Despite Support, Federal Privacy Legislation Lags On Agenda

Register now

National preemption of state financial privacy laws-which the financial services industry badly wants-may not be in the policymaking cards this year.

Treasury officials and lawmakers have began putting their political capital behind renewing a data-sharing provision in the Fair Credit Reporting Act that expires Dec. 31. However, in doing so they signaled that they will not push for a broader, more controversial federal privacy preemption.

"We're not thinking of creating any brand-new uniform standards," said Wayne A. Abernathy, the Treasury assistant secretary for financial institutions. "Our feeling is that the uniform standards that are there now have worked very well. There are a lot of things the states can do under current law that they should be able to continue to do."

Permanent Renewal

"What we have in mind is just renewing those provisions that are set to expire this year and making them permanent," Abernathy said when asked to clarify references to "uniform national standards" in a speech to the Exchequer Club.

Sen. Tim Johnson, the top Democrat on the Senate Banking Committee's financial institutions subcommittee, took a similar stance in introducing legislation. His proposed law would make permanent the Fair Credit provision that prevents states from passing laws on a handful of data-sharing issues involving credit reports and other lending practices. Sen. Johnson pointedly did not include a broad financial privacy provision in his bill.

"Given the short time frame for reauthorizing FCRA preemption, I feel strongly that we must keep our eye on the ball," the South Dakota Democrat. "I understand that broader issues may be included in the debate. However, we must not let any additional controversy jeopardize the ability of millions of working American families to access credit at reasonable rates."

Even Rep. Spencer Bachus, the Alabama Republican who heads the Financial Services Committee's financial institutions subcommittee and supports renewing the Fair Credit provision, stopped short in a recent interview of endorsing a broad federal preemption on financial privacy.

Sources close to the administration and Congress said that such positions, especially on the part of the Treasury, are more tactical than philosophical. "It preserves more options for the White House and allows them to take a step back from the controversial aspects of the debate," said an official who did not want to be identified.

The Treasury's recommendations on the Fair Credit Reporting Act-which will be unveiled in a report in the coming weeks-are linked to initiatives on identity theft and improving the customer/member notices mandated by the Gramm- Leach-Bliley Act of 1999.

To be sure, Abernathy emphasized that the Treasury's interest in making the notices more reader-friendly could open the door to more sweeping privacy legislation-including federal preemption of state laws and a tougher federal standard.

The privacy hawks who run the Senate Banking Committee-Chairman Richard Shelby (R-AL) and the ranking Democrat, Paul Sarbanes of Maryland-have made it clear they would like to tighten the federal privacy standard adopted by the Gramm-Leach-Bliley Act of 1999.

No Stated Position

Neither Sen. Shelby nor Rep. Michael G. Oxley (R-OH), the chairman of the House Financial Services Committee, have explicitly said whether they support making data-sharing preemptions in the Fair Credit law permanent. Though no one knows how these issues will play out this year, most observers believe both chairmen will wait until late in the year to announce their positions.

The consensus is that Rep. Oxley will endorse renewing the Fair Credit preemptions, while Sen. Shelby will support them if existing privacy laws are tightened.

For reprint and licensing requests for this article, click here.