacy advocates, defended his proposal. He said that during a year of work on the credit reporting act, he heard constant complaints from consumers tired of being bombarded with business offers, reminiscent of complaints that led Congress to create a "do-not-call list'' aimed at phone solicitors. "From a consumer's perspective, there's no difference between a company sharing information internally between departments and sharing between affiliates,'' he said.

Sarbanes said the committee's bill "is a significant improvement over existing law. ... It may provide more protections for consumers than the amendment,'' he said, pointing out that the Feinstein-Boxer amendment exempted information sharing among affiliated companies in the same line of business.

Shelby also said his bill had to walk a fine line to come up with bipartisan support and win House approval when a conference committee irons out differences between the two bills.

Feinstein repeated her charge that the financial industry finally agreed to allow California's law to be enacted last summer only because it knew it could then turn to Congress to gut the state law. "Clearly, there's a bit of chicanery afoot,'' she said.

Industry spokesmen deny they acted in bad faith, pointing out they told advocates of the state law that their proposal conflicted with federal law.

The main sponsor of California's law, state Sen. Jackie Speier, D- Hillsborough, said all was not lost.

Vote 'predictable'

"The vote was predictable, but it leaves California consumers, even with this vote, with the strongest financial privacy law in the country,'' Speier said, adding that California credit unions have agreed to follow the state's new standard even if it is pre-empted by federal action.

Starting in July, financial institutions will still be required to get their customers' approval before they share or sell their information to unaffiliated companies.

But the National Retail Federation hailed the amendment's defeat. "The Feinstein-Boxer amendment could adversely affect retailers' ability to offer basic customer service and the access to credit that customers have come to expect,'' said Steve Pfister, the group's Capitol Hill representative.

Shelley Curran of the Consumers Union in San Francisco predicted that more court challenges are still likely surrounding the affiliate-sharing issue.

A California court has already ruled against a local law barring affiliate sharing.

"I don't think we should throw in the towel. It's an issue that's not going away,'' she said.

Feinstein said consumers should ask their financial institutions if they will voluntarily not share their private data with affiliated companies. "I'm going to change banks if they won't do it,'' she said.

E-mail Edward Epstein at eepstein@sfchronicle.com