Privacy Lawyer & Attorney : Proskauer Rose Law Firm : CAN-SPAM, FCRA, FACTA

New amendments to the Fair and Accurate Transactions Act (“FACTA”) (itself an amendment to the Fair Credit Reporting Act (“FCRA”)) bar consumers from alleging willful violation and seeking statutory damages based on the printing of credit card expiration dates on receipts where the account number is otherwise properly truncated in accordance with FACTA. This development means the end is near for scores of class action lawsuits filed last year.

FACTA prohibits the printing of more than five digits of a credit or debit card number or the expiration date on receipts provided to a customer. Since December 4, 2006, consumers have filed hundreds of suits against merchants who allegedly printed a truncated account number and the expiration dates on receipts, arguing that those merchants “willfully” violated FACTA, and seeking $100 to $1,000 for each violation. At least one court has interpreted FACTA to apply to electronic receipts as well as printed ones.

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In light of growing concerns over identity theft, data breaches, and the hacking of online brokerage accounts, the Securities and Exchange Commission (“SEC”) has recently proposed new amendments to Regulation S-P – the SEC’s existing privacy rules mandated under the Gramm-Leach-Bliley Act. The SEC’s unanimous approval of these proposed rules signals the Commission’s desire to more closely align its privacy guidelines with those of the Federal Trade Commission (“FTC”) and the Federal Banking Agencies, which adopted data breach notice rules in 2005. For regulated companies, however, the amendments could mean additional costs and liabilities.

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The Southern District of Florida has held that the Fair Credit Reporting Act (FACTA), applies to both electronic receipts from online purchases and receipts printed in stores. In Grabein v. 1-800-Flowers.com, Inc., 07-22235-CIV, 2008 WL 343179 (S.D. Fla. Jan. 29, 2008), Plaintiff filed a class action lawsuit after he used a credit card to purchase flowers through Defendant’s website and received a receipt that contained both Plaintiff's truncated credit card number and the card’s expiration date. Plaintiff alleged that printing both pieces of information violated FACTA, which provides:

No person that accepts credit cards or debit cards for the transaction of business shall print more than the last five digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction. 15 U.S.C. § 1681c(g).

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Balancing privacy and evidentiary interests in a stock option backdating matter, the Northern District of California held on June 11, 2007 that the SEC’s interest in obtaining banking account information of defendant Gregory Reyes, ex-CEO of Brocade Communications, outweighs Reyes’ financial history privacy interests. SEC v. Reyes, No. C 06-04435 CRB (N.D. Cal. 2007).

In discovery, Reyes produced "highly redacted" information relating to his transactions. The SEC then issued subpoenas duces tecum to Merrill Lynch and Deutsche Bank, seeking information about Reyes’ accounts. Reyes responded with a motion to quash the subpoenas, arguing that he had already disclosed all information relating to his transactions in Brocade, and that his privacy interest outweighed the SEC’s interest in obtaining additional non-Brocade information.

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Since December 4, 2006, consumers have filed dozens of class actions against retailers and other businesses across the country alleging “willful” violations of the Fair and Accurate Credit Transactions Act (“FACTA”) amendments to the Fair Credit Reporting Act (“FCRA”), prohibiting the printing of more than five digits, or the expiration date, of a credit card on receipts provided to the customer. Defendants in those cases have been waiting anxiously for the Supreme Court to rule in Safeco Insurance Co. of America, et al. v. Burr, et al. 551 U.S. _____ (2007), a factually inapposite matter in which the Court granted certiorari to determine whether “reckless disregard” suffices for willfulness under the statute. In a decision that raises as many questions as it answers, the Supreme Court held on June 4, 2007 that “reckless” failure to comply with FCRA can be considered willful. The Court’s opinion begs the question whether it was objectively reasonable for retailers to continue the printing of expiration dates on customer receipts after FACTA took full effect.

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Broker-dealer firms are well advised to review and update their privacy policies, in light of the Securities and Exchange Commission’s (“SEC”) recent enforcement and investigation activities arising from Regulation S-P.

According to trade press, recently the SEC informed one independent broker-dealer firm, Next Financial Group, Inc. of Houston, Texas, that it may file a “privacy” suit under Regulation S-P. The suit would be based on the practice, which Next maintains is common among independent broker-dealer firms, of requiring broker recruits from other firms to provide Next with customer information in anticipation of the move. According to the press, the SEC contends that before the brokers left their firms to join Next, they should have asked clients for their consent to use any information at the new firm. Alternatively, Next should have only required brokers to provide this information if the brokers’ prior firms had stated in their privacy policies that departing brokers may take certain customer information to competing firms (and the particular consumers had not opted-out of this policy). The SEC is reportedly considering suing Next for violations of Regulation S-P, as well as for aiding and abetting the violations by the brokers it recruited.  

 

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On March 21, 2007, eight federal regulatory agencies (“Joint Agencies”) with jurisdiction over Gramm-Leach-Bliley Act (“GLBA”) regulated “financial institutions” issued an interagency proposal for a new model privacy form. The proposal is the result of a lengthy process the Joint Agencies began in 2001 to improve the format of GLBA privacy notices to make them more comprehensible to consumers. In addition to a lack of clarity, the Joint Agencies and consumer and privacy advocates have been concerned about the length of notices and the overuse of legal terms. 

Section 503 of the GLBA, 15 U.S.C. § 1603 and current rules, require financial institutions to provide their customers with a notice that describes, among other things, how they protect nonpublic personal information, the categories of nonpublic personal information collected, the affiliates and the nonaffiliated third parties to whom such information is disclosed, and a description of the customer’s right to prevent certain disclosures to nonaffiliated third parties. These notices must be provided at the outset of the institution’s relationship with a customer and, in the case of long-standing relationships, on an annual basis. Current rules do not mandate a standard format or particular wording for the notices, however, they provide sample clauses that financial institutions can use to satisfy the notice requirements.     

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