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

S.B. 1 sets forth a broad restriction on the sharing of consumer information with affiliates, stating that “[a] financial institution shall not disclose to, or share a consumer’s nonpublic personal information with, an affiliate unless the financial institution has clearly and conspicuously notified the consumer annually in writing . . . that the nonpublic personal information may be disclosed to an affiliate of the financial institution and the consumer has not directed that the nonpublic personal information not be disclosed.” 

FCRA similarly restricts such affiliate sharing; however, FCRA only applies to “consumer report” information. As defined by FCRA, consumer report information is information used to determine a consumer’s eligibility for credit, insurance or employment.  In particular, consumer report information may include any information “bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part” for purposes of determining eligibility for credit, insurance or employment. Section 625(b)(2) of FCRA preempts states from regulating the exchange of information among affiliates.   

Accordingly, in Gould, the Ninth Circuit held that FCRA preempted S.B. 1 insofar as both laws regulated the sharing of consumer report information with affiliates. The Ninth Circuit remanded the case to determine whether S.B. 1’s restrictions on affiliate-sharing with respect to non-consumer report information were severable, and thus, could survive preemption. On remand, a federal district court held that since the court lacked the power to sever the preempted applications of S.B. 1, the statute’s affiliate-sharing restrictions were preempted entirely.  

The Ninth Circuit reversed the district court’s ruling. In Lockyer, the Ninth Circuit looked to whether California law permits the court to narrow S.B. 1’s application to avoid complete preemption. The court determined that if the Legislature’s intent “clearly would be furthered by application of the revised version rather than by the alternative of invalidation,” then the court “must revise the statute.”  From the language of the statute, the Ninth Circuit found that the California Legislature “would have preferred a narrowed version of [S.B. 1] to no version at all.” Moreover, S.B. 1 contained a severability clause in its enactment of the law – further proof that reforming S.B. 1 to sever its preempted applications would best effectuate the Legislature’s intent.  Thus, because S.B. 1 has non-preempted applications, FCRA does not preempt those provisions of S.B. 1 that do not relate to consumer report information. 

As a result, certain banks and financial institutions should be mindful that, in addition to the affiliate-sharing restrictions contained in FCRA, California law may require them to provide customers an opportunity to opt-out of data-sharing arrangements with affiliates involving non-consumer report information.

Summary of the Final Rule’s Requirements

In general, the Affiliate Marketing Rule prohibits a “person” from using consumer “eligibility information” received from a corporate “affiliate” for making marketing “solicitations” to the consumer, unless:  

• the consumer is first given a clear, conspicuous, concise and written notice explaining that the person may use eligibility information about that consumer received from an affiliate to make solicitations for marketing purposes;
• the consumer is first given a reasonable opportunity and a reasonable and simple method to “opt out,” or prohibit the use of the eligibility information to make solicitations for marketing purposes; and
• the consumer has not opted out thereof. 

Opt-Out Requirements

The opt-out notice must be delivered “so that each consumer can be reasonably expected to receive actual notice.” Examples of delivery methods that can be reasonably expected to provide actual notice include hand-delivery, mailing a printed copy of the notice to the consumer’s last known address, e-mail to consumers who have agreed to receive electronic disclosures from the affiliate providing notice, and posting the notice on a website at which the consumer obtained a product or service electronically and requires the consumer to acknowledge receipt of the notice. 

Once notice has been delivered, a consumer must be given a reasonable opportunity to opt out, and the reasonable opportunity to opt out must be accompanied by a “reasonable and simple” method for exercising the opt-out right, such as a conspicuous check box, a reply form and a self-addressed envelope with the opt-out notice, a toll-free telephone number, and an electronic opt out.

Consumer opt outs must be honored for 5 years, and a renewal notice must be sent to the consumer before the expiration of the initial 5-year opt-out period, giving the consumer an opportunity to extend the opt-out for an additional 5 years. The Final Rule includes model forms that may be used to comply with the Final Rule’s requirements.

Key Definitions

Under the Final Rule, “affiliates” are companies that are related by common ownership or common corporate control with one another. A “solicitation” means the marketing of a product or service initiated by a person to a particular consumer that is based on eligibility information communicated to that person by its affiliate and intended to encourage the consumer to purchase or obtain such product or service. (Communications aimed at the general public such as television or billboard advertisements are not “solicitations,” but marketing emails, telemarketing calls and direct mailings aimed at particular consumers are considered “solicitations.”) 

“Eligibility information,” as defined by the Rule, encompasses any information that, if communicated, would constitute a “consumer report” (as such term is defined by the Act) but for specific statutory exclusions. “Eligibility information” might include, for example, a person’s own transaction or experience information and information from consumer reports or applications, but does not, however, include aggregate or blind data that does not contain personal identifiers. 

Exceptions

The provisions of the Affiliate Marketing Rule do not apply to certain uses of eligibility information obtained from an affiliate in certain situations, including:

o       to make a marketing solicitation to a consumer with whom the person has a “pre-existing business relationship” as that term is defined in the Rule;

o       to facilitate certain communications to a consumer for whose benefit the company has provided employee benefits or other services;

o       to perform services on behalf of an affiliate, except that this does not permit a person to send solicitations on behalf of an affiliate if the affiliate would not be permitted to send the solicitation on its own behalf due to the consumer’s opt-out election;

o       in response to a communication initiated by the consumer;

o       in response to a consumer’s authorization or request to receive a solicitation; and

o       if compliance with the Final Rule would prevent the person from complying with state insurance laws relating to unfair discrimination.

As the compliance deadline quickly approaches, it is important for covered entities to understand that the potential consequences of non-compliance with the Final Rule’s requirements not only could include enforcement by the applicable federal banking agency or the FTC (if the FTC has jurisdiction over such covered entity), but also could result in civil liability to affected consumers (including punitive damages for certain willful actions, as well as attorneys’ fees).

As discussed here last year , the Supreme Court ruled in Safeco Insurance Co. of America, et al. v. Burr, et al that reckless disregard of the requirements of FCRA can constitute willful violation.  The court left open the question of whether it was objectively reasonable for merchants to continue to print expiration dates on customer receipts after the date for compliance with FACTA had passed. 

In response to the widespread FACTA litigation, Congress amended FCRA to prevent certain putative consumer class actions. The “Credit and Debit Card Receipt Clarification Act of 2007” (“the Act”), signed by President Bush on June 3, amends FCRA to specify that printing expiration dates on receipts where the account number is otherwise properly truncated does not in and of itself constitute willful noncompliance.  Consumers will not be entitled to pursue suits claiming willful violation, and thus not be entitled to seek statutory damages, merely because an expiration date is printed on an otherwise compliant receipt.  The Act does not affect negligence suits filed by consumers who can show actual harm as a result of the printing of the expiration date, or suits against merchants who are otherwise not in compliance with FACTA’s requirements.  The Act applies to any company that printed an expiration date on any receipt provided to a consumer cardholder at a point of sale or transaction between December 4, 2004, and the date of the enactment. 

Proskauer summer associate Nicole Ross contributed to this post.