SACRAMENTO, Calif. – Financial privacy legislation, one of the most hotly debated and heavily lobbied issues in the California Legislature this year, died a lingering death on the final day of the legislative session. Three separate attempts to pass some form of financial privacy legislation were all rejected. Even after two consecutive years of failing to pass financial privacy laws that would limit the sharing of consumer financial information, supporters vowed to try again. State Senate President Pro Tem John Burton promised to make the matter a “higher, hands-on priority next time.” Chris Larsen, chief executive officer of E-Loan, has vowed to put the matter before the public in the form of a ballot initiative in 2004 and has already funneled $1 million into the campaign. State Sen. Jackie Speier, who authored the Financial Information Privacy Act – SB 773 – said she would introduce more legislation next year. She said she would “not rest until consumers in this state have the privacy protection that they want.” “I will not stop until we have a strong privacy law in effect,” insisted Speier, a Democrat. Banks, insurance companies and other financial service firms poured millions of dollars into the coffers of legislators and Gov. Gray Davis in their effort to defeat the bill. They argued that SB 773 would limit their ability to serve their customers and would result in higher costs. They contended that Speier’s bill would “add another burdensome layer of bureaucracy for companies, driving up costs without providing any benefit to consumers.” They also argued that the measure carved out loopholes and exemptions for credit unions and others that would increase costs for consumers. Speier’s bill, which underwent hundreds of amendments, won the support of the California Credit Union League in the waning days of the two-year legislative session after it underwent numerous amendments. Other backers included the Consumer Federation of California, the AARP and Consumers Union. “The authors of SB 773 have worked extensively with credit unions to develop a bill that provides strong privacy protection for consumers in a manner that is less burdensome and less costly to implement then previous versions of the legislation,” the league said. “Further, the bill treats the sharing of information with affiliates and with third-party financial institutions in the same manner. This allows small institutions, which provide financial services through partnerships with third parties because they can’t afford to buy affiliates, to compete with large financial conglomerates. Competition in the financial services sector benefits all Californians because it provides consumers with choices and prevents large financial institutions from dominating the market.” The measure went through a torturous final few days, with charges that it would be held up or watered down mainly due to political infighting among lawmakers. Political wrangling and deal-making over the bill were rampant. Some lawmakers opposed to the Speier bill indicated they would support a much less stringent measure in order to prove to the public that they supported financial privacy legislation. At one point, Assembly Speaker Herb Wesson indicated he would block the Speier bill from coming up from floor debate and a vote. Under mounting political pressure, he eventually relented. Before getting to the Assembly floor, however, the Assembly Banking and Finance Committee amended the measure. Speier and her supporters said the amendment watered down the bill. That so-called “hostile amendment” was removed when the bill later emerged from the Assembly Judiciary Committee. When it got to the Assembly floor on Saturday, Aug. 31, the last day of the legislative session, Speier’s bill was killed on a 34-36 vote. It needed 41 votes to pass. Pro-business Democrats and Republicans voted against the measure. But that was not the end of the matter. First, Assemblyman John Dutra introduced amendments to weaken the bill, eliminating restrictions on how financial information was shared between affiliates. His bill was supported by Democrats and Republicans who had been opposed to Speier’s measure. Opponents called the amended bill a “sham.” Dutra’s bill was passed 49-12 in the Assembly shortly before midnight Aug. 31, but it received just one vote in the Senate. Finally, Assemblywoman Jackie Goldberg introduced a bill nearly identical to Speier’s in a last-minute attempt to pass some type of tough financial privacy legislation. It was passed by the Senate on a 27-10 vote and was sent to the Assembly Banking and Finance Committee, where it languished. California Credit Union League officials expressed disappointment that the Speier bill was killed. “We would have preferred to have privacy legislation approved this year,” a league spokesman said. He said the league would continue to work next year to see a similar measure passed. “We do think we’re positioned well to continue the battle next year,” he said. “It’s important that the league and credit unions have been in the debate up to this point and will continue to be in the debate.” With redistricting and term limits, some of the so-called moderate Democrats who voted against the bill the past two years could be replaced by more liberal, consumer-friendly members in the Assembly, according to political observers. The league said that if an initiative was placed on the March 2004 ballot, it could have a negative impact on credit unions. “. . .If a bill similar (to Speier’s) that credit unions find workable does not succeed next year, we know that consumer groups have stated they’re ready to begin gathering signatures in support of a ballot initiative that most likely will mandate a much more restrictive `opt-in’ requirement for financial institutions,” he said. “We know that presents a tremendous burden for credit unions.” “So it’s not so much an issue of whether it’s a piece of legislation or a ballot initiative, it’s what’s contained therein.” -

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