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CALIFORNIA'S SB1 AFFILIATE-SHARING PROVISIONS SAVED FROM COMPLETE PREEMPTION BY NINTH CIRCUIT

The U.S. Court of Appeals for the Ninth Circuit has issued a new opinion in the continuing litigation over the California Financial Information Privacy Act, Cal. Fin. Code §§ 4050 et seq. (commonly known as "SB1") holding that the affiliate-sharing provision of SB1 has "non-preempted applications" and that California law requires the court to reform the provision to sever its preempted applications.

This case, American Bankers Association v. Lockyer, has a long procedural history. Most recently, in October 2005, the U.S. District Court for the Eastern District of California granted declaratory judgment in favor of the plaintiffs, the American Bankers Association, the Financial Services Roundtable and the Consumer Bankers Association on the grounds that the affiliate-sharing provision of SB1 (California Financial Code § 4053(b)(1)) is preempted by the federal Fair Credit Reporting Act (FCRA). The district court permanently enjoined enforcement of Section 4053(b)(1) to the extent preempted by the FCRA preemption provision, 15 U.S.C. § 1681t(b)(2).

The district court previously held in June 2004 that SB1 was not preempted by the FCRA, but the Ninth Circuit reversed and remanded the case in June 2005. The Ninth Circuit declared that the FCRA preempts SB1 insofar as it attempts to regulate the communication between affiliates of information as that term is used in 15 U.S.C. § 1681a(d)(1) of the FCRA (defining "consumer report"). On remand in October 2005, the district court determined that, applying this restricted meaning of "information," no portion of SB1's affiliate-sharing provision survives preemption.

The Ninth Circuit's latest opinion reverses the district court's determination that no portion of the affiliate-sharing provision survives preemption, concluding instead that the court must narrow Section 4053(b)(1) to exclude the regulation of FCRA consumer report information to effectuate the intent of the California Legislature.

The district court decision will likely require financial institutions to revise their privacy notices for California customers.

  • Elizabeth Anstaett