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Crypto platform reaches $1.2 million settlement on alleged compliance failures
On May 1, NYDFS issued a consent order against a cryptocurrency trading platform for engaging in alleged violations of the state’s cybersecurity regulation (23 NYCRR Part 500). According to the consent order, during examinations conducted in 2018 and 2020, NYDFS identified multiple alleged deficiencies in the respondent’s cybersecurity program, as required by both the cybersecurity regulation and the state’s virtual currency regulation (23 NYCRR Part 200). Following the examinations, NYDFS initiated an investigation into the respondent’s cybersecurity program. The Department concluded that the respondent failed to conduct periodic cybersecurity risk assessments “sufficient to inform the design of the cybersecurity program,” and failed to establish and maintain an effective cybersecurity program and implement a reviewed and board-approved written cybersecurity policy. Moreover, NYDFS claimed the respondent’s policies and procedures were not customized to meet the company’s needs and risks. Under the terms of the consent order, the respondent must pay a $1.2 million civil monetary penalty and submit quarterly progress reports to NYDFS detailing its remediation efforts.
District Court dismisses FTC’s privacy claims in geolocation action
On May 4, the U.S. District Court for the District of Ohio issued two separate rulings in a pair of related disputes between the FTC and a data broker. The disputes center around accusations made by the FTC last August that the data broker violated Section 5 of the FTC Act by unfairly selling precise geolocation data from hundreds of millions of mobile devices which can be used to trace individuals’ movements to and from sensitive locations (covered by InfoBytes here). The FTC sought a permanent injunction to stop the data broker’s practices, as well as additional relief. The data broker, upon learning that the FTC planned to filed a lawsuit against it, filed a preemptive lawsuit challenging the agency’s authority.
The court first dismissed the data broker’s preemptive bid to block the FTC’s enforcement action, ruling that the data broker has not identified any “viable cause of action” to support its request for injunctive relief. The court explained that injunctive relief is a “drastic remedy” that is only available if no other legal remedy is available. However, the data broker possesses an “adequate remedy at law,” the court said, “because it can seek dismissal of, and otherwise directly defend against, the FTC’s enforcement action.”
With respect to the FTC’s action, the court granted the data broker’s motion to dismiss the FTC’s complaint, but gave the agency leave to amend. The court agreed with the data broker that the FTC’s complaint lacks sufficient allegations to support its unfairness claim under Section 5 of the FTC Act. While the court disagreed with the data broker’s assertion that it did not have “fair notice that its sale of geolocation data without restrictions near sensitive locations could violate Section 5(a) of the FTC Act” or that the FTC had to allege a predicate violation of law or policy to state a claim, the court determined that the FTC failed to adequately allege that the data broker’s practices created “a ‘significant risk’ of concrete harm.” Moreover, the court found that “the purported privacy intrusion is not severe enough to constitute ‘substantial injury’ under Section 5(n).” The court noted, however that some of the deficiencies may be cured through additional factual allegations in an amended complaint.
EU court says non-material damages in unlawful data processing may be eligible for compensation
On May 4, the Court of Justice of the European Union (CJEU) issued a judgment concluding that while not every infringement of the EU’s data protection law gives rise, by itself, to a right to compensation, non-material damage resulting from unlawful processing of data can be eligible for compensation. The CJEU reviewed questions posed by the Austrian Supreme Court on whether a mere infringement of the GDPR is sufficient to confer the right to compensation for individuals suffering non-material damages, and whether such compensation is possible only if the non-material damage suffered reaches a certain degree of seriousness. The Austrian Supreme Court also asked the CJEU to clarify what the EU-law requirements are when determining the amount of damages.
The CJEU clarified that the General Data Protection Regulation (GDPR) does not set thresholds for the “seriousness” of damages needed to confer a right to compensation. “[I]t is clear that the right to compensation provided for by the GDPR is subject to three cumulative conditions: infringement of the GDPR, material or non-material damage resulting from that infringement and a causal link between the damage and the infringement,” the court said in the announcement. Limiting the right to compensation to non-material damage that reaches a certain threshold requirement would be contrary to the broad conception of “damage” outlined in EU law, the CJEU explained, pointing out that obtaining compensation based on a certain threshold would result in different outcomes depending on a court’s assessment. Moreover, the CJEU emphasized that because the GDPR does not contain any rules governing the assessment of damages, it is up to the each member state’s legal system to prescribe detailed rules for actions intended to safeguard individual’s rights under the GDPR, as well as the criteria for determining the amount of compensation, provided the determination complies with the principles of equivalence and effectiveness. The CJEU explained in its ruling that “an infringement of the GDPR does not necessarily result in damage, and [] that there must be a causal link between the infringement in question and the damage suffered by the data subject in order to establish a right to compensation.”
ID verifier to pay $28.5 million to settle BIPA allegations
On May 5, the U.S. District Court for the Northern District of Illinois preliminarily approved an amended class action settlement in which an identification verification service provider agreed to pay $28.5 million to settle allegations that it violated the Illinois Biometric Information Privacy Act (BIPA). According to the plaintiffs, the defendant collected, stored, and or used class members’ biometric data without authorization when they uploaded photos and state IDs on a mobile app belonging to one of the defendant’s customers. After the court denied the defendant’s move to compel arbitration and determined the plaintiff had standing to pursue his BIPA claims, the parties entered into settlement discussions without the defendant admitting any allegations or liability. The court certified two classes: (i) Illinois residents who uploaded photos to the defendant through the app or website of a financial institution (class members will receive $15.7 million); and (ii) Illinois residents who uploaded photos through a non-financial institution (class members will receive $12.8 million). A final approval hearing will determine attorney’s fees and expenses and incentive awards.
Indiana becomes seventh state to enact comprehensive privacy legislation
On May 1, the Indiana governor signed SB 5 to establish a framework for controlling and processing consumers’ personal data in the state. Indiana is now the seventh state in the nation to enact comprehensive consumer privacy measures, following California, Colorado, Connecticut, Virginia, Utah, and Iowa (covered by Special Alerts here and here and InfoBytes here, here, here, and here). The Act applies to any person that conducts business in the state or produces products or services targeted to residents and, during a calendar year, (i) controls or processes personal data of at least 100,000 Indiana residents or (ii) controls or processes personal data of at least 25,000 Indiana residents and derives more than 50 percent of gross revenue from the sale of personal data. The Act outlines exemptions, including financial institutions and data subject to the Gramm-Leach-Bliley Act, as well as covered entities governed by the Health Insurance Portability and Accountability Act.
Indiana consumers will have the right to, among other things, (i) confirm whether their personal data is being processed and access their data; (ii) correct inaccuracies; (iii) delete their data; (iv) obtain a copy of personal data processed by a controller; and (v) opt out of the processing of their data for targeted advertising, the sale of their data, or certain profiling. The Act outlines data controller responsibilities, including a requirement that controllers must respond to consumers’ requests within 45 days unless extenuating circumstances arise. The Act also limits the collection of personal data “to what is adequate, relevant, and reasonably necessary in relation to the purposes for which such data is processed, as disclosed to the consumer,” and requires controllers to implement data security protection practices “appropriate to the volume and nature of the personal data at issue” and conduct data protection assessments for processing activities created on or generated after December 31, 2025, that present a heightened risk of harm to consumers. Under the Act, controllers may not process consumers’ personal data without first obtaining consent, or in the case of a minor, without processing such data in accordance with the Children’s Online Privacy Protection Act. Additionally, the Act sets forth obligations relating to contracts between a controller and a processor.
While the Act explicitly prohibits its use as a basis for a private right of action, it does grant the state attorney general exclusive authority to enforce the law. Additionally, upon discovering a potential violation of the Act, the attorney general must give the controller or processor written notice and 30 days to cure the alleged violation before the attorney general can file suit. The attorney general may seek injunctive relief and civil penalties not to exceed $7,500 for each violation.
The Act takes effect January 1, 2026.
House committee continues federal privacy legislation discussions
On April 27, the House Subcommittee on Innovation, Data, and Commerce, a subcommittee of the House Energy and Commerce Committee, held a hearing entitled “Addressing America’s Data Privacy Shortfalls: How a National Standard Fills Gaps to Protect Americans’ Personal Information” to continue discussions on the need for comprehensive federal privacy legislation. Subcommittee Chair Gus Bilirakis (R-FL) delivered opening remarks, commenting that the Committee has examined in depth how a federal privacy law is needed to protect Americans and balance the needs of business, government and civil society, what happens when malicious actors exploit access to data, where the FTC’s jurisdictional lines and authority lay and how that interplays with a comprehensive federal privacy law, and the role of data brokers and the lack of protections given to consumers to manage their data.
During the hearing, subcommittee members commented that one of the big debates about the American Data Privacy and Protection Act (ADPPA) as it came out of committee last year was the degree to which it should preempt state laws. There was push back on the bill from former Speaker Nancy Pelosi who was against the proposed preemption measures, as well as from the California attorney general and the California Privacy Protection Agency who expressed similar concerns and asked Congress to “allow states to provide additional protections in response to changing technology and data privacy protection practices.” The ADPPA was advanced through the committee last July by a vote of 53-2 (covered by InfoBytes here) and was sent to the House floor during the last Congressional session but never came up for a full chamber vote. The bill has not been reintroduced yet.
Subcommittee members said that while drafting a comprehensive national data privacy law is a priority, there are a lot of concerns over preemption of state laws. Certain Republican members also commented that it is very important for Congress to create a single national standard before the FTC proposes data privacy rules from its commercial surveillance rulemaking efforts. As previously covered by InfoBytes, FTC Chair Lina M. Khan and Commissioners Rebecca Slaughter and Alvaro Bedoya testified before the same committee in April, during which time they said they are currently reviewing comments on the proposed rulemaking but support federal privacy legislation.
While the ADPPA has not yet been reintroduced, House Financial Services Committee Chairman Patrick McHenry (R-NC) introduced the Data Privacy Act of 2023 (see H.R. 1165) earlier this year, which would, among other things, modernize the Gramm-Leach-Bliley Act to better align the statute with the evolving technological landscape and ensure consumers understand how their data is being collected and used and grant consumers power to opt-out of the collection of their data and request that their data be deleted at any time.
Washington State passes new health data privacy measures
On April 27, the Washington State governor signed HB 1155 to enact the My Health My Data Act—a comprehensive health privacy law that provides broad restrictions on the use of consumer health data. The Act is intended to cover health data not covered by the Health Insurance Portability and Accountability Act. The Act defines a regulated entity as any legal entity that conducts business in the state of Washington or engages with Washington residents that (alone or jointly with others) “determines the purpose and means of collecting, processing, sharing, or selling of consumer health data.” Government agencies, tribal nations, and contracted service providers that process such data on behalf of a government agency are exempt. The Act increases privacy protections, and outlines several requirements, such as (i) entities must maintain a consumer health data privacy policy that clearly and conspicuously discloses the categories of health data collected and specifies how the data will be used, collected, and shared (including with third parties and affiliates); (ii) entities must obtain consent from consumers prior to collecting, sharing, and selling their health data; (iii) entities are restricted from geofencing particular locations to collect and sell data; and (iv) entities are required to develop specific privacy disclosures. Consumers are also empowered with the right to have their health data deleted. The Act outlines numerous compliance elements relating to access restrictions, replying to consumers, and processor requirements. The Act also specifies the types of information and documents for which the Act is not applicable. In addition, the Act provides a private right of action to consumers and grants the state attorney general enforcement authority as well.
The Act is effective July 23. Regulated entities must comply by March 31, 2024, except for certain provisions applicable to small businesses that have until June 30, 2024 to comply.
Kansas enacts financial institutions information security act
On April 20, the Kansas governor signed SB 44 to enact the Kansas financial institutions information security act. The Act establishes information security standards for covered entities, and applies to credit service organizations, mortgage companies, supervised lenders, money transmitters, trust companies, and technology-enabled fiduciary financial institutions. A covered entity will be required to develop, implement, and maintain a cybersecurity system to protect consumer information, and must ensure its information security program is maintained as part of its books and records in compliance with established record retention requirements. Additionally, the state bank commissioner is granted the authority to adopt “all rules and regulations necessary to govern and administer the [Act’s] provisions.” The commissioner is also given an assortment of enforcement tools to administer the Act, including: conducting routine examinations; investigating a covered entity’s operations; issuing subpoenas; assessing fines and civil penalties not to exceed $5,000 per violation, as well as investigation and enforcement costs; censuring registered or licensed covered entities; entering into memorandums of understanding or consent orders; revoking, suspending, or refusing to renew the registration or license of covered entities; issuing cease-and-desist orders; filing for injunctions; or issuing emergency orders to prevent harm to consumers. The Act takes effect July 1.
FTC testifies on privacy efforts
On April 18, FTC Chair Lina M. Khan and Commissioners Rebecca Slaughter and Alvaro Bedoya testified before the House Energy and Commerce Subcommittee on Innovation, Data, and Commerce on the agency’s efforts to protect consumers from unfair or deceptive practices and unfair methods of competition. The hearing addressed the agency’s 2024 budget request, as well as topics focused on rulemaking authority, junk fees, robocalls, fraud, and privacy initiatives, among others. House Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-WA) delivered opening remarks, during which she cited the resignation of both Republican commissioners and criticized the agency’s “abuses of power.”
In a prepared statement, the commissioners provided an overview of the agency’s consumer protection work, including its initiatives to safeguard consumers’ privacy that take a multi-pronged approach focusing on health data, children and teens, and data security. The commissioners broadly discussed recent enforcement actions taken to protect sensitive health data and commented on FTC efforts to use the agency’s rulemaking authority to protect children in the marketplace (the FTC is currently reviewing the Children’s Online Privacy Protection Act Rule to determine any necessary changes and is exploring how commercial surveillance may be fueling manipulative advertising practices targeted towards children and teens). They also flagged a recent data security action as an example of how the agency “is pivoting toward requiring restrictions on what data firms can collect and retain.” According to the testimony, the FTC engaged in 35 investigations, cases, and enforcement projects with foreign consumer, privacy, and criminal enforcement agencies during the last fiscal year. The commissioners also said the agency is currently reviewing comments received on a 2022 advance notice of proposed rulemaking (covered by InfoBytes here), which sought feedback on the widespread collection of consumers’ personal information as well as concerns relating to consumer data security and commercial surveillance. While the commissioners reiterated the agency’s strong support for federal privacy legislation, Chair Rodgers said the FTC voted on partisan lines “to act unilaterally” on its own set of rules.
New York AG releases guide for businesses to protect consumer’s personal information
On April 19, the New York attorney general released a data security guide to help businesses adopt effective data security measures for protecting state residents’ personal information. The guide outlines recommendations for preventing data breaches and securing personal information, and discusses recent data security failures. Recommendations include (i) implementing strong controls for secure authentication; (ii) encrypting sensitive customer information; (iii) ensuring third-party vendors use appropriate, reasonable data security measures to safeguard customer information; (iv) maintaining inventories of assets and locations that contain customer information; (v) implementing effective safeguards to prevent “credential stuffing” attacks where usernames and passwords stolen from other online services are used in an attempt to log in to a customer’s online account; and (vi) notifying customers quickly and accurately when a data breach occurs. The guide is drawn from the AG’s experience in investigating and prosecuting data breaches.