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  • Rep. McHenry introduces draft privacy legislation based on GLBA

    Federal Issues

    On June 23, House Financial Services Ranking Member Patrick McHenry (R-NC) released a discussion draft of new federal legislation intended to modernize financial data privacy laws and provide consumers more control over the collection and use of their personal information. (See overview of the discussion draft here.) The draft bill seeks to build on the Gramm-Leach-Bliley Act (GLBA) to better align financial data protection law with evolving technologies that have innovated the financial system and the way in which consumers interact with financial institutions, including nonbank institutions. “Technology has fundamentally changed the way consumers participate in our financial system—increasing access and inclusion. It has also increased the amount of sensitive data shared with service providers. Our privacy laws—especially as they relate to financial data—must keep up,” McHenry said, emphasizing the importance of finding a way to “secure Americans’ privacy without strangling innovation.”

    Among other things, the draft bill:

    • Requires notice of collection activities. The GLBA currently requires that consumers be provided notice when their information is being disclosed to third parties. The draft bill updates this requirement to require financial institutions to provide notice when consumers’ nonpublic personal information is being collected.
    • Recognizes the burden on small institutions. The draft bill stipulates that agencies shall consider compliance costs imposed on smaller financial institutions when promulgating rules.
    • Amends the definition of a “financial institution.” The draft bill will update the definition to cover data aggregators in addition to financial institutions engaged in financial activities as described in 4(k) of the Bank Holding Company Act of 1956.
    • Expands the definition of non-public information. The draft bill expands the definition of “personally identifiable financial information” to include “information that identifies, relates to, describes, is reasonably capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer.” Publicly available information is not included in this definition. The definition of “consumer account credentials” will mean “nonpublic information (including a username, password, or an answer to a security question) that enables the consumer to access an account of the consumer at a financial institution.”
    • Provides consumers access to data. The draft bill provides that financial institutions must, upon an authorized request from a consumer, disclose the data held, entities with which the financial institution shares consumer data, and a list of entities from whom the financial institution has received a consumer’s non-public personal information.
    • Allows consumers to stop the collection and disclosure of their data. When a financial institution is required to terminate the collection and/or sharing of a consumer’s nonpublic personal information, the draft bill provides that a financial institution must notify third parties that data sharing is terminated and must require the third parties to also terminate collection and disclosure. Additionally, upon request from a consumer, the financial institution must delete any nonpublic personal information in its possession, and if required by law to retain the data, the financial institution may only use the data for that purpose.
    • Minimizes data collection. The draft bill requires that financial institutions notify consumers of their data collection practices in their privacy policies, including the categories collected, how the information is collected, and the purposes for the collection. Consumers must be allowed an opportunity to opt-out of the collection of their data if not necessary for the provision of the product or service by that entity.
    • Provides informed choice and transparency. Under the draft bill, privacy terms and conditions must be transparent and easily understandable. The draft bill requires the disclosure of a financial institution’s privacy policies in a manner that provides consumers meaningful understanding of what data is being collected, the manner in which the data is collected, the purposes for which the data will be used, the right to opt-out, who has access to the data, how an entity is using the data, where the data will be shared, the data retention policies of the entity, the consumer’s termination rights, and the rights associated with that data for uses inconsistent with stated purpose, among others.
    • Stipulates liability for unauthorized access. The draft bill states that “[i]f the nonpublic personal information of a consumer is obtained from a financial institution (either due to a data breach or in any other manner) and used to make unauthorized access of the consumer’s account, the financial institution shall be liable to the consumer for the full amount of any damages resulting from such unauthorized access.’’
    • Requires preemption. The draft bill will preempt state privacy laws to create a national standard.

    The draft bill was introduced days after the House Subcommittee on Consumer Protection and Commerce heard testimony from consumer advocates and industry representatives on the recently proposed bipartisan American Data Privacy and Protection Act (covered by a Buckley Special Alert here).

    Federal Issues Privacy/Cyber Risk & Data Security Federal Legislation Gramm-Leach-Bliley Consumer Protection

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  • FTC permanently bans merchant cash advance providers

    Federal Issues

    On January 5, the FTC announced that two defendants who allegedly participated in small business financing scheme are permanently banned from participating in the merchant cash advance and debt collection industries. As previously covered by InfoBytes, the FTC filed a complaint against two New York-based small-business financing companies and a related entity and individuals (including the settling defendants), claiming the defendants engaged in deceptive and unfair practices by, among other things, misrepresenting the terms of their merchant cash advances, using unfair collection practices, and making unauthorized withdrawals from consumers’ accounts. The defendants also allegedly violated the Gramm-Leach-Bliley Act’s prohibition on using false statements to obtain consumers’ financial information, including bank account numbers, log-in credentials, and the identity of authorized signers, in order “to withdraw more than the specified amount from consumers’ bank accounts.” Additionally, the defendants allegedly “engaged in wanton and egregious behavior, including laughing at consumer requests for refunds from [the defendants’] unauthorized withdrawals from customer bank accounts; abusing the legal system to seize the business and personal assets of their customers; and threatening to break their customers’ jaws or falsely accusing them of child molestation during collection calls.” Under the terms of the stipulated order, the settling defendants are required to pay a $675,000 monetary judgment, and must vacate any judgments against their former customers and release any liens against their customers’ property.

    Federal Issues FTC Enforcement Merchant Cash Advance Small Business Lending Gramm-Leach-Bliley FTC Act UDAP Deceptive Unfair

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  • FTC settles with mortgage analytics company

    Federal Issues

    On December 22, the FTC announced the final approval of a settlement with a mortgage industry data analytics firm (defendant) for allegedly failing to develop, implement, and maintain a comprehensive information security program and ensure third-party vendors are capable of implementing and maintaining appropriate safeguards for customer information in violation of the Gramm-Leach Bliley Act’s Safeguards Rule. As previously covered by InfoBytes, in December 2020, the FTC alleged that a vendor hired by the defendant stored the unencrypted contents of mortgage documents on a cloud-based server without any protections to block unauthorized access, such as requiring a password. According to the FTC, because the vendor did not implement and maintain appropriate safeguards to protect customer information, the cloud-based server containing the data was improperly accessed approximately 52 times. The FTC claimed, among other things, that the defendant failed to adequately vet its third-party vendors and never took formal steps to evaluate whether the vendors could reasonably protect the sensitive information. Moreover, the defendant’s contracts allegedly did not require vendors to implement appropriate safeguards, nor did the defendant conduct risk assessments of its vendors.

    The settlement requires the defendant to, among other things, implement a comprehensive data security program and undergo biennial assessments conducted by a third party on the effectiveness of its program. Additionally, the defendant must report any future data breaches to the FTC no later than 10 days after it provides notice to any federal, state, or local government entity.

    FTC Commissioner Rebecca Kelly Slaughter provided a lone dissenting statement.

    Federal Issues FTC Enforcement Settlement Mortgages Gramm-Leach-Bliley Safeguards Rule Privacy/Cyber Risk & Data Security Third-Party Vendor Management Data Breach

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  • FTC updates Safeguards rule for financial institutions

    Federal Issues

    On October 27, the FTC announced a final rule updating the Safeguards Rule to strengthen data security protections for consumer financial information following widespread data breaches and cyberattacks. The final rule follows a 2019 notice of proposed rulemaking (covered by InfoBytes here) and makes the following modifications to the existing rule:

    • Adds specific criteria financial institutions must undertake when conducting a risk assessment and implementing an information security program, including provisions related to access controls, data inventory and classification, authentication, encryption, disposal procedures, and incident response, among others. The final rule also adds measures to ensure employee training and service provider oversight are effective.
    • Requires financial institutions to designate a single qualified individual to oversee the information security program. Periodic reports must also be made to an institution’s board of directors or governing bodies.
    • Provides an exemption from requirements related to written risk assessments, incident response plans, and annual reporting to the board of directors, for financial institutions that collect information on fewer than 5,000 consumers.
    • Expands the definition of “financial institution” to include “entities engaged in activities that the Federal Reserve Board determines to be incidental to financial activities.” Included in the definition are “finders” (i.e. companies that bring together buyers and sellers of products or services that fall within the scope of the Safeguards Rule).
    • Adds several definitions and related examples into the Safeguards Rule itself instead of incorporating them through a reference from a related FTC rule.

    Provisions of the final rule under Section 314.5 are effective one year after the date of publication in the Federal Register. The remainder of the provisions are effective 30 days following publication.

    Additionally, the FTC issued a supplemental notice of proposed rulemaking seeking comments on a proposal to further amend the Safeguards Rule to require financial institutions to report security events to the Commission where a determination has been made that consumer information has been misused, or is reasonably likely to be misused, in an event affecting at least 1,000 consumers. Comments are due 60 days after publication in the Federal Register.

    The FTC also announced a final rule adopting largely technical changes to its authority under the Privacy of Consumer Financial Information Rule (Privacy Rule) under the Gramm-Leach-Bliley Act, which requires financial institutions to inform consumers about their information-sharing practices and allow consumers the ability to opt out of having their information shared with certain third parties. The Privacy Rule is amended to revise the rule’s scope, modify the definitions of “financial institution” and “federal functional regulator,” and update requirements pertaining to annual customer privacy notices. The FTC noted that these changes align the Privacy Rule with changes made under Dodd-Frank and the FAST Act.

    Federal Issues FTC Privacy/Cyber Risk & Data Security Consumer Protection Data Breach Nonbank Safeguards Rule Agency Rule-Making & Guidance Gramm-Leach-Bliley Dodd-Frank

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  • CFPB orders tech companies to submit payment system information

    Federal Issues

    On October 21, the CFPB issued orders to six large U.S. technology companies seeking information and data on their payment system business practices. The Bureau stated that the information is intended to help the Bureau understand how these companies use personal payments data and manage data access to users. The Bureau issued the orders citing its authority under the CFPA, Section 1022(c)(4), which grants the agency “statutory authority to order participants in the payments market to turn over information to help the Bureau monitor for risks to consumers and to publish aggregated findings that are in the public interest.” The Bureau’s press release also noted it intends to study the payment system practices of two major Chinese tech companies.

    The Bureau made available an example order that contains 55 requests seeking various information and data on several topics, including: (i) “[d]ata harvesting and monetization”; (ii) “[a]ccess restrictions and user choice”; and (iii) documents and information related to payment platforms and compliance with federal consumer protection laws, such as the EFTA and the Gramm-Leach-Bliley Act. Citing consumer data and privacy expectations, the Bureau explained that “[c]onsumers expect certain assurances when dealing with companies that move their money. They expect to be protected from fraud and payments made in error, for their data and privacy to be protected and not shared without their consent, to have responsive customer service, and to be treated equally under relevant law.”

    Director Rohit Chopra issued a statement commenting on the purpose of the orders. He noted that the Bureau’s inquiry “is one of many efforts within the Federal Reserve System to plan for the future of real-time payments” and that it “will help to inform regulators and policymakers about the future of our payments system.” 

    Federal Issues CFPB CFPA Consumer Finance Privacy/Cyber Risk & Data Security Payments Payment Systems EFTA Gramm-Leach-Bliley

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  • FTC settles with financial services company

    Federal Issues

    On July 14, the FTC announced an $18 million settlement with a financial services company (defendant) over allegations that it deceived consumers. The FTC originally filed a complaint in 2018 claiming, among other things, that the defendant violated the FTC Act, the Privacy of Consumer Financial Information Rule, and the Gramm-Leach-Bliley Act, by falsely advertising loans with “no hidden fees” and misleading consumers with respect to whether their loan applications had been approved. The complaint also alleged that the defendant withdrew double payments from consumers’ accounts and continued to charge consumers who cancelled automatic payments or paid off their loan, leading to overdraft fees and preventing borrowers from making other payments. Under the terms of the stipulated final order, the defendant is permanently barred from (i) misrepresenting fee amounts, the status of an application, and other material facts concerning any extension of credit; and (ii) making any representation about a specific loan amount prior to accepting a loan application, without clear and conspicuous disclosure of the dollar amount of any prepaid, up-front, or origination fee or the total amount of funds that would be disbursed to the consumer.

    Federal Issues FTC Enforcement Loans Consumer Finance Deceptive UDAP FTC Act Gramm-Leach-Bliley Privacy of Consumer Financial Information Rule

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  • FTC adds charges against small-business financer

    Federal Issues

    On June 14, the FTC announced additional charges against two New York-based small-business financing companies and a related entity and individuals (collectively, “defendants”). Last June, the FTC filed a complaint against the defendants for allegedly violating the FTC Act and engaging in deceptive and unfair practices by, among other things, misrepresenting the terms of their merchant cash advances, using unfair collection practices, and making unauthorized withdrawals from consumers’ accounts (covered by InfoBytes here). The amended complaint alleges that the defendants also violated the Gramm-Leach-Bliley Act’s prohibition on using false statements to obtain consumers’ financial information, including bank account numbers, log-in credentials, and the identity of authorized signers, in order “to withdraw more than the specified amount from consumers’ bank accounts.” Additionally, the FTC’s press release states that the defendants “engaged in wanton and egregious behavior, including laughing at consumer requests for refunds from [the defendants’] unauthorized withdrawals from customer bank accounts; abusing the legal system to seize the business and personal assets of their customers; and threatening to break their customers’ jaws or falsely accusing them of child molestation during collection calls.” The amended complaint seeks a permanent injunction against the defendants, along with civil money penalties and monetary relief including “rescission or reformation of contracts, the refund of monies paid, and other equitable relief.”

    Federal Issues Courts FTC Enforcement Small Business Financing Merchant Cash Advance FTC Act UDAP Deceptive Unfair Gramm-Leach-Bliley

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  • FTC settles with mortgage analytics company over vendor oversight deficiencies

    Federal Issues

    On December 15, the FTC announced a settlement with a Texas-based data mortgage analytics company (defendant), resolving allegations that the defendant violated the Gramm-Leach Bliley Act’s Safeguards Rule (Safeguards Rule) and the FTC Act by failing to ensure a third-party vendor hired to perform text recognition scanning on tens of thousands of mortgage documents was adequately securing consumers’ personal data. The FTC’s complaint alleges that the vendor stored the unencrypted contents of these documents on a cloud-based server without any protections to block unauthorized access, such as requiring a password. The data contained sensitive personal information, including “names, dates of birth, Social Security numbers, loan information, credit and debit account numbers, drivers’ license numbers, credit files, or other personal and financial information of borrowers, as well as of family members and others whose information was included in the mortgage application.” According to the FTC, because the vendor did not implement and maintain appropriate safeguards to protect customer information, the cloud-based server containing the data was accessed approximately 52 times. The FTC claims, among other things, that the defendant failed to adequately vet its third-party vendors and never took formal steps to evaluate whether the vendors could reasonably protect the sensitive information. Moreover, the defendant’s contracts allegedly did not require vendors to implement appropriate safeguards, nor did the defendant conduct risk assessments of all of its vendors as required by the Safeguards Rule.

    The proposed settlement requires the defendant to, among other things, implement a comprehensive data security program and undergo biennial assessments conducted by a third party on the effectiveness of its program. Additionally, the defendant must report any future data breaches to the FTC no later than 10 days after it provides notice to any federal, state, or local government entity.

    Federal Issues FTC Enforcement Consumer Protection Privacy/Cyber Risk & Data Security Gramm-Leach-Bliley FTC Act Third-Party Vendor Management

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  • FTC approves settlement with software provider over FTC Act and GLBA data security failures

    Federal Issues

    On September 6, the FTC voted 5-0 to approve a final settlement under which a software provider agreed to better protect the data it collects, resolving allegations that the company failed to implement reasonable data security measures and exposed personal consumer information obtained from its auto dealer clients in violation of the FTC Act and the Standards for Safeguarding Customer Information Rule, issued pursuant to the Gramm-Leach-Bliley Act.

    As previously covered by InfoBytes, in its complaint, the FTC alleged the company’s failure to, among other things, (i) implement an organization information security policy; (ii) implement reasonable guidance or training for employees; (iii) use readily available security measures to monitor systems; and (iv) impose reasonable data access controls, which resulted in a hacker gaining unauthorized access to the company’s database containing the personal information of approximately 12.5 million consumers. The approved settlement requires the company to, among other things, implement and maintain a comprehensive information security program designed to protect the personal information it collects, including implementing specific safeguards related to the FTC’s allegations. Additionally, the settlement requires the company to obtain third-party assessments of its information security program every two years and have a senior manager certify compliance with the order every year.

    Federal Issues FTC Privacy/Cyber Risk & Data Security FTC Act Enforcement Settlement Consent Order Gramm-Leach-Bliley

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  • FTC holds fourth annual PrivacyCon to address hot topics

    Privacy, Cyber Risk & Data Security

    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.

    Privacy/Cyber Risk & Data Security FTC Research COPPA GDPR Gramm-Leach-Bliley

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