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From Banking and Finance Law Daily, May 6, 2014

CFPB says privacy proposal would benefit both consumers and companies

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau is proposing to amend Regulation P (12 CFR 1016) which requires that financial institutions provide an annual disclosure of their privacy policies to their customers. The amendment would create an alternate method of delivery for the disclosure under certain circumstances. The proposed rule is intended to promote more effective privacy disclosures from financial institutions to their customers.

“Consumers need clear information about how their personal information is being used by financial institutions,” CFPB Director Richard Cordray said in the bureau’s announcement. “This proposal would make it easier for consumers to find and access privacy policies, while also making it cheaper for industry to provide disclosures.”

Regulation P implements the Gramm-Leach-Bliley Act which generally requires that financial institutions send annual privacy notices to customers that explain whether and how the financial institution shares consumers’ nonpublic personal information. If the institution does share this information with an unaffiliated third party, it typically must notify consumers of their right to opt out of the sharing and inform them of how to do so.

Proposal overview. Under the proposed rule, institutions would be allowed to post privacy notices online instead of distributing an annual paper copy if they satisfy certain conditions such as not sharing data in ways that would trigger consumers’ opt-out rights. The proposal would apply to both banks and nonbanks that are within the CFPB’s jurisdiction under the GLBA. Institutions that choose to rely on this new method of delivering privacy notices would be required to use the model disclosure form developed by federal regulatory agencies in 2009.

The proposal provides that if an institution is qualified for, and wants to rely on, the online disclosure method, the institution would be required to inform consumers annually about the availability of the disclosures. Currently institutions must send consumers a separate communication about privacy disclosures. Under the proposal, they could include an insert in regular consumer communication, such as a monthly billing statement for a credit card, letting consumers know that the annual privacy notice is available online and in paper by request at a toll-free telephone number. If an institution chose not to use the online disclosure method, it would need to continue to deliver annual privacy notices to its customers.

Benefits. According to the bureau, the benefits of the proposal include:

  1. greater access to privacy policies—consumers would be able to view an institution’s privacy policy online at any time. For those with limited access to the Internet, the proposal would require financial institutions to promptly mail annual disclosures to consumers who request them by phone;

  2. limited data sharing—the proposal provides an incentive for institutions to limit their sharing of data to unaffiliated third parties by barring institutions who share information in a way that triggers customers’ right to opt out of sharing from using the alternate method of delivery and reducing their costs;

  3. ability to comparison shop—institutions that post their privacy policies openly on their websites would be required under the proposal to use the model disclosure form, which would allow consumers concerned about their personal information to comparison shop before deciding on an institution; and

  4. reduced cost for institutions—the proposal potentially would reduce institutions’ costs related to providing annual privacy notices. The CFPB estimates a savings of $17 million to the industry.

Comments. The bureau invites public comments on the proposal. Comments will be due 30 days after publication of the proposed rule in the Federal Register.

MainStory: TopStory CFPB Privacy

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