The Consumer Financial Protection Bureau recently published a proposed rule that would amend Regulation P to allow financial institutions, under certain circumstances, to deliver annual privacy notices to their customers using an alternative online method of delivery. Under the Gramm-Leach-Bliley Act (GLBA), financial institutions must provide initial and annual privacy notices that inform customers about the sharing of their nonpublic personal information (NPPI) with third parties.
Financial institutions have typically mailed these notices, but the proposed rule could enable some institutions to save on mailing costs by posting the annual privacy notice in a clear and conspicuous manner on their websites and directing customers to the notice via a statement message or other communication at least once annually. Both depository and nondepository financial institutions should carefully consider the extent to which they can benefit from the proposed rule, although certain entities, such as auto dealers that are regulated by the Federal Trade Commission, would not be directly affected.
Financial institutions that are eligible, under the conditions described below, to use the online delivery method would be able to do so for all customers. This includes customers who have not previously consented to receive electronic notifications, as these customers will still receive annual notice of the online disclosures through some other written notice or disclosure.
CFPB Director Richard Cordray asserted: “This proposal would make it easier for consumers to find and access privacy policies, while also making it cheaper for industry to provide disclosures.” The proposed rule has limited applicability, however, because it would only benefit financial institutions that limit information sharing in two ways. First, the alternative method of delivery could only be used by those financial institutions that only share NPPI with third parties in ways that do not give rise to the customer opt-out rights under GLBA (e.g., by sharing NPPI only with service providers or with third-party financial institutions under a joint marketing agreement). Second, only financial institutions that also do not share credit history information with affiliates (as described in Section 603(d)(2)(A)(iii) of the Fair Credit Reporting Act) may use the alternative method of delivery.
Under the proposed rule, a financial institution may only take advantage of the online delivery method if it adheres to the following requirements:
- The annual privacy notice appears continuously on the website and is accessible to a consumer without requiring a login to access the information.
- The financial institution does not share the customer’s NPPI with nonaffiliated third parties in any way that could trigger GLBA opt-out rights.
- The financial institution does not share credit history information with its affiliates.
- The financial institution provides notice to customers about their ability to opt out of the sharing of their NPPI by financial institutions with their affiliates for marketing purposes in a place other than the annual privacy notice.
- The information in the notice has not materially changed since the financial institution previously provided notice, whether the initial or annual notice, to the customer.
- The notice conforms with the model form in Regulation P.
- The financial institution inserts a clear and conspicuous “annual reminder” on any other notice or disclosure provided to the customer that informs the customer that:
-The annual privacy notice is available on the financial institution’s website.
-The notice will be mailed at the customer’s request.
-The notice has not changed.
To determine whether the privacy notice has materially changed, the proposed rule specifies seven categories of disclosures in the privacy notices that must not change so that the financial institution may take advantage of the online delivery method:
- The categories of NPPI that the financial institution collects
- The categories of NPPI that the financial institution discloses
- The categories of affiliates and nonaffiliated third parties that receive NPPI disclosures, other than those parties to whom the financial institution discloses information under an exception to the notice and opt-out requirements
- The categories of NPPI about former customers that the financial institution discloses and the categories of affiliates and nonaffiliated third parties that receive this information, other than those parties to whom the financial institution discloses information under an exception to the notice and opt-out requirements
- Whether the financial institution discloses NPPI to a nonaffiliated service provider or for joint marketing
- The financial institution’s policies and practices concerning protection of the confidentiality and security of NPPI
- Any description of nonaffiliated third parties to whom the financial institution discloses information under an exception to the notice and opt-out requirements
A financial institution that cannot satisfy these conditions would still be required to use the current methods for delivering annual privacy notices, either by written notice by mail or electronically, if the customer agrees to electronic disclosures.
Importantly, the proposed rule addresses changes to the description of a financial institution’s data security policy. The CFPB notes that while stylistic changes would not preclude the financial institution from using the online delivery method, “changes in the description of a financial institution’s data security policy likely are significant enough that when they occur, the annual privacy notice should continue to be delivered according to the existing methods.” The CFPB has observed that in light of recent large-scale data security breaches, consumers may be more interested in the data security policies of their financial institutions than they were previously, and the proposed rule seeks to address that issue.
The proposed rule was developed following a Request for Information issued by the CFPB in December 2011 seeking public comment on how to streamline the GLBA privacy notice rules, as well as the release of a CFPB study in November 2013 on the effects of the annual privacy notice requirement on financial institutions. Before finalizing the proposed rule, however, the CFPB is seeking public comment on:
- The effect on consumer privacy rights if financial institutions were to use the alternative delivery method rather than the current method
- Whether the proposed alternative method would reduce the potential for information overload on customers
- Whether the proposed alternative delivery method would reduce the burden on financial institutions of mailing hard-copy privacy notices
- Whether financial institutions would be interested in providing a separate notice explaining a customer’s opt-out status
- Information on how often financial institutions change their privacy notices, including descriptions of the financial institutions’ data security policies, such that they would be precluded from using the alternative delivery method
While industry has supported elimination of the GLBA requirement to send an annual privacy notice and consumer groups have not signaled that they would oppose any change, industry or consumer groups could raise concerns once they have had an opportunity to study the proposal's details. Any public comments on the proposed rule must be submitted by June 12, 2014.
The CFPB recognizes that its proposed rule presents a very different disclosure strategy than the more restrictive interpretation of disclosure by agencies in the past. Although the CFPB notes that its statutory interpretation in the proposed rule should be limited to the GLBA annual privacy notices, the CFPB’s discussion of how it reached the conclusions presented in this proposed rule may provide insights into how the Bureau will approach other types of disclosures in the future.
For example, the proposed rule establishes a new standard for what constitutes a “clear and conspicuous disclosure.” Significantly, the CFPB notes that the availability of the notices via Internet access to 80 percent of U.S. adults constitutes an “overwhelming majority of customers.”
Our Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance. We are available to assist with drafting and submitting any comments clients may have on the CFPB’s proposed rule.
Members of the Group who are also part of the Privacy and Data Security Group help clients navigate the many laws designed to safeguard health, financial, and other private information. We are available to assist financial institutions evaluate the feasibility of re-structuring any internal information sharing systems to take advantage of the proposed rule. In addition, we can help clients respond to security breaches.
For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or firstname.lastname@example.org, Privacy and Data Security Group Leader Mercedes Kelley Tunstall at 202.661.2221 or email@example.com, or Kim Phan at 202.661.2286 or firstname.lastname@example.org.
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