Posted on July 7, 2008 by Joseph K. Wright

New Connecticut Law Threatens $500,000 Penalty for Privacy Violations

On June 10, Connecticut Governor M. Jodi Rell signed into law a bill to safeguard Social Security numbers and other personal information. The law imposes a civil penalty of up to $500,000 on violators. The new law takes effect October 1, 2008. 

The new law penalizes any individual or business that intentionally fails to protect personal information.  “Personal information” includes Social Security numbers, driver’s license numbers, and account numbers for insurance policies, credit card numbers and bank accounts. Individuals and businesses are subject to civil penalties of $500 per violation, up to $500,000 for any single event. The law imposes the same penalty for intentional failure to “destroy, erase or make unreadable” personal information during disposal of records. It does not, however, impose fines on negligent or unintentional violators, nor does it apply to public entities.        

The law also requires businesses that collect Social Security numbers to create a privacy protection policy. The policy must protect the confidentiality of Social Security numbers, prohibit unlawful disclosure and limit access to them.

Unlike its counterpart in California, the Connecticut law only applies to willful violations. California also protects more categories of information. However, the Connecticut law creates a duty to safeguard personal information, whereas the California laws require only “reasonable steps” to protect or destroy personal information. 

This law is part of a broader effort in Connecticut to protect Social Security numbers; in the last two months, Connecticut has enacted three separate bills to protect Social Security numbers. The other two bills affect the use of Social Security numbers on birth certificates.

Whereas California Civil Code § 1798.84 authorizes a private right of action for California consumers injured by violations of its data security law, the new Connecticut law does not appear to create a private right of action. Instead, civil penalties are paid to the state, and the Department of Consumer Protection and other business licensing agencies share enforcement duties. 

Leslie Buoncristiani, a summer associate in Proskauer’s Los Angeles office, contributed to this post.
Tags: , , , , , ,
Posted on January 4, 2008 by Joseph K. Wright

First FACTA Disposal Rule FTC Settlement Leaves American United Down in the Dumps

On December 18, the FTC announced a settlement in its 15th case (and its first in 13 months) addressing the data security practices of companies handling sensitive consumer information. American United Mortgage Company agreed to pay a $50,000 penalty for failing to implement reasonable safeguards to protect customer information and failing to provide customers with privacy notices.

American United is the first FTC action taken pursuant to the Disposal Rule, promulgated in 2005, of the Fair and Accurate Credit Transactions Act (FACTA) of 2003. The complaint filed in the Northern District of Illinois in mid-December, asserted that the Northbrook, Illinois-based mortgage company disposed of several dozen consumers’ personally identifying information by leaving intact hundreds of documents in a nearby unsecured dumpster, in some cases in open trash bags. Indeed, even after the FTC provided written notice to American United that disposal of documents containing consumers’ personal information in this manner created a risk of unauthorized access, "on at least two occasions, additional intact American United documents containing consumers’ personal information were found in and around the same dumpster adjacent to American United’s office."

In addition to the fine, the stipulated judgment and order requires American United to obtain an immediate third-party audit of its privacy safeguards and ongoing audits every two years for a decade. American United is also permanently enjoined from further violations of the FACTA Safeguards, Disposal, and Privacy rules.

The Disposal Rule, 16 C.F.R. 682, requires that any company collecting consumer information for a business purpose must dispose of that information in a way that prevents unauthorized access and misuse of the data. "Disposal" includes any discarding, abandonment, sale, donation or transfer of information.
Tags: , , , , , , , ,