AAI Troubled by Calif. Local Governments’ Efforts to Control Privacy

September 23, 2002

Recent moves by several California local governments’ to pass onerous financial privacy “opt-in” ordinances are wrongheaded and will only serve to drive financial services companies from the state, decreasing consumer choice, according to the Alliance of American Insurers.

The ordinances already have been adopted in Berkeley, Daly City and San Mateo County and are being considered by Alameda, Contra Costa and Marin counties, as well as the City of San Francisco, according to an Alliance expert who has been following the privacy issue’s impact on insurers. All are similar to (SB 773), which died in the closing hours of the legislative session last month. A “model” ordinance has been circulated to county officials around California. Two banks have challenged these ordinances in federal court.

“Not only is the legality of these moves highly questionable, but it just doesn’t make sense to regulate what amounts to a global industry on a county-by-county, city-by-city basis,” Rey Becker, Alliance vice president of property/casualty, remarked. “The state Legislature had the good sense to kill the privacy bill this past session because the lawmakers realized it would only serve to make California a very unattractive venue in which to conduct the business of financial services.”

Two banks filed suit in the last week in U.S. District Court for the Northern District of California challenging the Daly City and San Mateo County ordinances (Bank of America NA v. City of Daly City). Federal preemption arguments are central to the case, involving the federal Fair Credit Reporting Act, the National Bank Act, and the Gramm-Leach-Bliley Act.

Those same banks successfully challenged local automatic teller machine surcharge ordinances two years ago.

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