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On October 26, the FTC announced its final approval of an expanded settlement with a global ride-sharing company over allegations that the company violated the FTC Act by deceiving consumers regarding the company’s privacy and data practices. Specifically, the company allegedly failed to closely monitor and audit its employees’ internal access to consumer and driver data. Furthermore, the company represented to consumers and drivers that personal information stored in its databases were secure, but, according to the FTC, the company failed to implement reasonable measures to prevent unauthorized access to consumers and driver data maintained by the ride-sharing company’s third-party cloud service provider. In April, the FTC announced it would be expanding the original settlement from August 2017 (previously covered by InfoBytes here), which covered a 2014 data breach, because it was discovered the company failed to disclose a subsequent data breach that occurred in 2016 for more than a year, despite the on-going FTC investigation of the 2014 data breach.
The expanded final settlement subjects the company to civil penalties if it fails to notify the FTC of future incidents involving unauthorized access to data. The settlement also, among other things, requires the company to implement a comprehensive privacy program, including biennial third-party privacy assessments for 20 years.
Consumer advocates testify before Senate Commerce Committee on need for federal consumer data privacy legislation
On October 10, the Senate Committee on Commerce, Science, and Transportation held the second in a series of hearings on the subject of consumer data privacy safeguards. The hearing entitled “Consumer Data Privacy: Examining Lessons From the European Union’s General Data Protection Regulation and the California Consumer Privacy Act” heard from consumer privacy advocates on lessons from the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) of 2018, and what types of consumer protections should be considered in future federal legislation. Committee Chairman, Senator John Thune, opened the hearing by emphasizing the importance of promoting privacy without stifling innovation. Senator Thune stated that, while understanding the experience of technology and telecommunications companies in this space is important, any new federal privacy law must also incorporate views from affected industry stakeholders and consumer advocates.
The consumer privacy advocate witnesses agreed there is a need for heightened consumer protections and rights, and that the time is ripe to have a debate on what a consumer data privacy law at the federal level would look like and how it would work with state level laws. However, witnesses cautioned that federal legislation should create a floor and not a ceiling for privacy that will not prevent states from passing their own privacy laws. One of the witnesses who led the effort behind the California ballot initiative that resulted in the CCPA emphasized that federal legislation should contain a robust enforcement mechanism, while a witness from the Center for Democracy & Technology said that (i) lawmakers should give the FTC the ability to fine companies that violate consumers’ privacy and provide the agency with more resources; and (ii) a federal law should cover entities of all sizes and clarify what secondary and third-party uses of data are permissible.
Among other things, the hearing also discussed topics addressing: (i) GDPR open investigations; (ii) support for state Attorney General enforcement rights; (iii) privacy protections for children, including the strengths and weaknesses of the Children’s Online Privacy Protection Act, particularly with respect to children ages 13 and older; and (iv) consumers’ rights to control their personal data.
On September 28, the DOJ issued updated guidance originally presented the day before at a cybersecurity roundtable discussion on best practices for companies when responding to and reporting cybersecurity incidents. Officials from the DOJ, National Security Council, and the Department of Homeland Security made remarks regarding the difficulty in handling data breach investigations at the roundtable. The revised guidance, titled Best Practices for Victim Response and Reporting Cyber Incidents, addressed new issues such as creating relationships with incident response firms, cloud computing, ransomware attacks, and information-sharing with law enforcement. The DOJ further emphasized that properly assessing risk is the key to establishing effective cybersecurity priorities.
On September 26, the SEC announced a settlement with an Iowa-based broker-dealer and investment advisement company, which agreed to pay $1 million to resolve allegations that the company violated the Safeguards Rule and the Identity Theft Red Flags Rule arising out of the company’s failure to protect confidential customer information from intrusion. This is the SEC’s first enforcement action charging violations under the Rule. According to the order, intruders were able to access the company’s system by impersonating company contractors, calling the company’s support line, and requesting their passwords be reset. The intruders gained access to the company’s system that contained personally identifiable information for approximately 5,600 customers and obtained unauthorized access to account documents for three customers. The SEC identified weaknesses in the company’s cybersecurity procedures, including failure to terminate the intruders’ access even after the intrusion was flagged and failure to apply its procedures to the systems used by its independent contractors. The order takes into account remedial acts undertaken by the company, including blocking malicious IP addresses and issuing breach notices to affected customers, and requires the company to pay a $1 million penalty and retain an independent consultant to evaluate its compliance with the Safeguards Rule and the Identity Theft Red Flags Rule. The company did not admit nor deny the SEC’s findings.
Global technology companies testify before Senate Commerce Committee on need for federal consumer data privacy legislation
On September 26, the Senate Committee on Commerce, Science, and Transportation held a hearing entitled “Examining Safeguards for Consumer Data Privacy” to discuss whether federal lawmakers should write a broad federal online privacy law in the wake of the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) of 2018, which was amended on September 23. Committee Chairman, Senator John Thune, noted that the September 26 hearing was the first in a series of hearings the Committee plans to hold to discuss consumer data privacy concerns. Testifying before the Committee were executives representing six global technology and telecommunications companies who all agreed that there is a need for federal consumer privacy safeguards that would give consumers more control over the way their data is used. The witnesses also supported the idea of engaging in further discussions with the Committee regarding the FTC’s enforcement powers under its current authority to determine whether the agency needs more resources and tools to carry out its responsibilities effectively. However, the witnesses cautioned that Congress needed to strike an appropriate balance between industry accountability and giving government agencies unchecked power. The witnesses also voiced their opposition to proposed legislation that would require businesses to notify consumers of data breaches within 72 hours of their discovery.
Among other things, the hearing also discussed topics addressing: (i) GDPR compliance burdens; (ii) the need for federal privacy laws to preempt the growing “patchwork” of inconsistent state laws; (iii) pitfalls of mandatory opt-in requirements for consumers; (iv) data use transparency and mandatory disclosures; and (v) efforts undertaken by companies to monitor violations of the Children’s Online Privacy Protection Act, particularly with respect to both in-house and third-party apps offered by the several of the witnesses’ companies.
On September 23, the California governor signed SB 1121, a bill amending the California Consumer Privacy Act of 2018 (the Act) enacted on June 28. (See Buckley Sandler Special Alert here.) The Act, which carries an effective date of January 1, 2020, on most provisions, sets forth various requirements for businesses that collect, transfer, or sell a consumer’s personal information. Among other changes, SB 1121 makes the following amendments to the Act:
- The bill requires businesses that collect a consumer’s personal information to disclose the consumer’s right to delete personal information in a form that is reasonably accessible to the consumer;
- The bill clarifies that the requirements imposed and rights afforded to consumers by the Act should not be interpreted in a way that infringes on a business’s ability to comply with federal, state, or local laws or that conflicts with the California Constitution;
- The bill prohibits application of the Act to personal information collected, processed, sold, or disclosed pursuant to a specified federal law relating to banks, brokerages, insurance companies, and credit reporting agencies or pursuant to the California Financial Information Privacy Act;
- The bill clarifies that the only private right of action permitted under the Act is a private right of action for violations of the data breach provisions involving a consumer’s nonencrypted or nonredacted personal information and only to the extent that the business’ failure to maintain reasonable security measures caused the breach;
- The bill eliminates the requirement that plaintiffs notify the California Attorney General prior to proceeding with private litigation under the Act;
- The bill limits the civil penalties that the California Attorney General may assess for violations to $2,500 per violation or $7,500 per intentional violation; and
- The bill prohibits the California Attorney General from bringing an enforcement action under the Act until the earlier of either July 1, 2020, or six months after the publication of the final regulations.
New Mexico Attorney General sues technology companies over COPPA violations regarding the collection of children’s personal data
On September 12, the New Mexico Attorney General announced the filing of a lawsuit against a group of technology companies for allegedly designing and marketing mobile gaming applications (apps) targeted towards children that contain illegal tracking software. The complaint asserts that the defendants’ practices violate both the Children’s Online Privacy Protection Act (COPPA) and New Mexico’s Unfair Practices Act, and pose the risk of data breaches and third-party access. Among other things, the complaint alleges the defendants’ data collection and sharing practices did not comply with COPPA’s specific notice and consent requirements, while the apps’ embedded software development kits allow the apps to communicate directly with the advertising companies that analyze, store, use, share, and sell the data to other third-parties to build “increasingly-detailed profiles of child users” in order to send highly-targeted advertising. The complaint seeks injunctive relief and nominal and punitive damages.
On August 15, the U.S. District Court for the Northern District of California issued final approval for a $115 million class action settlement to resolve claims stemming from a large health insurer’s 2015 data breach. As previously covered by InfoBytes, in June 2017, the health insurer and plaintiffs came to the $115 million agreement regarding the company’s 2015 data breach, exposing consumers’ and employees’ social security numbers, birthdays, and other personal data to hackers. The settlement agreement provides for (i) two years of credit monitoring; (ii) reimbursement of out-of-pocket costs related to the breach; and (iii) alternative cash payment for credit monitoring services already obtained. While the settlement agreement was challenged after the initial deal was struck, the court noted that the objectors “ignore that the [s]ettlement provides the class with a timely, certain, and meaningful recovery.” Moreover, the court notes the objectors do not account for the “strong message” it sends to the health insurer, stating, “a settlement does not need to provide for all possible recoverable damages to deter wrongdoing.”
On August 6, the FTC published a request for comments in the Federal Register—in advance of a series of 15 to 20 public hearings scheduled to start this September—on whether the agency should make adjustments to competition and consumer protection law, enforcement priorities, and policy in light of evolving technologies and market developments. The hearings will cover a range of consumer-related issues, including the agency’s “remedial authority to deter unfair and deceptive conduct in privacy and data security matters” and the “interpretation and harmonization of state and federal statutes and regulations that prohibit [such conduct].” According to testimony presented by FTC Chairman Joseph Simons at a July 18 House Subcommittee on Digital Commerce and Consumer Protection hearing, there exists a need for expanded rulemaking and civil penalty authority. Specifically, Simons discussed Section 5 of the FTC Act, which he stated is too limited to address all of the privacy and security concerns in the marketplace and does not provide for civil penalties. Comments on the hearing topics must be received by August 20.
FTC announces settlement with California company over EU-U.S. Privacy Shield false certification claims
On July 2, the FTC announced it had reached a settlement with a California-based company over allegations that it falsely claimed participation in the European Union-U.S. Privacy Shield framework, EU-U.S. Privacy Shield. According to the FTC, the company’s false claim that it was in the process of certification is a violation of the FTC Act’s prohibition against deceptive acts or practices. The settlement prohibits the company from misrepresenting its participation in “any privacy or security program sponsored by a government or any self-regulatory or standard-setting organization” and requires the submission of timely compliance notices. This action marks the fourth FTC EU-U.S. Privacy Shield enforcement action following the EU’s finalization and adoption in July 2016 (see previous InfoBytes coverage here) of the EU-U.S. Privacy Shield, which established a mechanism for companies to transfer consumer data between the EU and the U.S. in compliance with specified obligations.
- Sherry-Maria Safchuk to discuss UDAAP at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable