The California Assembly rejected a bill that would have toughened privacy restrictions on financial companies by a vote of 32 to 26 early Friday morning.
A score of members abstained from the voting, which took place at 1 a.m. Pacific time. Forty-one votes were needed for passage.
The opt-in bill, authored by Democratic state Sen. Jackie Speier, would have required financial institutions to get written customer consent before sharing their information with affiliates or third parties. It would have gone beyond federal privacy protections in the Gramm-Leach-Bliley Act of 1999, which put the onus on customers to opt out of information sharing and only when data are shared with third parties.
Gramm-Leach-Bliley specifically allows states to enact tougher privacy laws, but no state bill trying to take advantage of that authority has succeeded.
Clearly, the industry is very pleased that reason has prevailed, said James L. Pitts, executive director of the Financial Services Coordinating Councils privacy project. Given Tuesdays events, it highlights that this is a time when the industry has had huge losses, both personally and financially.
Matthew Street, an associate general counsel who tracks state legislation for the American Bankers Association, agreed that now was not the time to saddle the industry with new regulations.
This is not a good time to lay something extra on the industry, he said Friday morning. And it is not necessary because Gramm-Leach-Bliley protects consumers enough.
Craig Hudson, executive director of the California Independent Bankers Association, said he believes the bill was killed, at least in part, because his banks and the credit unions would not support it.
I kept hearing, Where are the smaller financial institutions? Where are the credit unions and community banks? And as we continued to hold firm in our positions, more and more moderate Democrats voted against it, Mr. Hudson said.
Sen. Speier had made numerous last-minute changes to appease smaller banks, but to no avail.
The industry was also aided when Democratic Gov. Gray Davis refused to endorse the bill after earlier attempting to reach a compromise with Sen. Speier. The governor had been expected to have some amendments introduced on his behalf, but did not do so.
Insiders doubted Sen. Speier would try to get the bill passed by midnight Friday - the end of the legislative session. However, since it did clear the Senate, it can automatically be considered again next year.