American Bankers Ass'n. v. Gould

• Decision Date: 20 June 2005
• Docket Number: No. 04-16334.,No. 04-16560.,04-16334.,04-16560.
• Parties: AMERICAN BANKERS ASSOCIATION; The Financial Services Roundtable; Consumer Bankers Association, Plaintiffs-Appellants, v. Howard GOULD, in his official capacity as Commissioner of the Department of Financial Institutions of the State of California; William P. Wood, in his official capacity as Commissioner of the Department of Corporations of the State of California; John Garamendi, in his official capacity as Commissioner of the Department of Insurance of the State of California; Bill Lockyer, in his official capacity as Attorney General of California, Defendants-Appellees. American Bankers Association; The Financial Services Roundtable; Consumer Bankers Association, Plaintiffs-Appellants, v. Howard Gould, in his official capacity as Commissioner of the Department of Financial Institutions of the State of California; William P. Wood, in his official capacity as Commissioner of the Department of Corporations of the State of California; John Garamendi, in his official capacity as Commissioner of the Department of Insurance of the State of California; Bill Lockyer, in his official capacity as Attorney General of California, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

412 F.3d 1081

AMERICAN BANKERS ASSOCIATION; The Financial Services Roundtable; Consumer Bankers Association, Plaintiffs-Appellants, v. Howard GOULD, in his official capacity as Commissioner of the Department of Financial Institutions of the State of California; William P. Wood, in his official capacity as Commissioner of the Department of Corporations of the State of California; John Garamendi, in his official capacity as Commissioner of the Department of Insurance of the State of California; Bill Lockyer, in his official capacity as Attorney General of California, Defendants-Appellees.

American Bankers Association; The Financial Services Roundtable; Consumer Bankers Association, Plaintiffs-Appellants, v. Howard Gould, in his official capacity as Commissioner of the Department of Financial Institutions of the State of California; William P. Wood, in his official capacity as Commissioner of the Department of Corporations of the State of California; John Garamendi, in his official capacity as Commissioner of the Department of Insurance of the State of California; Bill Lockyer, in his official capacity as Attorney General of California, Defendants-Appellees.

No. 04-16334.

No. 04-16560.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 6, 2004.

Filed June 20, 2005.

E. Edward Bruce, Keith A. Noreika, Covington & Burling, Washington, D.C.; Richard A. Jones, Covington & Burling, San Francisco, CA, for the plaintiffs-appellants.

Kimberly L. Gauthier, California Department of Corporations, Sacramento, California; Susan E. Henrichsen, Supervising Atty. General, Catherine Z. Ysrael, Michele Van Gelderen, Deputy Atty. Generals, Office of the California Attorney General, San Diego, CA, for the defendants-appellees.

Nancy L. Perkins, Arnold & Porter, Washington, D.C., for amicus America's Community Bankers.

Bruce E. Clark, Sullivan & Cromwell, New York, NY, for amicus Clearing House Association.

William H. Jordan, Alston & Bird, Atlanta, GA, for amicus Investment Company Institute, et al.

L. Richard Fischer, Morrison & Foerster, Washington, D.C., for amicus Citizens for a Sound Economy.

Thomas J. Segal, Office of Thrift Supervision, Washington, D.C., for amicus Office of Thrift Supervision.

Horace G. Sneed, Washington, D.C., for amicus Office of the Comptroller of the Currency.

Kathryn R. Norcross, Federal Deposit Insurance Corporation, Washington, D.C., for amicus Federal Deposit Insurance Corporation.

Richard M. Ashton, Bd of Governors of the Federal Reserve System, Washington, D.C., for amicus Board of Governors of the Federal Reserve System.

Hattie M. Ulan, National Credit Union Administration, Alexandria, VA, for amicus National Credit Union Administration.

John F. Daly, Federal Trade Commission, Washington, D.C., for amicus Federal Trade Commission.

Scott D. McKinlay, E-Loan, Inc., Pleasanton, CA, for amicus E-Loan, Inc.

Julie Brill, Office of the Attorney General, Montpelier, VT, for amici State of Vermont, et al.

Appeal from the United States District Court for the Eastern District of California Morrison C. England, District Judge, Presiding. D.C. No. CV-04-00778-MCE.

Before :KOZINSKI, W. FLETCHER, and BYBEE, Circuit Judges.

WILLIAM A. FLETCHER, Circuit Judge.

The question in this appeal is whether the federal Fair Credit Reporting Act ("FCRA") preempts the California Financial Information Privacy Act (commonly known as "SB1") insofar as it regulates the exchange of information among financial institutions and their affiliates. The district court granted summary judgment to the Attorney General, holding that SB1 is not preempted in any respect. We reverse. We hold that the FCRA preempts at least some part of SB1's affiliate-sharing provisions. Because there is a possibility that some part of these provisions may survive preemption, we remand to the district court for further proceedings consistent with this opinion.

I. Background

The FCRA was passed in 1970 with the stated purpose of

requir[ing] that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this subchapter.

15 U.S.C. § 1681(b). To accomplish this goal, the FCRA regulates the issuance and use of "consumer reports" by "consumer reporting agencies." The term "consumer report" is defined by the FCRA as "any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living" that is or is expected to be used for determining eligibility for credit and employment, and for a few other authorized purposes (such as production in response to a court order). Id. § 1681a(d)(1) (emphasis added). As will become apparent below, the key to this appeal is the meaning of "information," as used in this and other provisions of the FCRA.

The FCRA defines a "consumer reporting agency" as an entity that, subject to certain conditions, "regularly engages ... in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties." Id. § 1681a(f). The FCRA imposes fairly stringent restrictions on credit reporting practices. Among its many provisions, it limits the circumstances under which consumer reporting agencies are permitted to furnish consumer credit reports, id. § 1681b, restricts the information that may be included in consumer reports, id. § 1681c, and requires consumer report information to be disclosed to consumers who request it, id. § 1681g. The FCRA authorizes actual and punitive damages for violation of its provisions. Id. §§ 1681n, 1681o.

The original version of the FCRA left financial institutions uncertain about whether the communication of information to affiliated institutions constituted a "consumer report" subject to the requirements of the FCRA. In 1996, in response to these concerns, Congress amended the FCRA. The 1996 amendments exclude some communications of some kinds of information between affiliate financial institutions from the definition of "consumer report." Because such communications do not come within the definition of "consumer report," they are not subject to the requirements of the FCRA. See id. § 1681a(d)(2)(A)(i-iii).

Two exclusions are important here. The first provides that the term "consumer report" does not include any "communication... among persons related by common ownership or affiliated by corporate control," id. § 1681a(d)(2)(A)(ii), of "information solely as to transactions or experiences between the consumer and the person making the report," id. § 1681a(d)(2)(A)(i) (emphasis added). In the terminology used by the financial industry, the information at issue in this exception is "experience information"—i.e., information obtained by financial institutions from their own dealings with their customers.

The second provides that the term "consumer report" does not include any "communication of other information among persons related by common ownership or affiliated by corporate control, if it is clearly and conspicuously disclosed to the consumer that the information may be communicated among such persons and the consumer is given the opportunity, before the time that the information is initially communicated, to direct that such information not be communicated among such persons." Id. § 1681a(d)(2)(A)(iii) (emphasis added). In industry terminology, this second category is known as "non-experience" information.

At the same time, Congress added a preemption clause to the FCRA providing that

[n]o requirement or prohibition may be imposed under the laws of any State ... with respect to the exchange of information among persons affiliated by common ownership or common corporate control, except that this paragraph shall not apply [to a certain Vermont statute].

Id. § 1681t(b)(2) (emphasis added) (hereinafter, the "affiliate-sharing preemption clause"). As originally enacted, the affiliate-sharing preemption clause did not apply to more-protective state laws enacted after January 1, 2004, that stated explicitly their intent to supplement the FCRA. See 15 U.S.C. § 1681t(d)(2)(2000) (repealed by Pub.L. No. 108-159, § 711(3), 117 Stat. 1952 (Dec. 4, 2003)). In 2003, however, Congress amended the FCRA in the Fair and Accurate Credit Transactions Act of 2003 (the "FACT Act") to eliminate the sunset provision for the affiliate-sharing preemption clause. FACT Act, Pub.L. No. 108-159, § 711(3), 117 Stat.1952 (2003).

In addition, the FACT Act prohibits affiliates from using information "that would be a consumer report, but for [the affiliate-sharing exemptions of § 1681a(d)(2)(A)]" for "marketing purposes," unless such use is disclosed and consumers are given an opt-out opportunity. 15 U.S.C. § 1681s-3(a)(1). The FACT Act also establishes exceptions to these opt-out requirements under certain circumstances, see id. § 1681s-3(a)(4), such as when the consumer and the affiliate have a "pre-existing business relationship," id. § 1681s-3(a)(4)(A). Finally, the FACT Act expands the scope of the affiliate-sharing preemption clause as follows:

Requirements with respect to the use by a person of information received from another person related to it by common ownership or affiliated by corporate control, such as the requirements of this section, constitute requirements with respect to the exchange of information among persons affiliated by common ownership or common corporate control, within the meaning of section 1681t(b)(2) of this title.

Id. § 1681s-3(c) (emphasis added).

In 2003, California enacted the California Financial...