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Tuesday, February 9, 2010

American Bankers Association v. Brown: Whether California’s Financial Information Privacy Law Has Been Preempted by the Fair and Accurate Credit Transactions (FACT) Act

M. Maureen Murphy
Legislative Attorney

On June 29, 2009, the Supreme Court left standing an appellate court ruling in American Bankers Association v. Brown ___ U.S. ___, 129 S. Ct 2893 (2009), a case which may draw attention from legislators as they consider remaking the regulatory structure of the financial services industry because it involves federal preemption and state consumer protection laws. Specifically, the case involves the interaction between a California financial privacy law and provisions of federal law permitting the sharing of customer information among affiliated companies. The appellate court has determined that although the bulk of the California statute must accede to federal preemption, California law requires that applications of the California law not preempted by the federal law must be identified so they may be enforced. The parties, the American Bankers Association and the Financial Services Roundtable, urged the Supreme Court to reject this ruling on the grounds that the California law is explicitly preempted by federal law. Before deciding whether to review the case, the Supreme Court invited the Solicitor General of the United States for a brief outlining the position of the United States on the issues. After receiving the Solicitor General's amicus brief, which did not favor Supreme Court review, the Court chose to deny the petition for review. Earlier in the case, the Comptroller of the Currency and the Federal Trade Commission had argued for preemption. 

The case involves P.L. 108-159, the Fair and Accurate Credit Transactions (FACT) Act of 2003, which extends a clause in the Fair Credit Reporting Act (FCRA) purporting to preempt state law and, thereby, establish a national standard for the sharing of consumer financial information among affiliated companies. The legislative history of the FACT Act indicates awareness that California's Financial Information Privacy Law, enacted in 2003, would be preempted. Nonetheless, on June 30, 2004, a federal court ruled, in American Bankers Association v. Lockyer, that the FACT Act preempted state law only with respect to credit report information and that an anti-preemption clause in the privacy title of P.L. 106-102, the Gramm-Leach-Bliley Act of 1999, permits states to enact more protective laws such as that of California. The federal banking regulators and the Federal Trade Commission joined the plaintiffs in urging the U.S. Court of Appeals for the Ninth Circuit to reverse the decision and to expedite the appeal. On June 20, 2005, the appellate court reversed the district court ruling and found that the FACT Act preempted the California law to the extent that it attempted to regulate communication among affiliated companies of information covered by the FCRA's definition of "information." On October 4, 2005, the district court issued an injunction against enforcement of the California statute's affiliate information sharing provisions, having found that distinguishing information shared among affiliates that is covered by the FACT Act from that which could survive was not practicable. California appealed this ruling and prevailed at the appellate level, in American Bankers Association v. Lockyer, 541 F. 3d 1214 (9th Cir. 2008). The Supreme Court left standing the ruling of the Court of Appeals for the Ninth Circuit that the preempted applications of the California law must be severed and non-preempted applications identified so that they may be enforced. 

Various measures, including H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, which was passed by the House of Representatives on December 11, 2009, and a discussion draft of comprehensive legislation restructuring federal regulation of the financial services industry, would transfer the Office of the Comptroller of the Currency's (OCC's) consumer protection functions to a separate federal agency, the Consumer Financial Protection Agency (CFPA). H.R. 3310 would consolidate banking regulation in a single regulator.

Date of Report: January 27, 2010
Number of Pages: 19
Order Number: RL32626
Price: $29.95

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