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From Banking and Finance Law Daily, October 20, 2014

Qualifying financial institutions may post privacy notices online

By Thomas G. Wolfe, J.D.

The Consumer Financial Protection Bureau has finalized a rule allowing companies that limit their consumer data-sharing and otherwise meet certain requirements to post their annual privacy notices online—rather than having to deliver a paper notice individually. In amending Regulation P—Privacy of Consumer Financial Information (12 CFR Part 1016), the CFPB aims to promote more effective privacy disclosures from financial institutions to their customers. Notably, the CFPB’s final rule takes effect immediately upon its publication in the Federal Register.

In an Oct. 20, 2014, release, CFPB Director Richard Cordray remarked, “Consumers need clear and accessible information about how their personal information is being used in the marketplace, but some of these requirements were redundant. Posting privacy notices online will make it easier for consumers to access these important policies, while also making it cheaper for financial institutions to provide disclosures.”

Background. Generally, Regulation P implements the Gramm-Leach-Bliley Act, which, among other things, requires financial institutions to send annual privacy notices to their customers. These privacy notices must describe whether and how the financial institution shares consumers’ nonpublic personal information. Typically, if a financial institution does share this information with an unaffiliated third party, it must notify consumers of their right to opt out of the sharing and must inform consumers about how to do so. In addition, similar privacy notification and opt-out requirements are set forth in the federal Fair Credit Reporting Act and its implementing regulation (Regulation V).

As previously reported (see Banking and Finance Law Daily, May 6, 2014), in May 2014, the CFPB proposed to amend Regulation P to “create an alternate method of delivery for the [privacy] disclosure under certain circumstances.” The CFPB has now finalized its proposed rule “largely as it was proposed in May, with a number of technical, clarifying, and minor revisions.”

Rule highlights. Under the CFPB’s amended rule, a qualifying financial institution seeking to utilize the online method of privacy disclosures must inform consumers annually about the availability of the disclosures. Should a qualifying financial institution decide not to use the new online method, the institution would need to continue delivering the annual privacy notices to its customers by using other delivery methods.

According to the CFPB, some of the benefits of the new rule include:

  1. Access to privacy policies: In connection with the new online delivery method, consumers will be able to view their financial institution’s privacy policy at any time while still receiving conventional delivery methods should the terms of the privacy policy change. For those consumers with limited or no Internet access, financial institutions are required to mail annual notices within 10 days to customers who request them by phone.

  2. Limited data sharing: If a financial institution shares data with “unaffiliated third parties in a way that triggers customers’ rights to opt out of such sharing, then that institution generally would not be allowed to use the alternative delivery method.” This provides financial institutions with “an incentive to limit their sharing to reduce their costs.”

  3. Educating consumers: When a financial institution posts its privacy policies on its website using the new delivery method, the institution must use the “model disclosure form” designed by the federal regulators; this facilitates consumers being better informed and educated about privacy policies.

  4. Reduced cost: The amendments to Regulation P should reduce the cost for companies to provide annual privacy notices. The CFPB estimates that about $17 million could be saved annually by the financial services industry if companies choose the new online method of privacy disclosure.

  5. MainStory: TopStory BankingOperations CFPB FairCreditReporting Privacy

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