On May 7, the CFPB issued a proposed rule that would provide financial institutions an alternative method for delivering annual privacy notices. The Gramm-Leach-Bliley Act (GLBA) and Regulation P require financial institutions to, among other things, provide annual privacy notices to customers—either in writing or electronically with consumer consent. Industry generally has criticized the current annual notice requirement as ineffective and burdensome, with most financial institutions providing the notices by U.S. postal mail. The proposed rule would allow financial institutions, under certain circumstances, to comply with the GLBA annual privacy notice delivery requirements by (i) continuously posting the notice in a clear and conspicuous manner on a page of their websites, without requiring a login or similar steps to access the notice; and (ii) mailing the notices promptly to customers who request them by phone. Read more…
On December 4, President Obama signed into law H.R. 22, the “Fixing America’s Surface Transportation Act” (FAST Act). Although a transportation bill on its surface, the bill also contains various provisions that are intended to provide regulatory relief to community banks and improve the efficiency of state financial regulation. Significant provisions in the bill include: (i) establishing a process that allows parties, including banks and other stakeholders, to petition the CFPB for “rural” or “underserved” designations in certain areas for the purposes of the CFPB’s ability-to-repay rule; (ii) expanding the CFPB’s ability to exempt creditors serving rural or underserved areas from escrow requirements; (iii) granting greater flexibility to the CFPB in regards to treating a balloon loan as a qualified mortgage, if a community bank or creditor operating in a rural or underserved area extended the loan; (iv) increasing the threshold for 18-month exam cycles for well-capitalized banks from $500 million to $1 billion; and (v) authorizing the Nationwide Mortgage Licensing System – which state regulators use to license various nonbank financial services industries, such as money transmitters, payday lenders, and debt collectors – to process background checks for non-mortgage license applicants.
Recently, the CFTC’s Division of Swaps Oversight issued Staff Advisory No. 14-21, which recommends best practices for CFTC-regulated intermediaries to comply with applicable Gramm-Leach-Bliley (GLB) Act privacy requirements, consistent with the Division’s intention to focus more resources on GLB privacy compliance. The advisory states that its recommendations are generally consistent with guidelines and regulations issued by other federal financial regulators, and the majority of the specific best practices are supported with references to prior rules and guidance. A number of the best practices cite the Interagency Guidelines Establishing Standards for Safeguarding Customer Information and Rescission of Year 2000 Standards for Safety and Soundness and a parallel FTC rule. Notably, several of the recommendations rely on a rule proposed by the SEC in 2008 but which has not yet been finalized. For example, the CFTC recommends based on that SEC proposal and the Interagency Guidelines that covered entities establish a breach investigation and notice process to alert potentially impacted individuals and to notify the CFTC. In addition, without referencing any other federal rule or guidance the Staff Advisory recommends that covered entities engage at least once every two years an independent party to test and monitor the safeguards’ controls, systems, policies and procedures, maintaining written records of the effectiveness of the controls.
Federal Reserve Board Proposes To Repeal Duplicative Regulations Amend Identity Theft Red Flags Rule
On February 12, the Federal Reserve Board proposed to repeal its Regulation DD, which implements the TISA, and Regulation P, which implements Section 504 of the GLBA because the Dodd-Frank Act transferred rulemaking authority for those laws to the CFPB, and the CFPB has already issued interim final rules implementing them. The Board also proposed to amend the definition of “creditor” in its Identity Theft Red Flags rule, which implements Section 615 of the FCRA. Generally, the Indemnity Theft Red Flags rule requires each financial institution and creditor that holds any consumer account to develop and implement an identity theft prevention program. The proposed revision will exclude from the foregoing requirements businesses that do not regularly and in the ordinary course of business (i) obtain or use consumer reports in connection with a credit transaction; (ii) furnish information to consumer reporting agencies in connection with a credit transaction; or (iii) advance funds to or on behalf of a person. The Board will accept comments on the proposal for 60 days from publication in the Federal Register.
On November 22, the CFPB released findings of a study the Bureau conducted on the impact of certain deposit regulations on the day-to-day operations of banking institutions, focusing on compliance costs related to checking accounts, traditional savings accounts, debit cards, and overdraft programs. The study collected information from seven banks about activities related to compliance with regulations implementing the Truth in Savings Act, the Electronic Fund Transfer Act, the financial privacy requirements of the Gramm-Leach-Bliley Act, and the Fair Credit Reporting Act (Regulations DD, E, P, and V, respectively), as well as FCRA’s adverse action requirements, which are not implemented by regulation. According to the Bureau, compliance costs were concentrated in the Operations, Information Technology, Human Resources, Compliance, and Retail functions, and banks incurred the most substantial costs complying with rules related to authorization rights, error resolution requirements, disclosure mandates, and advertising standards.
The report identifies the compliance-related activities that entailed the highest costs across business functions and suggests that “authorization rights” (i.e., opt-ins and opt-outs) and error-resolution requirements are the most costly to administer. The report also discusses the potential for the study—which the Bureau characterizes as representing “some of the most rigorous information currently available” on compliance costs—to advance research on the cost of compliance, influence the ultimate understanding of regulatory impacts on consumers and markets, and inform the CFPB’s ongoing efforts to avoid unnecessary compliance costs. The Bureau states that estimating the operational effects of consumer financial services regulation alone has “limited value to policymaking” and is mainly helpful in determining the impact of a specific regulation on product pricing and availability or market structure and competition. The Bureau concluded that research on the effects of regulations will remain an ongoing priority, but it will nevertheless continue to address problems observed in the marketplace — “mindful that, whatever the costs of regulation, the costs of not regulating adequately can be even larger.”
The full report, Understanding the Effects of Certain Deposit Regulations on Financial Institutions’ Operations: Findings on Relative Costs for Systems, Personnel, and Processes at Seven Institutions, is available here.
On September 23, eight federal agencies, including the Federal Reserve Board, the CFPB, the OCC, and the FDIC, issued interagency guidance to clarify the applicability of Gramm-Leach Bliley Act privacy provisions to reporting suspected financial exploitation of older adults. The guidance states that although the Act generally prohibits a financial institution from disclosing nonpublic personal information about a consumer to any nonaffiliated third party without notifying the consumer and providing an opportunity to opt-out of the disclosure, the Act contains several exemptions that generally allow for the reporting of suspected elder financial abuse, either at the request of a local, state, or federal agency or on the financial institution’s own initiative.
On June 7, the FTC announced two new cases (and simultaneous settlements), one against a debt collector and the other against an auto dealer, alleging privacy and data violations based on the use of peer-to-peer file sharing software. In both cases, the FTC claims that the firms allowed file-sharing software to be installed on company computers, thereby allowing files containing personal customer information to be accessed by any other person using a networked computer. Both companies, according to the FTC, (i) did not have adequate security plans, (ii) did not use reasonable measures to enforce compliance with existing security policies, (iii) did not adequately train employees, (iv) did not use reasonable methods to prevent, detect and investigate unauthorized access to personal information on its networks, and (v) failed to assess risk to consumers. For the debt collector, the FTC alleges that the failures constituted an unfair act or practice in violation of the FTC Act. The FTC claims that the auto dealer also violated the FTC Act and, for the first time, charges an auto dealer with violations of certain Gramm-Leach-Bliley (GLB) Act rules. The settlement orders with both companies bar misrepresentations regarding the privacy, security, confidentiality, and integrity of any personal information and require that the firms establish comprehensive information security programs that will be audited every other year for 20 years. The auto dealer also is barred from violating the GLB rules at issue.