Calif. Judge Gives Split Decision on Local Privacy Ordinances

July 30, 2003

A split decision issued July 29 by a federal judge in California in a case related to local privacy ordinances is a case of good news/bad news for insurers and other financial services companies, according to the Alliance of American Insurers.

The decision, rendered by Judge Claudia Wilken of the U.S. District Court for Northern California, came in the case of Bank of America v. Daly City. The case challenges financial privacy opt-in ordinances passed by several San Francisco Bay area local governments that have attempted to regulate sharing of consumer information, exceeding the privacy provisions of the federal Gramm-Leach-Bliley (GLB) Act.

The positive part of Judge Wilken’s 23-page ruling strikes down the attempts to enforce opt-in requirements for the sharing of consumer information between and among affiliated financial institutions. However, she upheld the restrictions upon disclosures to non-affiliated third parties.

“While striking down the affiliate-sharing provisions of the ordinances was a very positive development for insurers, perhaps the most disconcerting aspect of the judge’s ruling is her statement that ‘states and local governments are free to enact law affording some protection to consumer privacy greater than that provided by federal law,'” said Rey Becker, Alliance vice president of property/casualty. “This could spur enactment of hundreds of local ordinances in California alone. It is absurd to use such a balkanized approach to regulate a multi-national industry.”

Becker added that “the insurance industry has been complying with California’s insurance privacy law for more than 20 years. It makes no sense to reinvent the wheel.”

Enforcement of the ordinances was stayed for 60 days. The ordinances in question are in place in Daly City, Alameda County, Contra Costa County, and San Mateo County.

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