AIA Says SB1 Discriminates Against Companies

February 20, 2003

The California Senate Judiciary Committee debated and approved a privacy measure Feb. 18 that would discriminate against companies based on their corporate structure and would create “California-only” rules for financial institutions operating in the state, the American Insurance Association (AIA) reported.

The measure, SB 1 authored by Sen. Jackie Speier (D), would create an opt-in system for information sharing among non-affiliated third parties and an opt-out system for information sharing between affiliates.

“This legislation would create different rules for different types of businesses simply based on their legal structure which would inevitably result in winners and losers in the marketplace,” said Bill Gausewitz, AIA assistant vice president, western region. “This measure would invade the internal operations of a company and would discriminate between companies with different corporate structures. Companies organize with separate affiliates for a variety of reasons including tax purposes, regulatory requirements or civil liability protection. Under the proposed law approved yesterday, a company that organizes with affiliates would be unfairly held to a stronger privacy standard than a corporate entity that is organized as a wholly-owned company with divisions. Companies that contract for services would be held to an even higher standard.”

The privacy practices of insurance companies operating in California are currently regulated by the Insurance Information and Privacy Protection Act (IIPPA). Existing law restricts insurers’ information sharing practices and also requires that notices regarding a company’s privacy policy be provided to policyholders.

“This bill will create California-only rules for companies that offer financial services products in all 50 states,” said Gausewitz. “SB 1 would require insurers, banks and other financial institutions to send a separate and unique California-specific privacy notice to customers. Insurers are already required to send two notices in order to comply with the IIPA and the federal Gramm-Leach-Bliley Act. If the Legislature wants to mandate a privacy notice in California, there is no logical argument against drafting the law to allow consolidation with existing privacy notice requirements.”

“California already has a host of privacy laws. Since 1999, more than 40 laws have been passed that limit the use of Social Security numbers, create do-not-call lists for telemarketers, create 800-numbers for consumers to avoid direct marketing and requirements for disposal of consumer information,” said Gausewitz. “The Legislature should evaluate the impact of existing laws before mandating complex new requirements on the financial services industry.”

“It is still very early in the 2003 legislative session. This issue will be debated and argued before several more committees. The financial services industry is working very closely with the legislature to explain how their policy decisions will affect consumers and businesses that operate in California,” said Gausewitz.

SB 1 was approved by a partisan vote of 5-2 by the Senate Judiciary Committee. The bill will now advance to the Senate Appropriations Committee.

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