Volume III

Issue : 13: June 30, 2005

• 40 Million Credit Card Accounts Compromised
• U.S. Appeals Court Rules on Californias Financial Privacy Law
• Microsoft Sues Alleged Hotmail Spammer
• New Kentucky Law Attempts to Regulate Internet Pharmacies
• Maryland Court to Decide Whether to Lift Cloak of Anonymity in Internet Defamation Suit
• FTC Issues Report on P2P File Sharing
• Canadian Federal Government Introduces New Copyright Bill
• U.S. Supreme Court Rules in MGM v. Grokster

Home > Volume III > Issue 13: June 30, 2005 > U.S. Appeals Court Rules on Californias Financial Privacy Law

U.S. Appeals Court Rules on Californias Financial Privacy Law

The U.S. Court of Appeals for the 9th Circuit has rendered a decision that will block a portion of California's Financial Information Privacy Act (known as "SB1"). The Court was asked to examine that statute in light of the federal Fair Credit Reporting Act ("FCRA") as amended by the federal Fair and Accurate Credit Transactions Act of 2003 (the "FACT Act"). The Court provided its interpretation of the federal statute but remanded the matter back to the District Court to determine the extent to which the California law is pre-empted.

The provision of the California law in question is the section that prohibits financial institutions from sharing consumer credit information with affiliates without first advising consumers and giving them an opportunity to opt out. A group of financial institutions brought the case to request the Court to rule that this aspect of the California law is pre-empted by the federal law. The Court of Appeals interpreted the word "information" in the federal law as information "bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation.to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility" for credit or insurance etc. The Court of Appeals held that the California law is pre-empted to the extent it applies to this type of information. Although the District Court has yet to apply this interpretation of the federal statute to the California statue, it appears that the effect will be that a financial institution can share consumer credit information with an affiliate for credit rating purposes. For example, a bank could sell information to an affiliated insurance company. However, the information could not be used for marketing purposes without prior notification to consumers with a chance to opt out. The decision does not affect the portions of the law that apply to disclosure of personal information to non-affiliated parties.

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