This article was originally published 8 September, 2008.
On September 4, 2008, the U.S. Court of Appeals for the Ninth Circuit issued an important decision in the case of American Bankers Ass'n v. Lockyer,No. 05-17163. This litigation focuses on the interplay between the restrictions on sharing information among affiliates in the California Financial Information Privacy Act (SB1) and the extent of federal preemption regarding the exchange of information among affiliated parties under the federal Fair Credit Reporting Act (FCRA). The decision, issued by a split panel, can be found on the website for the Ninth Circuit (http://www.ca9.uscourts.gov) under opinions filed on September 4, 2008.
Background. SB1 imposes notice and opt-out restr ictions on a financial institution seeking to share "nonpublic personal information" with an affiliate. Cal. Fin. Code § 4053(b). The FCRA preempts state laws with respect to the "exchange of information among persons affiliated by common ownership or common corporate control." 15 U.S.C. § 1681t(b)(2). The American Bankers Association, the Consumer Bankers Association, and the Financial Services Roundtable (trade associations) filed suit seeking declaratory and injunctive relief with respect to the enforcement of the affiliate sharing provisions in SB1. The federal district court originally held that SB1's affiliate sharing provisions were not preempted. On appeal, the Ninth Circuit held that the FCRA preempted state laws regarding affiliate sharing, but only to the extent that state law governed the sharing of "consumer report" information. American Bankers Ass'n v. Lockyer, 412 F.3d 1081 (9th Cir. 2005). On remand, the district court held that any non-preempted affiliate sharing restrictions in SB1 could not be severed, and therefore barred the state from enforcing the affiliate sharing restrictions in their entirety. The State of California then appealed.
The Decision. The Ninth Circuit reversed, holding that certain applications of the affiliate sharing restrictions in SB1 are not preempted, and that California law requires that the statute be judicially reformed to sever only the applications that are preempted.
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