Gov. Gray Davis signed California financial privacy legislation into law Aug. 28, enacting one of the nation’s most restrictive state privacy measures, according to the Association of California Insurance Companies (ACIC), an affiliate of the National Association of Independent Insurers (NAII).
“The reality is that insurers will be faced with significant cost burdens in order to comply with the new laws’ provisions about the handling of private, non-public information,” said Sam Sorich, ACIC president. “This is unfortunate because current state statutes have served consumers and companies well for more than two decades. Furthermore, the California bill goes well beyond the current federal privacy requirements established by the Gramm-Leach-Bliley Financial Modernization Act of 1999, and the information showing requirements of the Fair Credit Reporting Act (FCRA).”
California’s new law, which takes effect July 1, 2004, places restrictions on the exchange of information with affiliated companies, making it difficult to provide services to customers. The law, with some exceptions, requires a financial institution to provide a consumer with an option to “opt-out” of the disclosure of his or her nonpublic, personal information to affiliated entities and to obtain a consumer’s written consent (“opt-in”) before sharing information with third parties. The new California law creates severe inconsistencies with the national standards, forcing insurers and other financial institutions to develop “California-only” systems to comply with the new law.
“Imposing these inconsistent standards will increase costs and impose barriers on companies’ ability to provide a broad range of services to their California customers,” Sorich said. “It will make doing business in the state more difficult and further damage an already sagging economy.”
California’s new privacy law also could have implications well beyond the state’s borders.
“One state’s mistake must not become a national blunder,” said Carl Parks, NAII’s senior vice president of government relations. “It is essential that the California bill does not become the example nationally as Congress debates the reauthorization of the FCRA.”
Congress is considering legislation to reauthorize seven preemptions to the FCRA, set to expire Jan. 1, and is expected to pass legislation shortly, according to the NAII. The new California law appears to violate one of the most crucial preemptions involving the sharing of information with affiliates.
The Alliance of American Insurers also commented on the privacy bill:
“There is good news and bad news from Sacramento,” said Rey Becker, vice president of property/casualty for the Alliance, commenting on the recent enactment of SB 1. “The good news is that insurers will no longer need to worry about three vexing issues that had been looming on the horizon:
·A costly initiative fight on the March 2004 statewide ballot,
which will no longer be filed;
·Compliance with several onerous local privacy ordinances in the San Francisco Bay area that are now preempted; and
·Redundant involvement by the Attorney General’s Office in financial privacy enforcement, an area already handled by the Department of Insurance.
“Another positive is that, to the extent SB 1 intrudes upon disclosures
between and among affiliates, it is probably preempted by the federal
Fair Credit Reporting Act.
“However, the bad news is that California becomes the fourth state to impose a costly and burdensome new insurance ‘opt-in’ system, joining New Mexico, North Dakota and Vermont. This means fewer choices and higher premiums for insurance consumers in these states.”
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