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Recent developments at the FTC and CFPB provide some guidance on how regulators may approach disclosures on smartphones and other mobile devices.
The recent CFPB Remittance Rule on international remittance transfers indicates some flexibility in the provision of disclosures in the remittances context via a mobile device. Additionally, the FTC’s recent report on best practices in consumer data privacy notes the difficulty in providing privacy notices on the smaller screens of mobile devices and encourages shorter, more effective privacy policies as a result.
These developments raise a series of questions for corporate counsel to consider when advising on the drafting and delivery of mobile disclosures. Specifically, questions include:
- Is the length of the mobile disclosure document as brief and succinct as it can be? Does it use concrete, everyday words and the active voice? Do the disclosures avoid multiple negatives, technical jargon and ambiguous language?
- Are the mobile disclosures presented in a logical sequence? Are they laid out in clear, concise sentences, paragraphs and sections? Are they placed in equal prominence to each other, absent any other specific regulatory format or placement requirements? Is the content placed on a particular page appropriate for the sizing of the page on the mobile screen? If not, are textual or visual cues used to encourage scrolling?
- Does the mobile disclosure "call attention to itself?" Is it on a screen the mobile user must access or will likely access frequently? If not, is it behind a hyperlink on an introductory screen that is clearly labeled so as to convey the importance of the linked disclosure? Is it presented with a clear, visible heading and an easy-to-read typeface and typesize?
- Have various technical and other applicable industry standards been consulted in the process of designing, developing and displaying mobile disclosures?
Federal District Court Holds Allegations of Failure to Protect Data Insufficient to Support Stored Communications Act Claim
Last month, the U.S. District Court for the Northern District of Illinois held that a company’s failure to protect personal information does not violate the Stored Communications Act (SCA) because the company did not knowingly divulge the personal information. Worix v. MedAssets Inc., No. 11-8088, 2012 WL 787210 (N.D. Ill. Mar. 8, 2012). In this case, a computer hard drive belonging to the defendant, a firm that provides financial services for health care providers and as such handles the personal and confidential information of individuals, was stolen. The plaintiff, one of the individuals whose personal information was stored on the hard drive, alleged on behalf of a putative class that the defendant violated the SCA when it failed to adequately secure the protected personal information. The court held that the plaintiff could only support allegations that the defendant knowingly failed to protect the data and the plaintiff failed to offer the proof required by the SCA that the defendant knowingly divulged protected information. The court also dismissed the plaintiff’s common law negligence claims and statutory fraud claims, holding that the plaintiff failed to allege actual damages when claiming an increased risk of identity theft and monitoring costs.
On March 28, the U.S. Supreme Court ruled 5-3 that the Privacy Act of 1974, which regulates how federal agencies handle personal information, does not unequivocally authorize damages for mental or emotional distress. Cooper v. FAA, No. 10-1024, 2012 WL 1019969 (U.S. Mar. 28, 2012). In this case, an airline pilot sued the Federal Aviation Administration (FAA) and other federal agencies for impermissibly exchanging information about his HIV status in connection with a criminal investigation. The pilot claimed to suffer emotional and mental distress due to the disclosure. The U.S. Court of Appeals for the Ninth Circuit held that the term actual damages in the Privacy Act is not ambiguous and includes damages for mental and emotional distress. The Supreme Court reversed, holding, as the district court originally held, that the term is ambiguous and therefore does not waive the governments sovereign immunity from liability for nonpecuniary damages. The narrow ruling only directly impacts actions under the Privacy Act, and the court notes that actual damages can mean different things in different contexts. As such, the holding does not invalidate prior lower court rulings that actual damages under other statutes, including the Fair Credit Reporting Act and the Fair Housing Act, can include damages for emotional or mental distress.
On March 26, the FTC released an anticipated report on consumer privacy, calling on all companies to adopt certain practices to protect consumers’ private information. The final report outlines three basic principles: (i) “privacy by design”, (ii) simplified choice, and (iii) increased transparency. Though the report and recommended practices do not carry the force of law, the FTC encourages adoption of the recommendations to support innovation and commerce while improving consumer protection. The report also serves as a blueprint for what the FTC is seeking in federal privacy legislation. Pending congressional action, the FTC will continue to employ its existing enforcement authority to address unfair or deceptive practices, including practices that violate self-regulatory programs. Further, the FTC intends to support implementation of the framework by focusing on several substantive topics and stakeholder groups, including (i) do not track, (ii) mobile services, (iii) data brokers, (iv) large platform providers, and (v) industry codes of conduct. For example, the FTC will focus on mobile services by updating guidance about online advertising disclosures, including holding a workshop on model mobile disclosures on May 30, 2012. It also calls on mobile service providers to establish industry standards that address data collection, transfer, use, and disposal, particularly for location data.
On March 12, the FTC released the results of a survey conducted to gauge consumer experiences in dealing with consumer reporting agencies (CRAs) following an identity theft. While the survey indicates that the majority of consumers were satisfied with their experiences, many consumers were unaware of their rights under the Fair and Accurate Credit Transactions Act (FACTA) before contacting a CRA. In response to concerns raised by consumers in the survey, the report recommends that (i) CRAs make it easier for consumers to reach a live person and (ii) the CFPB use its examination and rulemaking authority, and the FTC employ its enforcement authority, to address CRAs’ practice of attempting to sell identity theft products to consumers reporting identify thefts.
On March 8, the U.S. District Court for the Southern District of Illinois ruled that minors who used Facebook are bound by the forum-selection clause contained in the website’s terms of service, to which they agreed when they signed up for Facebook. E.K.D. v. Facebook Inc., No. 11-461 (S.D. Ill. Mar. 8, 2012). The plaintiffs, a group of minors suing Facebook for improperly using their images in advertising, argued that because they were minors when they signed up, the forum selection clause could not be enforced. The court rejected this argument, holding that under California contract law the minor plaintiffs could not void the forum selection because they continued to use and benefit from Facebook after agreeing to the terms of service. The court further held that transferring the case to the Northern District of California would not unduly burden the plaintiffs and was permitted by 28 U.S.C § 1404.
First Circuit Upholds Dismissal of Claims Against Third-Party for Failure to Protect Personal Information
On February 28, the U.S. Court of Appeals for the First Circuit upheld the dismissal of a putative class action brought against a securities clearing company for alleged failures to protect certain personal information. Katz v. Pershing, LLC, No. 11-1983, 2012 WL 612793 (1st Cir. Feb. 28, 2012). In this case, the plaintiff was the customer of a brokerage firm that used defendant Pershing LLC’s online clearing system, but the customer had no direct relationship with the defendant. The plaintiff alleged that Pershing had contractual and statutory obligations to encrypt and protect the personal information of brokerage firm customers. Specifically, the plaintiff alleged various contract claims, including one that Pershing’s failures constituted a breach of its contract with the brokerage. She also claimed that Pershing violated Massachusetts consumer protection laws. The First Circuit upheld the district court’s dismissal, holding that the agreement between the brokerage and the defendant clearing firm did not confer any benefits on the plaintiff – the brokerage’s customer. The court stated that the separate contractual agreements between the plaintiff and her brokerage on the one hand, and between the brokerage and the defendant clearing firm on the other, could not be mixed and matched. The court also held, with regard to claims that Pershing violated the state data protection law, that plaintiff’s claims of potential harm from unprotected data were purely theoretical and “simply do not rise to the level of a reasonably impending threat.” As such plaintiff lacked standing to bring the statutory claims. Because the court found that the plaintiff lacked standing, it did not reach the issue of whether the Massachusetts data privacy law provides a private right of action.
On February 28, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC, together with the SEC, the Commissions) jointly issued proposed rules that would require entities subject to the Commissions’ jurisdiction to address identity theft in two ways: (i) financial institutions and creditors would be required to develop and implement a written identity theft prevention program designed to detect, prevent, and mitigate identify theft with either certain existing accounts or opening new accounts, and (ii) credit and debit card issuers subject to the Commissions’ jurisdiction would be required to assess the validity of change-of-address notifications under certain circumstances. Section 1088 of the Dodd-Frank Act transferred authority over certain parts of the Fair Credit Reporting Act from the Federal Trade Commission to the Commissions for entities they regulate. The Commissions’ proposed rules are substantially similar to rules adopted in 2007 by the FTC and other federal financial regulatory agencies that previously were required to adopt such rules. The proposed rules set out the four elements that regulated entities would be required to include in their identify theft prevention programs: (i) identify relevant red flags, (ii) detect the occurrence of red flags, (iii) respond appropriately to the detected red flags, and (iv) periodically update the program to reflect changes in risks to customers or to the safety and soundness of the financial institution or creditor from identity theft. The Commissions issued jointly proposed guidelines in an appendix to the proposed rules to assist regulated entities in formulating and maintaining a Program that would satisfy the proposed rule requirements. The Commissions are accepting comments on the proposal through May 7, 2012.
On February 23, the European Banking Authority (EBA) released a letter it sent to the ICANN Board of Directors expressing concerns about ICANN’s June 2011 approval of a new program to allow additional generic top level domains, including “.bank” and “.fin”. The new domain names are expected to be available for use later this year. As the European umbrella organization comprised of the heads of each member state’s consumer credit regulator, the EBA is broadly tasked with European consumer financial protection. From that standpoint, the letter and an attached comment document ask ICANN to halt the use of the new domain names because they have the potential to increase consumer fraud and decrease data security. Further, the new names may require financial institutions to implement costly and complex legal and commercial initiatives to protect their trademarks from fraud. The EBA does not believe that ICANN’s proposals to mitigate these concerns, including a proposed new registration system for the domain names, are insufficient.
- Jeffrey P. Naimon to provide “Fair lending update” at the Colorado Mortgage Lenders Association Operational and Compliance Forum
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- APPROVED Webcast: Strategy & Technology: A dynamic duo for successful regulatory exams
- Daniel R. Alonso to discuss “Primer on cross-border prosecutions in Argentina, Brazil, Colombia, and Mexico for U.S. criminal lawyers” at a New York City Bar Association webinar
- Jonice Gray Tucker to discuss "Fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss “State law regulatory and enforcement trends” at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute