Calif. Assembly Committee Defeats Privacy Bill

According to the National Association of Independent Insurers (NAII), the California Assembly Banking and Finance Committee narrowly nixed proposed legislation that would have restricted the ability of businesses to offer expanded financial services to their customers.

SB 773 received five “yes” votes from the 11-member committee. Six votes were needed for passage.

SB 773, which already had passed the full Senate earlier in June, conflicted with federal privacy standards established in 1999’s Gramm-Leach-Bliley Act (GLBA). Another committee vote on the bill could be taken in early July.

Sam Sorich, NAII vice president and western regional manager said it is beneficial to consumers and business that California will retain its current privacy provisions, which have proven effective for more than two decades. He added that the rejection of SB 773 will allow the state to avoid costly and unwarranted inconsistencies, and gain time to evaluate how rules from GLBA are implemented.

By July 1, federal financial institutions are required to meet the privacy standards in GLBA. NAII is advocating that states enact legislation mirroring GLBA to avoid a hodge-podge of legislation that would be confusing and costly for consumers and insurers.

GLBA’s “opt-out” system for financial data mandates that financial institutions provide an annual notice to customers informing them of their right to “opt-out” of sharing their financial information with non-affiliated third parties. Unlike SB 773, GLBA does not restrict the flow of consumer information among affiliated entities. The Secretary of the U.S. Treasury is required to report to Congress by Jan. 1 whether the new federal privacy requirements are adequate.

According to the NAII, SB 773 would have ventured well beyond the basic privacy provisions in GLB by prohibiting any disclosure of customers’ information to nonaffiliates without the customer’s consent, or “opt-in.” It also would have allowed customers to “opt-out” the sharing of their information with company affiliates, which conflicts with the federal Fair Credit Reporting Act. The act specifies that no state law may limit information sharing with affiliates until 2004.

The NAII further states that while designed to protect the privacy of consumer financial information, the bill actually would have conflicted with state privacy protections for insurance information that have been in place and proven effective for nearly two decades. California’s current insurance privacy law, the Insurance Information and Privacy Protection Act, already gives consumers the right to opt-out of the sharing of information for marketing purposes. Consumers also have the right to inspect their personal information to have erroneous information corrected.

Topics California Legislation