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On August 1, the FCC announced the adoption of new rules that will extend the Truth in Caller ID’s prohibitions against robocalls to caller ID spoofing of text messages and international calls, and implement measures passed last year in the RAY BAUM’s Act. As previously covered by InfoBytes, the rules are supported by a bipartisan group of more than 40 state attorneys general, and will allow the FCC to bring enforcement actions and assess fines on international players who try to defraud U.S. residents. However, while Commissioner Michael O’Rielly voted in favor of the measure, he raised concerns that the FCC may encounter problems when trying to enforce the rules across international borders. “As I expressed before, the expanded extraterritorial jurisdiction may prove difficult to execute in uncooperative nations and come back to bite us in other contexts,” O’Rielly stated. “In addition, the definitions of text messaging and voice services are broader than my liking and may cause future unintended consequences.” However, his statement did not specify what these unintended consequences might be.
On July 29, a national bank announced a data breach affecting approximately 100 million individuals in the United States and approximately six million in Canada. According to the announcement, the incident occurred on July 19 when an unauthorized individual obtained personal information of credit card customers and people who had applied for credit card products. The bank noted that no credit card account numbers or log-in credentials were compromised and over 99 percent of social security numbers were not compromised. The largest category of information accessed was consumer and small business information from applications submitted from 2005 through early 2019, including names, addresses, zip codes/postal codes, phone numbers, email addresses, dates of birth, and self-reported income.
Upon discovery of the breach, the bank fixed the vulnerability that allowed for the individual to gain access and worked with the federal authorities, resulting in the arrest of the person allegedly responsible. The bank will notify and make free credit monitoring and identity protection available to those affected.
On July 25, the New York governor signed two bills designed to strengthen protections for consumers in the event their private information is compromised in a data breach.
A 5635B/S.5575B, the Stop Hacks and Improve Electronic Data Security Act (SHIELD Act) updates the state’s privacy law by expanding the definition of personal information and broadening the definition of a data breach. Notably, the SHIELD Act applies to any person or entity with access to a New York resident’s private information, regardless of whether or not the company conducts business in the state. Among other provisions, the SHIELD Act:
- Requires all covered entities to adopt and implement “reasonable” administrative, technical, and physical safeguards to protect and dispose of sensitive data, as well as implement “reasonable” administrative safeguards, such as employee training;
- Stipulates that a covered entity that is already regulated by, and in compliance with, certain existing applicable state or federal data security requirements (e.g., Gramm-Leach-Bliley Act, HIPAA, and 23 NYCRR Part 500—NYDFS’ Cybersecurity Regulation) is considered a “compliant regulated entity”;
- Requires entities to promptly notify impacted individuals under new, broadened data breach notification requirements, which now include (i) “access to” private information as a trigger for notification, in addition to the existing “acquired” trigger; and (ii) expanded data types, including biometric data, email addresses, and corresponding passwords or security questions and answers;
- Applies a more flexible standard for small businesses to ease regulatory burdens (qualifying small businesses must have fewer than 50 employees, under $3 million in gross annual revenue, or less than $5 million in assets) and will consider a small business compliant if its “security program contains reasonable administrative, technical and physical safeguards that are appropriate for the size and complexity of the small business” to protect the security, confidentiality, and integrity of private information; and
- Broadens the New York attorney general’s oversight regarding data breaches impacting state residents. The SHIELD Act further stipulates that actions may not be brought under the law’s provisions unless the action is commenced within three years following either the date on which the attorney general received notice of the violation, or the date the notice was sent to affected individuals, whichever occurs first. However, “[i]n no event shall an action be brought after six years from the date of discovery of the breach of private information by the company unless the company took steps to hide the breach.”
The SHIELD Act takes effect March 21, 2020.
A.2374/S.3582, which was signed into the law the same day, prohibits consumer credit reporting agencies from charging fees to consumers if the agency’s system was involved in a data breach including social security numbers. Credit reporting agencies are required to provide “reasonable identity theft prevention services and, if applicable, identity theft mitigation services for a period not to exceed five years at no cost to such consumers.” The law applies to any breach of security of a consumer credit reporting agency that occurred in the last three years. This measure takes effect September 23.
FTC and DOJ announce $5 billion privacy settlement with social media company; SEC settles for $100 million
On July 24, the FTC and the DOJ officially announced (see here and here) that the world’s largest social media company will pay a $5 billion penalty to settle allegations that it mishandled its users’ personal information. As previously covered by InfoBytes, it was reported on July 12 that the FTC approved the penalty, in a 3-2 vote. This is the largest privacy penalty ever levied by the agency, almost “20 times greater than the largest privacy or data security penalty ever imposed worldwide,” and one of the largest ever assessed by the U.S. government for any violation. According to the complaint, filed the same day as the settlement, the company allegedly used deceptive disclosures and settings to undermine users’ privacy preferences in violation of a 2012 privacy settlement with the FTC, which allowed the company to share users’ data with third-party apps that were downloaded by users’ “friends.” Moreover, the complaint alleges that many users were unaware the company was sharing the information, and therefore did not take the steps needed to opt-out of the sharing. Relatedly, the FTC also announced a separate action against a British consulting and data analytics firm for allegedly using deceptive tactics to “harvest personal information from millions of [the social media company’s] users.”
In addition to the monetary penalty, the 20-year settlement order overhauls the company’s privacy program. Specifically, the order, among other things, (i) establishes an independent privacy committee of the company’s board of directors; (ii) requires the company to designate privacy program compliance officers who can only be removed by the board’s privacy committee; (iii) requires an independent third-party assessor to perform biennial assessments of the company’s privacy program; (iv) requires the company to conduct a specific privacy review of every new or modified product, service, or practice before it is implemented; and (v) mandates that the company report any incidents in which data of 500 or more users have been compromised to the FTC.
In dissenting statements, Commissioner Chopra and Commissioner Slaughter asserted that the settlement, while historic, does not contain terms that would effectively deter the company from engaging in future violations. Commissioner Slaughter argues, among other things, that the civil penalty is insufficient and believes the order should have contained “meaningful limitations on how [the company] collects, uses, and shares data.” Similarly, Commissioner Chopra argues that the order imposes no meaningful changes to the company’s structure or financial incentives, and the immunity provided to the company’s officers and directors is unwarranted.
On the same day, the SEC announced that the company also agreed to pay $100 million to settle allegations that it mislead investors about the risks it faced related to the misuse of its consumer data. The SEC’s complaint alleges that in 2015, the company was aware of the British consulting and data analytics firm’s misuse of its consumer data but did not correct its disclosures for more than two years. Additionally, the SEC alleges the company failed to have policies and procedures in place during that time that would assess the results of internal investigations for the purposes of making accurate disclosures in public filings. The company neither admitted nor denied the allegations.
On July 19, the United Kingdom’s Information Commissioner’s Office (ICO) issued a £80,000 fine against a London-based real estate management company for allegedly leaving over 18,000 customers’ personal data exposed for almost two years. According to the ICO, when the company transferred personal data from its server to a partner organization, the company failed to switch off an “anonymous authentication” function, which exposed all the data—including personal data such as bank statements, salary details, copies of passports, dates of birth, and addresses—stored between March 2015 and February 2017. The ICO alleges that the company failed to take appropriate technical and organizational measures to protect customers’ personal data and concluded the failures were “a serious contravention of the 1998 data protection laws which have since been replaced by the [General Data Protection Regulation] GDPR and the Data Protection Act 2018.”
On July 12, it was reported that the FTC has approved a $5 billion penalty against the world’s largest social media company for allegedly mishandling its users’ personal information. The reported settlement would be the largest privacy penalty ever levied by the agency. According to reports, the settlement, which was approved in a 3-2 vote, resolves allegations that the company allowed a British consulting firm access to 87 million users’ personal data for political consulting purposes in violation of a 2012 privacy settlement with the FTC. Neither the FTC nor the social media company have commented on the reported settlement, which is still pending approval from the Department of Justice.
On July 8 and 9, the United Kingdom’s Information Commissioner’s Office (ICO) issued two notices of its intention to fine companies for infringements of the General Data Protection Regulation (GDPR). On July 8, the ICO announced it intended to fine a U.K.-based airline £183.39M for a September 2018 cyber incident, which, due to “poor security arrangements,” allowed attackers to divert user traffic on the airline’s website to a fraudulent site, making consumer details accessible. The airline notified the ICO about the incident, which compromised the data of approximately 500,000 consumers, and has cooperated with the ICO in the investigation and made improvements to its security arrangements. Additionally, on July 9, the ICO announced it intended to fine a multinational hotel chain £99,200,396 for failing to undertake sufficient due diligence when the chain purchased a hotel group in 2016, which had previously exposed 339 million guest records globally in 2014. The exposure was discovered in 2018, and the hotel chain thereafter reported the incident to the ICO, and has cooperated with the investigation and made improvements to its security arrangements. In both announcements, the ICO notes that it will, “consider carefully the representations made by the company and the other concerned data protection authorities” before issuing the final decision.
On July 8, FCC Chairman Ajit Pai proposed rules supported by a bipartisan group of more than 40 state attorneys general that would extend prohibitions against robocalls to caller ID spoofing of text messages and international calls, implementing measures passed last year in the RAY BAUM’s Act. Previously, anti-spoofing prohibitions applied only to domestic robocalls. According to Pai, “Scammers often robocall us from overseas, and when they do, they typically spoof their numbers to try and trick consumers. . . . With these new rules, we’ll close the loopholes that hamstring law enforcement when they try to pursue international scammers and scammers using text messaging.” The FCC will vote on the proposed rules at its August 1 meeting.
As previously covered by InfoBytes, the FCC authorized voice service providers last month to automatically identify and block unwanted robocalls “based on reasonable call analytics, as long as their customers are informed and have the opportunity to opt out of the blocking.”
On June 27, the FTC held its fourth annual PrivacyCon, which hosted research presentations on a wide range of consumer privacy and security issues. Following opening remarks by FTC Chairman Joseph Simons, the one-day conference featured four plenary sessions covering a number of hot topics:
- Session 1: Privacy Policies, Disclosures, and Permissions. Five presenters discussed various aspects of privacy policies and notices to consumers. The panel discussed current trends showing that privacy notices to consumers have generally become lengthier in recent years, which helps cover the information regulators require, but often results in information overload for consumers more generally. One presenter advocated the concept of a condensed “nutrition label” for privacy, but acknowledged the challenge of distilling complicated activities into short bullets.
- Session 2: Consumer Preferences, Expectations, and Behaviors. This panel addressed research concerning consumer expectations and behaviors with regard to privacy. Among other anecdotal information, the presenters noted that many consumers are aware that personal data is tracked, but consumers are generally unaware of what data collectors ultimately do with the personal data once collected. To that end, one presenter advocated prescriptive limits on data collection in general, which would take the onus off consumers to protect themselves. Separately, with regard to the Children’s Online Privacy Protection Act (COPPA), one presenter noted that the law generally aligns with parents’ privacy expectations, but the implementing regulations and guidelines are too broad and leave too much room for implementation variations.
- Session 3: Tracking and Online Advertising. In the third session, five presenters covered various topics, including privacy implications of free versus paid-for applications to the impact of the EU’s General Data Protection Regulation (GDPR). According to the presenters, current research suggests that the measurable privacy benefits of paying for an app are “tenuous at best,” and consumers cannot be expected to make informed decisions because the necessary privacy information is not always available in the purchase program on a mobile device such as a phone. As for GDPR, the panel agreed that there are notable reductions in web use, with page views falling 9.7 percent in one study, although it is not clear whether such reduction is directly correlated to the May 25, 2018 effective date for enforcement of GDPR.
- Session 4: Vulnerabilities, Leaks, and Breach Notifications. In the final presentation, presenters discussed new research on how companies can mitigate data security vulnerabilities and improve remediation. One presenter discussed the need for proactive identification of vulnerabilities, noting that the goal should be to patch the real vulnerabilities and limit efforts related to vulnerabilities that are unlikely to be exploited. Another presenter analyzed data breach notifications to consumers, noting that all 50 states have data breach notification laws, but there is no consensus as to best practices related to the content or timing of notifications to consumers. The presenter concluded with recommendations for future notification regulations: (i) incorporate readability testing based on standardized methods; (ii) provide concrete guidelines of when customers need to be notified, what content needs to be included, and how the information should be presented; (iii) include visuals to highlight key information; and (iv) leverage the influence of templates, such as the model privacy form for the Gramm-Leach-Bliley Act.
On May 22, NYDFS announced its newly created Cybersecurity Division, led by Justin Herring as Executive Deputy Superintendent, that is, according to NYDFS, “the first of its kind to be established at a banking or insurance regulator.” The new division will focus on enforcing and issuing guidance on NYDFS’ cybersecurity regulation 23 NYCRR Part 500, advising on cybersecurity examinations, conducting cyber-related investigations, and disseminating information related to cyber-attack trends and threats. NYDFS highlighted Herring’s experience in supervising cybercrime and digital currency cases as Chief of the U.S. Attorney’s Office for the District of New Jersey Cyber Crimes Unit and a member of the Economic Crimes Unit, including investigating money laundering using digital currency and prosecuting unlicensed digital currency exchanges.
- Benjamin W. Hutten to discuss "BSA program reporting, management and board of directors responsibilities" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- H Joshua Kotin to discuss "Recent developments in fair lending and avoiding the pitfalls" at the Arkansas Community Bankers/Bankers Assurance 2019 Compliance Conference
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Valerie L. Hletko to discuss "Banking on guns ‘n drugs: Social policy meets financial services" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Katherine L. Halliday to discuss "UDAP, UDAAP & the Map rule compliance basics" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jeffrey P. Naimon to discuss "Washington regulatory overview" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Jeffrey P. Naimon to discuss "Truth in lending" at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions" at the Institute of International Bankers Risk Management and Regulatory Examination/Compliance Seminar
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference