WASHINGTON — Amendments to controversial privacy legislation endorsed by California Gov. Gray Davis were applauded by industry officials Thursday but panned by consumer advocates and the bill’s sponsor.

Gov. Davis’ foray has become the latest battle in the war over the legislation, which would go much further than current federal law by forcing banks to get their customers’ permission before sharing confidential information with third parties.

The California Democrat endorsed several key changes Tuesday such as eliminating a consumer’s right to sue an institution over privacy violations, significantly reducing the regulatory cost of violations, and adopting language and definitions from the 1999 federal privacy law. He also proposed exempting joint marketing agreements among nonaffiliated companies from the legislation’s opt-in provision.

Industry representatives said they were pleased with the changes.

“It certainly is a better approach than we have seen before,” said Matthew Street, an associate general counsel who tracks state legislation for the American Bankers Association. “One thing they do is bring in significant definitions from the Gramm-Leach-Bliley Act. What that would do is to bring the California statute on point with federal law, eliminating some potential conflicts and making compliance easier.”

But the bill’s sponsor, fellow Democrat state Sen. Jackie Speier, said she thought the governor had gone too far. “It’s a privacy plan that is spinning out of control and a blank check for the business community,” Sen. Speier told the San Francisco Chronicle. “I can’t imagine where the governor wants to go.”

Consumer groups held a press conference Thursday to protest the governor’s plan.

The surprise move by Gov. Davis blurred the bill’s future, as the state Legislature is scheduled to adjourn Sept. 14. The Assembly Appropriations Committee had been expected to vote on the bill Wednesday, clearing it for a vote by the full Assembly. But the panel postponed the vote to consider the governor’s amendments.

Though the state Senate approved a tough privacy bill in June, Sen. Speier still plays a key role and must decide whether to cut a deal with Gov. Davis or spend the few remaining legislative days working to keep her bill intact.

Though opponents have managed to kill this bill twice this year, it keeps coming back, and bankers are not counting on simply running out the clock.

“Is the time frame too short for them to do something? The answer is no, not in California,” said Jamie Clark, the vice president of government relations for the California Bankers Association. “It is not uncommon for legislation to go into late hours and get approved without even a printed version.

“I’m not sure if we got the nickname ‘the Wild West’ because of the way the Legislature operates or for some other reason.”

At the center of the proposed changes is the treatment of certain joint marketing agreements. In the Speier bill, institutions that share information with other companies under those agreements would be subject to “opt in” requirements that require express customer consent. But Gov. Davis’ proposal would require firms that share data with outsiders under certain types of contracts only to issue a notice that allows customers the opportunity to “opt out.”

Community bankers were particularly pleased with Gov. Davis’ changes because they primarily use joint marketing agreements to compete with larger institutions that share among affiliates.

“I think the language is very good, and we support it,” said Craig Hudson, the executive director of the California Independent Bankers. “Opt-out is considerably a less onerous regulation than the opt-in. We consider this a very significant concession, because it levels the playing field between the larger institutions and community banks.”

In both the Speier bill and Gov. Davis’ proposal, institutions sharing just among affiliates would have to send opt-out notices. That goes further than Gramm-Leach-Bliley, which requires opt-out notices only for sharing with third-party marketers but left the door open for states to impose tougher restrictions. Click here for a related Viewpoints article.

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