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Court approves $5 billion FTC settlement with social media company
On April 23, the U.S. District Court for the District of Columbia approved a $5 billion settlement between the FTC and a global social media company, resolving allegations that the company violated consumer protection laws by using deceptive disclosures and settings to undermine users’ privacy preferences in violation of a 2012 privacy settlement with the FTC. The settlement, first announced last July (covered by InfoBytes here), requires the company to take a series of remedial steps, including (i) ceasing misrepresentations concerning its collection and disclosure of users’ personal information, as well as its privacy and security measures; (ii) clearly disclosing when it will share data with third parties and obtaining user express consent if the sharing goes beyond a user’s privacy setting restrictions; (iii) deleting or de-identifying a user’s personal information within a reasonable time frame if an account is closed; (iv) creating a more robust privacy program with safeguards applicable to third parties with access to a user’s personal information; (v) creating a new privacy committee and designating a dedicated corporate officer in charge of monitoring the effectiveness of the privacy program; (vi) alerting the FTC when more than 500 users’ personal information has been compromised; and (vii) undertaking reporting and recordkeeping obligations, and commissioning regular, independent privacy assessments. The order “resolves all consumer-protection claims known by the FTC prior to June 12, 2019, that [the company], its officers, and directors violated Section 5 of the FTC Act.” While the court acknowledged concerns raised by several amici opposing the settlement, the court concluded that the settlement and the proposed remedies were reasonable and in the public interest. On April 28, the FTC announced the formal approval of amendments to its 2012 privacy order to incorporate updated provisions included in the 2019 settlement.
Multi-jurisdiction settlement reached with credit reporting agency over 2017 data breach
On April 17, the Massachusetts attorney general announced a settlement with a credit reporting agency (CRA) to resolve a state investigation into a 2017 data breach that reportedly compromised the personal information of nearly three million Massachusetts residents. According to the AG’s 2017 complaint (covered by InfoBytes here), the CRA ignored cybersecurity vulnerabilities for months before the breach occurred and failed to take measures to implement and maintain reasonable safeguards. Under the terms of the proposed settlement, pending final court approval, the CRA will pay Massachusetts $18.2 million and is required to take significant measures to strengthen its security practices to ensure compliance with Massachusetts law. These measures include (i) implementing a comprehensive information security program; (ii) minimizing the collection of sensitive personal information; (iii) managing and implementing specific technical safeguards and controls; (iv) providing consumer-related relief, such as credit monitoring services and security freezes; and (iv) allowing third-party assessments of its data safeguards.
Earlier, on April 14, the Indiana attorney general also announced that the CRA will pay the state $19.5 million to resolve allegations that it failed to protect Indiana residents whose personal information was exposed in the 2017 data breach. Under the terms of the final judgment and consent decree, in addition to paying $19.5 million in restitution, the CRA must take measures similar to those outlined in the Massachusetts settlement.
Massachusetts and Indiana were the only two states that chose not to participate in the 2017 multi-agency settlement that resolved federal and state investigations into the data breach and required the company to pay up to $700 million (covered by InfoBytes here).
Separately, on April 7, the City of Chicago announced a $1.5 million settlement to resolve allegations that the CRA’s failure to employ adequate data-security measures led to the breach.
FCC orders phone companies to deploy STIR/SHAKEN framework
On March 31, the FCC adopted new rules that will require phone companies in the U.S. to deploy STIR/SHAKEN caller ID authentication framework by June 30, 2021. As previously covered by InfoBytes, the STIR/SHAKEN framework addresses “unlawful spoofing by confirming that a call actually comes from the number indicated in the Caller ID, or at least that the call entered the US network through a particular voice service provider or gateway.” FCC Chairman Ajit Pai endorsed the value of widespread implementation, stating the framework will “reduce the effectiveness of illegal spoofing, allow law enforcement to identify bad actors more easily, and help phone companies identify—and even block—calls with illegal spoofed caller ID information before those calls reach their subscribers.” The new rules also contain a further notice of proposed rulemaking, which seeks comments on additional efforts to promote caller ID authentication and implement certain sections of the TRACED Act. Among other things, the TRACED Act—signed into law last December (covered by InfoBytes here)—mandated compliance with STIR/SHAKEN for all voice service providers.
FTC report highlights 2019 privacy and data security work
On February 25, the FTC released its annual report highlighting the agency’s privacy and data security work in 2019. Among other items, the report highlights consumer-related enforcement activities in 2018, including:
- A $5 billion penalty—the largest consumer privacy penalty to date—against a global social media company to resolve allegations that the company violated its 2012 FTC privacy order and mishandled users’ personal information. (Covered by InfoBytes here.)
- A $170 million penalty against a global online search engine and its video-sharing subsidiary to resolve alleged violations of the Children’s Online Privacy Protection Act (COPPA). (Covered by InfoBytes here.)
- A proposed settlement in the FTC’s first case against developers of “stalking” apps that monitor consumers’ mobile devices and allegedly compromise consumer privacy in violation of the FTC’s Act prohibition against unfair and deceptive practices and COPPA.
- A global settlement of up to $700 million issued in conjunction with the CFPB, 48 states, the District of Columbia and Puerto Rico, to resolve federal and state investigations into a 2017 data breach that reportedly compromised sensitive information for approximately 147 million consumers. (Covered by InfoBytes here.)
The report also discusses the FTC’s enforcement of the EU-U.S. Privacy Shield framework, provides links to FTC congressional testimony on privacy and data security, and offers a list of relevant rulemaking, including rules currently under review. In addition, the report highlights recent privacy-related events, including (i) an FTC hearing examining consumer privacy as part of its Hearings on Competition and Consumer Protection in the 21st Century; (ii) the fourth annual PrivacyCon event, which hosted research presentations on consumer privacy and security issues (covered by InfoBytes here); (iii) a workshop examining possible updates to COPPA; and (iv) a public workshop that examined issues affecting consumer reporting accuracy.
CFTC adopts NIST Privacy Framework
On January 28, the CFTC announced that it has adopted the National Institute of Standards and Technology (NIST) Privacy Framework, making it the first federal agency to do so. The September NIST release of a preliminary draft of the framework described it as “[a] Tool for Improving Privacy through Enterprise Risk Management,” covered by InfoBytes here. Among other things, the privacy framework, which advances guidance to mitigate cybersecurity risk, describes processes to mitigate risks associated with data processing and privacy breaches and to assess current privacy risk management measures. According to the announcement, the CFTC will utilize the framework to “better manage and communicate privacy risk throughout the agency,” making them a leader in the data privacy protection arena.
New York Fed analyzes potential impact of cyber attacks on payments network
In January, the Federal Reserve Bank of New York (New York Fed) released a staff report that analyzes how a cyber attack transmitted through a payment network could be amplified throughout the U.S. financial system. According to the report, Cyber Risk and the U.S. Financial System: a Pre-Mortem Analysis, cyber attacks that impair the most active U.S. banks’ ability to send payments “would likely be amplified to affect the liquidity of many other banks in the system,” including smaller or mid-sized banks that are connected through a shared service provider. The New York Fed notes, however, that the report’s primary focus is on a cyber attack’s impact within a single day, and cautions that should a cyber attack compromise the integrity of the banking system, “the reconciliation and repercussion process would be an unprecedented task.” Among other things, the report (i) establishes a framework for estimating “cyber vulnerability” and understanding the impairments of a cyber attack on a bank’s payment activities; (ii) creates a baseline scenario to study the five largest institutions within the wholesale payment network and the high concentration of payments between large institutions, as well as the resulting imbalance in liquidity that occurs if even a single large institution is unable to remit payments to its counterparties; and (iii) conducts a reverse stress test exercise, in which it analyzes “how many smaller institutions it would take to impair any of the most active ones,” in order to highlight “how the impairment of many smaller institutions also presents a systemic risk.”
Data breach settlement of $380.5 million approved in consumer reporting agency class action
On January 13, the U.S. District Court for the Northern District of Virginia issued a final order and judgment in a class action settlement between a class of consumers (plaintiffs) and a large consumer reporting agency (company) to resolve allegations arising from a 2017 cyberattack causing a data breach of the company. After the company announced the breach, many consumers filed suit and were eventually joined into a proposed settlement class. As previously covered by InfoBytes, the plaintiffs alleged that the company (i) failed to provide appropriate security to protect stored personal consumer information; (ii) misled consumers regarding the effectiveness and capacity of its security; and (iii) failed to take proper action when vulnerabilities in their security system became known. The company and the plaintiffs later submitted a proposed settlement order to the court.
According to the final order and judgment, the court certified the settlement class of the approximately 147 million affected consumers, finding the class was adequately represented, and approved the “distribution and allocation plan” as fair and reasonable. In the order granting final approval of the settlement the company agreed to, among other things, pay $380.5 million into a settlement fund and potentially up to $125 million more to cover “certain out-of-pocket losses,” $77.5 million for attorneys’ fees, and approximately $1.4 million for reimbursement of expenses. Class members are eligible for additional benefits including up to 10 years of credit monitoring and identity theft protection services or cash compensation if they already have those services, as well as identity restoration services for seven years. The company also agreed to spend at least $1 billion on data security and technology in the next five years.
Washington state introduces comprehensive privacy bill
On January 13, Washington state lawmakers announced two bills designed to strengthen consumer access and control over personal data and regulate the use of facial recognition technology. Highlights of SB 6281, the Washington Privacy Act, include the following:
- Applicability. SB 6281 will apply to legal entities that conduct business or produce products or services that are targeted to Washington consumers that also (i) control or process personal data for at least 100,000 consumers; or (ii) derive more than 50 percent of gross revenue from the sale of personal data, in addition to processing or controlling the personal data of at least 25,000 consumers. Exempt from SB 6281, among others, are state and local governments, municipal corporations, certain protected health information, personal data governed by state and federal regulations, and employment records.
- Consumer rights. Consumers will be able to exercise the following concerning their personal data: access; correction; deletion; data portability; and opt-out rights, including the right to opt out of the processing of personal data for targeted advertising and the sale of personal data.
- Controller responsibilities. Controllers required to comply with SB 6281 will be responsible for (i) transparency; (ii) limiting the collection of data to what is required and relevant for a specified purpose; (iii) ensuring data is not processed for reasons incompatible with a specified purpose; (iv) securing personal data from unauthorized access; (v) prohibiting processing that violates state or federal laws prohibiting unlawful discrimination against consumers; (vi) obtaining consumer consent in order to process sensitive data; and (vii) ensuring contracts and agreements do not contain provisions that waive or limit a consumer’s rights. Controllers must also conduct data protection assessments for all processing activities that involve personal data, and conduct additional assessments each time a processing change occurs that “materially increases the risk to consumers.”
- State attorney general. SB 6821 does not create a private right of action for individuals to sue if there is an alleged violation. However, the AG will be permitted to bring actions and impose penalties of no more than $7,500 per violation. The AG will also be required to submit a report evaluating the liability and enforcement provisions of SB 6281 by 2022 along with any recommendations for change.
- Information sharing. SB 6281 will allow the state governor to enter into agreements with British Columbia, California, and Oregon, which will allow personal data to be shared for joint research initiatives.
- Facial Recognition. SB 6281 will establish limits on the commercial use of facial recognition services. Among other things, the bill will require third-party testing on all services prior to deployment for accuracy and unfair performance, conspicuous notice when a service is deployed in a public space, and will require companies to receive consumer consent prior to enrolling an image in a service used in a public space.
The second bill, SB 6280, will more specifically govern the use of facial recognition services by state and local government agencies, and, among other things, outlines provisions for the use of facial recognition services when identifying victims of crime, stipulates restrictions concerning ongoing surveillance, and requires agencies to produce an annual report containing a compliance assessment.
As previously covered by InfoBytes, last year, New York introduced proposed legislation (see S 5642) that seeks to regulate the storage, use, disclosure, and sale of consumer personal data by entities that conduct business in New York state or produce products or services that are intentionally targeted to residents of New York state. Provisions included in the measures introduced by New York and Washington state differ from those contained in the California Consumer Privacy Act (CCPA), which took effect January 1. (Previous InfoBytes coverage on the CCPA is available here.)
Mortgage broker allegedly violated federal laws by posting customers’ personal information on website
On January 7, the FTC announced a proposed settlement with a California mortgage broker and his company to resolve alleged violations of the FTC Act, FCRA, Regulation P, and the Safeguards Rule. According to a complaint filed by the DOJ on behalf of the FTC, the defendants published the personal information of customers who posted negative reviews on a public website, including customers’ “sources of income, debt-to-income ratios, credit history, taxes, family relationships, and health.” The alleged posts containing negative financial information violated the defendants’ responsibilities under Regulation P (Privacy of Consumer Financial Information) as the required privacy disclosure provided to the customers stated that the defendants would not share personal information with any third party. Regulation P also “prohibits financial institutions from disclosing to any nonaffiliated third party any nonpublic personal information about a customer unless it has provided the customer with an opt-out notice, . . . a reasonable opportunity to opt out of the disclosure, and the customer has not opted out.” In this instance, customers were not given the opportunity to opt out of disclosure of their personal financial information in response to online consumer reviews, the complaint asserts. In addition, the complaint alleges that the defendants also violated the FTC Act by causing unfair or deceptive acts or practices that “deprived consumers of the ability to control whether and to whom they disclosed sensitive information.” The defendants also allegedly violated the FCRA by using consumer reports for impermissible purposes, and the FTC’s Safeguards Rule by failing to implement or maintain an adequate information security program. Under the terms of the proposed settlement, the defendants will pay a $120,000 civil penalty and are prohibited from (i) misrepresenting their privacy and data security practices; (ii) using consumer reports for anything other than a permissible purpose; (iii) not providing required privacy notices; and (iv) improperly disclosing nonpublic personal information to third parties. Among other things, the company is also prohibited from transferring, selling, sharing, collecting, maintaining, or storing nonpublic personal information unless it implements a comprehensive information security program; and must obtain independent third-party assessments of its information security program every two years.
States recommend FTC “significantly” strengthen COPPA
On December 9, a coalition of 25 state attorneys general responded to the FTC’s request for comments on a wide range of issues related to the Children’s Online Privacy Protection Rule (COPPA). As previously covered by InfoBytes, the FTC released a notice in July seeking comments on all major provisions of COPPA, including definitions, notice and parental consent requirements, exceptions to verifiable parental consent, and the safe harbor provision. In response the AGs strongly recommend that, while the FTC should “significantly” strengthen COPPA, any changes must be flexible and evolve to meet a rapidly-changing data landscape’s needs. Specifically, the AGs state that COPPA’s definition of “web site or online service directed to children,” as well as its definition of an “operator,” need to be modified, as many first-party platforms embed third parties who allegedly engage in the majority of the privacy-invasive online tracking. By expanding the definition of an operator, the AGs claim that COPPA would require compliance by companies that use and profit from the data as well as companies that collect the data. According to the AGs, COPPA, places a lower burden on third-parties and requires them to be bound by the rule only when they have “actual knowledge” that they are tracking children, even though these entities “are arguably as well-positioned as the operators of the websites and online services to know that they are tracking and monitoring children.”
The AGs also believe that the prong that “recognizes the child-directed nature of the content” should be strengthened, because companies that are able to identify and target consumers through sophisticated algorithms are often disincentivized to use the information to affirmatively identify child-directed websites or other online services. Among other things, the AGs also discuss the need for specifying the appropriate methods used for determining a user’s age, expanding COPPA to protect minors’ biometric data, and providing illustrative security requirements.