Plaintiffs Bank of America and Wells Fargo attended a hearing in the U.S. District Court for the Northern District of California on May 30, 2003 in connection with lawsuits filed against the Daly City, Contra Costa and Alameda Counties regarding “opt-in” financial privacy ordinances. The lawsuits, filed on September 10, 2002, October 10, 2002 and May 5, 2003 respectively, have since been consolidated.

The plaintiffs reportedly urged U.S. District Judge Claudia Wilken to block cities and counties from enforcing the ordinances on federal preemption grounds. The complaint in the Daly City case alleged that the ordinances would constrain the plaintiffs from sharing information about their customers contrary to their rights under the federal Fair Credit Reporting Act, the National Bank Act and the Gramm-Leach-Bliley Act. The case heard Friday is likely to affect similar laws recently passed in San Francisco and Santa Cruz County.

These cases demonstrate the breadth of the current preemption debate, moving from specific issues of exportation under usury preemption to broader issues affecting bank practices and operations. Bold statements of authority by the Office of the Comptroller of the Currency and other federal regulators, continuing industry challenges to the exercise of state authority and a series of legal victories in various courts, as well as rising state and potential congressional reaction, are setting the stage for possibly significant changes in the general understanding of financial services regulation at the state, federal and local government levels. These changes bring into question fundamental principles and historical perspectives and may have a dramatic impact on the future landscape of the consumer financial services industry. While the ultimate outcome may yet be uncertain, understanding the regulatory chess game that is unfolding will be critical to identifying and addressing the changes in the relative competitive advantages and disadvantages among industry participants that will develop as the result of legal, rather than economic, influences. DLT lawyers regularly monitor these changes and have participated in several recent programs describing emerging issues and trends in the ongoing debate.

Mike Tomkies