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The failure of the federal government to enact an overarching law to deal with privacy issues has led to piecemeal federal and state laws that address portions of privacy concerns in different sectors. If this were not complicated enough, especially when it comes to corporate privacy compliance, now municipal governments are getting into the game. San Francisco is the latest municipal government to enact its own privacy legislation. Commencing in 2004, financial institutions that have customers or do business in San Francisco will be required to obtain consent and provide hard copy and electronic notice prior to disclosing personally identifiable financial information to affiliates or third parties. This move by San Francisco comes not only on the heels of the federal government’s failure so far to tackle privacy issues in a comprehensive way, but also follows California’s inability to pass financial privacy legislation last year. LEGISLATIVE INTENT A recent San Francisco ordinance amends the San Francisco Business and Tax Regulations Code to enact a new Article 20 to provide for protection of private financial information. This new article will be referred to as the “San Francisco Financial Information Privacy Ordinance,” and it becomes effective on Jan. 1, 2004 — less than one year from now. The ordinance states that the intent behind the new Article 20 is “to require financial institutions engaging in business in the City and County of San Francisco to provide their customers residing in the City and County of San Francisco with notice and meaningful choice about how consumers’ personal information is shared or sold by financial institutions.” Moreover, the ordinance proclaims that the new Article 20 is intended to “afford consumers greater privacy protection than provided … in the federal Gramm, Leach, and Bliley Act” and to afford “greater protection to consumers than is provided under the Fair Credit Reporting Act.” THE DEVILISH DETAILS The new Article 20 contains some detailed provisions that are “must” reading for any financial institution doing business in or who have customers in San Francisco. For example, a financial institution will not be able to disclose to or share a consumer’s confidential consumer information with any nonaffiliated third party or any affiliate unless (a) the financial institution has provided written or electronic notice to the consumer to whom the confidential consumer information relates, and (b) the financial institution has obtained a written or electronic consent acknowledgment from the consumer that authorizes the financial institution to disclose or share the confidential consumer information. In addition, a financial institution will be required to provide its written and electronic notices and consent acknowledgment forms to consumers as separate documents that are easily identifiable and distinguishable from other documents that otherwise may be provided to a consumer. Importantly, a financial institution will be prohibited from denying a consumer a financial product or financial service because the consumer has not provided consent to share his or her confidential consumer information. As with any legislation, new Article 20 contains exceptions to required compliance under certain types of circumstances. PENALTIES New Article 20 provides that any financial institution that negligently discloses or shares confidential consumer information in violation of the article will be liable for an administrative fine or civil penalty not to exceed $2,500 per violation. If such a violation is knowing or willful, the penalty for the first violation will be $2,500, the penalty for the second violation will be $10,000, and the penalty for the third and subsequent violations will be $25,000 each. For violations that are knowing, willful and that are for financial gain, the penalty for the first violation will be $5,000, the penalty for the second violation will be $25,000, and the penalty for the third and subsequent violations will be $250,000 each plus disgorgement of any proceeds or other consideration obtained as a result of the violations. PATCHWORK PRIVACY Privacy legislation similar to that enacted for San Francisco has passed in other municipalities, such as San Mateo County and Contra Costa County in California. Privacy is important. Still, confusion may reign, or at least significant sums will be spent by companies seeking to obey the privacy commands of different federal, state and municipal laws, if a comprehensive privacy law is not put in place by the federal government. That time has come. It will not be easy to achieve consensus on what that law should require, but in the long run, it should be better than the patchwork of differing privacy laws under one U.S. roof. Eric Sinrod is a partner in the San Francisco office of Duane Morris ( www.duanemorris.com), where he focuses on litigation matters of various types, including information technology disputes. His Web site is www.sinrodlaw.com, and he can be reached at [email protected]. To receive a weekly e-mail link to Mr. Sinrod’s columns, please type Subscribe in the subject line of an e-mail to be sent to [email protected].

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