Update: California’s Financial Privacy Law

Totally Preempted  

We earlier reported the June 20, 2005 decision of the Ninth Circuit Court of Appeals[1] ruling that the Fair Credit Reporting Act (“FCRA”),[2] which permits financial institutions to share consumer data with affiliates on an “opt-out” basis, preempts California’s tough Financial Information Privacy Act, a consumer financial privacy law that has prohibited financial institutions’ sharing of private credit information without express consumer “opt-in” consent.[3]  The Ninth Circuit remanded the case, asking the district court judge to determine whether any portion of the California law might still survive.

On October 4, 2005, the U.S. District Court, on remand, found that California’s Financial Information Privacy Act is preempted, in its entirety, by federal law.[4]  Judge England refused to “rewrite” the California law so that it would still have some limited applicability, saying that this is not the role of a federal court. 

The definition of "financial institution" in the California law is very broad, generally extending to any company that is in the field of banking, lending, investments or securities, insurance and other businesses permitted for bank holding companies. Thus, for example, the California law prohibited companies that market "financial" services from sharing private consumer data, without express consumer approval, and would prohibit a broker dealer or investment advisory firm or insurance company from sharing private consumer data with its marketing affiliates.  Because so many “financial institutions” market to California customers, this decision has nationwide impact.

At this writing, it is not clear whether the California Attorney General and other defendants will appeal the trial court’s decision.  Also, the California legislature might consider new legislation that applies only outside of the context of financial institutions sharing information with affiliates, as this area would not be preempted by the federal “opt out” law.

For more information, contact:

Michael D. Schley	805-966-2940
Joseph F. Look	805-688-9226
Brett Locker	805-963-4929