The insurance industry has joined an appeal of a federal court decision that could raise roadblocks and increase the cost of cross-marketing of products by financial services companies to California residents.
The American Insurance Association and the American Council of Life Insurers has joined a number of other financial services and privacy associations in filing a friend of the court brief in American Bankers Association v. Lockyer, with the 9th Circuit U.S. Court of Appeals.
In their brief, the ACLI and AIA join other financial services industry trade groups in saying that, “… if not reversed, the district court’s decision will thwart Congress’ intent to develop a single national system for information sharing among their member institutions’ affiliates, create an unworkable hodgepodge of inconsistent state and local regulatory regimes, and deprive their members and consumers of the benefits and efficiencies of a single uniform system to govern affiliate-sharing.”
This inefficiency would also increase costs to consumers, the associations noted.
The associations are urging the appellate court to uphold the plain meaning of the federal Fair Credit Reporting Act (FCRA) amendments enacted in 1996 and reaffirmed in 2003.
The FCRA amendments establish a uniform federal standard for information-sharing among financial institutions, and their affiliates, and preempt state “affiliate-sharing” restrictions.
In July, a federal judge in Sacramento ruled that the 2003 law only established uniform privacy rules for credit reporting, and therefore did not stop California from enacting laws dealing with access to consumer financial records that exceeded federal standards.
In the decision, the court ruled that California’s more restrictive privacy law could function based on language in the 1999 Gramm-Leach-Bliley Act. The language said that states could enact privacy statutes more restrictive than national standards. The judge reasoned that California’s tougher privacy law, S.B. 1, which was enacted in August 2001, was exempt.
S.B. 1 requires financial services companies to get a customer’s written permission before allowing a company’s affiliate, with which the consumer did business, to try to market other products to that consumer.
In explaining why insurance trade groups are joining the appeal, Stephen Zielezienski, AIA vice president and associate general counsel, said, “The nature of insuring risk requires insurers to be able to collect, use, release and share information among affiliated companies for a number of business purposes, including risk assessment, the provision of insurance products and services to consumers that are appropriately tailored to their individual needs, and the detection and prevention of fraud.”
“The federal preemption provisions, that are the subject of this appeal, provide certainty to insurers that the sharing of consumer information among affiliates cannot be restricted by state laws like California’s S.B. 1,” added Victoria Fimea, ACLI senior counsel, litigation.