Privacy of Consumer Financial Information

Federal RegisterMay 24, 2000

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FEDERAL TRADE COMMISSION

16 CFR Part 313

Privacy of Consumer Financial Information

AGENCY:

Federal Trade Commission.

ACTION:

Final Rule.

SUMMARY:

The Federal Trade Commission (the “Commission” or “FTC”) is publishing a final privacy rule, as required by section 504(a) of the Gramm-Leach-Bliley Act, Pub. L. 106-102 (the “G-L-B Act” or “Act”), with respect to financial institutions and other persons under the Commission's jurisdiction, as set forth in section 505(a)(7) of the Act. Section 504 of the Act requires the Commission and other federal regulatory agencies to issue regulations as may be necessary to implement notice requirements and restrictions on a financial institution's ability to disclose nonpublic personal information about consumers to nonaffiliated third parties. Pursuant to section 503 of the G-L-B Act, a financial institution must provide its customers with a notice of its privacy policies and practices. Section 502 prohibits a financial institution from disclosing nonpublic personal information about a consumer to nonaffiliated third parties unless the institution satisfies various disclosure and opt-out requirements and the consumer has not elected to opt out of the disclosure. This final rule implements the requirements outlined above.

EFFECTIVE DATE:

This rule is effective November 13, 2000. Full compliance is required by July 1, 2001.

FOR FURTHER INFORMATION CONTACT:

Kellie A. Cosgrove or Clarke Brinckerhoff, Attorneys, Division of Financial Practices, Federal Trade Commission, Washington, DC 20580, 202-326-3224.

SUPPLEMENTARY INFORMATION:

Section A. Background

On November 12, 1999, President Clinton signed the G-L-B Act (Public Law 106-102) into law. Subtitle A of Title V of the Act, captioned Disclosure of Nonpublic Personal Information, limits the instances in which a financial institution may disclose nonpublic personal information about a consumer to nonaffiliated third parties, and requires a financial institution to disclose to all of its customers the institution's privacy policies and practices with respect to information sharing with both affiliates and nonaffiliated third parties. The Commission notes that there are other laws that may impose limitations on disclosures of nonpublic personal information in addition to those imposed by the G-L-B Act and this rule. For instance, the Fair Credit Reporting Act imposes conditions on the sharing of application information and credit report information between affiliates and nonaffiliated third parties.

Title V also requires the Commission, along with the Federal banking agencies

and other Federal regulatory authorities,

after consulting with representatives of State insurance authorities designated by the National Association of Insurance Commissioners (NAIC), to prescribe such regulations as may be necessary to carry out the purposes of the provisions in Title V, Subtitle A, that govern disclosure of nonpublic personal information. The Federal agencies are sometimes referred to collectively in this document as the “Agencies” (or “other Agencies” when excluding the Commission).

The Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681

et seq

, provides no limitation on communication by an entity solely of its own “transactions or experiences” with the consumer (

e.g.

, the individual's account history). However, it limits the reporting of information obtained from other sources, such as consumer application information or credit report information. An institution may normally share such data with its affiliates only if it has complied with the notice and opt-out procedures set forth in FCRA § 603(d)(2)(A)(iii), which are very similar to those set forth in Section 502(b)(1) of the Act. Sharing such data with nonaffiliates may be effectively prohibited by the FCRA, because the institution likely would become a consumer reporting agency subject to its restrictions on reporting of information to third parties.

Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS), and Secretary of the Treasury.

National Credit Union Administration (NCUA) and Securities and Exchange Commission (SEC).

The Agencies are all issuing final rules to implement Subtitle A that are consistent and comparable to the extent possible, as is required by the statute.

Section B. Overview of Comments Received

On March 1, 2000, the Commission published a notice of proposed rulemaking (the proposal or proposed rule) in the

Federal Register

(65 FR 11174). The other Agencies published their proposed rules on different dates.

The Commission received a total of 640 comments, and the other Agencies collectively received a total of 8,337 comments in response to the various proposed rules. Many commenters sent the same letter to multiple Agencies. Many of the comments were from individuals, virtually all of whom encouraged the Agencies to provide greater protection of individuals' financial privacy. Many individuals noted their concerns generally about the loss of privacy and the receipt of unwanted solicitations by marketers. A large number of individuals also requested the Agencies to support legislation that the commenters believe would provide additional protections.

Those proposed rules, which were consistent and comparable with the proposals published by the Commission, appeared in the

Federal Register

at 65 FR 8770 (Feb. 22, 2000) (OCC, FRB, FDIC, and OTS jointly), 65 FR 10988 (Mar. 1, 2000) (NCUA), and 65 FR 12354 (Mar. 8, 2000) (SEC).

The Agencies also received several letters from members of Congress. In two letters signed by several members of the House of Representatives, the Agencies were encouraged to exercise their rulemaking authority to provide greater protections than provided in the Act. Other Representatives requested, in separate letters, that some other Agencies (a) create a limited exception to the prohibition against the sharing of account numbers for marketing purposes and (b) ensure that social security numbers are considered “nonpublic personal information.”

The NAIC submitted a comment on behalf of the State insurance authorities that generally supported the Agencies' proposed rule. The NAIC also proposed various measures to provide greater protections for consumers, such as specifying more convenient means to exercise the right to opt out of the disclosure of information. The NAIC further advised the Agencies to clarify the boundary of Federal and State jurisdiction over privacy regulations and ensure that the financial privacy rules under the Act are compatible with the privacy rules relating to medical information that are to be issued by the Secretary of the Department of Health and Human Services (HHS) under the Health Insurance Portability and Accountability Act (HIPPA) of 1996.

These proposed regulations were published for comment at 64 FR 59918 (Nov. 3, 1999).

Other comments were received from consumer groups and others advocating that the Agencies extend privacy protections in a number of ways, such as by requiring (a) financial institutions to provide consumers with access to their information maintained by the institutions and the opportunity to correct errors, (b) more detailed disclosures of the information collected and disclosed, and (c) disclosures of a financial institution's privacy policies and practices earlier in the process of establishing a customer relationship. A letter signed by 33 State Attorneys General urged some other Agencies to add certain consumer protections to the disclosure requirements and to the

provision permitting financial institutions to enter into joint marketing agreements.

Most of the remaining comments were from businesses concerned about the Act, and their representatives. This included not only creditors of various types, but also representatives of the health care industry, retail merchants, insurance companies, securities firms, private investigators, debt collection agencies, consumer reporting agencies, institutions of higher education, tax professionals, and others. These commenters offered a large number of suggested changes, with the most commonly advanced suggestions including: an extension of the effective date of the rule; an amendment to the definition of “nonpublic personal information” to focus more narrowly on “financial” information; a streamlining of information required in the initial and annual disclosures; a clarification of how one or more of the statutory exceptions operate; an exclusion from, or clarification of, the definitions of “consumer” and “customer” in various contexts; and the addition of flexibility to provide initial notices at some point other than “prior to” the time a customer relationship is established.

The Commission has made some modifications to its proposed rule in light of the comments received. These comments, and the Commission's responses thereto, are discussed in the following section-by-section analysis. Following the section-by-section analysis, the Commission has provided guidance for certain institutions in order to provide additional direction on how these institutions may comply with the rule and avoid unnecessary burden.

Section C. Section-by-Section Analysis

As an initial matter, the Commission notes that the final rule, unlike the proposal, presents the various sections in subparts that consist of related sections. This change was made to group related concepts together and thereby make the rule easier to follow. A derivation table is included following this preamble to assist readers in locating provisions as set out in the Commission proposal. The Commission has also added an Appendix to the final rule, setting out example disclosure clauses for financial institutions to consider.

Section 313.1 Purpose and Scope

Purpose

. Paragraph (a) of this section states that the rule is intended to require a financial institution to provide notice to customers about its privacy policies and practices; to describe the conditions under which a financial institution may disclose nonpublic personal information about consumers to nonaffiliated third parties; and to provide a method for consumers to prevent a financial institution from disclosing that information to certain nonaffiliated third parties by “opting out” of that disclosure, subject to various exceptions as stated in the rule. No significant comments addressed this provision, and the Commission made no substantive change to this section.

Scope

. Paragraph (b) sets out the scope of the rule, and tracks the enforcement role assigned to the Commission by section 505(a)(7) of the G-L-B Act. It states that the rule applies only to information about individuals who obtain a financial product or service from a financial institution to be used for personal, family, or household purposes. The principal type of entity subject to the rule is a “financial institution,” a term section 509(3) of the G-L-B Act defines very broadly to mean “any institution the business of which is engaging in financial activities as described in section 4(k) of the Bank Holding Company Act of 1956” (12 U.S.C. 1843(k)). Those “financial activities” include not only a number of traditional financial activities specified in section 4(k) itself,

but also those activities that the Federal Reserve Board has found to be either closely related to banking,

or usual in connection with the transaction of banking or other financial operations abroad,

by regulation (or order or interpretation) “in effect on the date of the enactment of the Gramm-Leach-Bliley Act.”

Section 313.1(b) also lists some examples of “financial institutions” subject to Commission jurisdiction under the Act. Finally, this part notes that the Commission is also authorized to enforce the Act against “other persons” who are not financial institutions, but receive protected information from a financial institution and are subject to section 502(c) of the G-L-B Act (“Limits on Reuse of Information”), which imposes restrictions on recipients of such information as set forth in 16 CFR 313.11,

infra

Section 4(k)(4)(A-E) states “the following activities shall be considered to be financial in nature: (A) Lending, exchanging, transferring, investing for others, or safeguarding money or securities. (B) Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker for purposes of the foregoing, in any State. (C) Providing financial, investment, or economic advisory services, including advising an investment company (as defined in section 3 of the Investment Company Act of 1940). (D) Issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly. (E) Underwriting, dealing in, or making a market in securities.”

Section 4(k)(4)(F). The Board's list of such activities is found in 12 CFR 225.28 and 12 CFR 225.86(a). The latter subsection was added as an interim rule published by the Board in the

Federal Register

upon enactment of the G-L-B Act (65 FR 14433; Mar. 14, 2000), subject to revision after a public comment period ending on May 12, 2000. The activities listed in 12 CFR 225.28 include in certain circumstances: brokering or servicing loans; leasing real or personal property (or acting as agent, broker, or advisor in such leasing) without operating, maintaining or repairing the property; appraising real or personal property; check guaranty, collection agency, credit bureau, and real estate settlement services; providing financial or investment advisory activities including tax planning, tax preparation, and instruction on individual financial management; management consulting and counseling activities (including providing financial career counseling); courier services for banking instruments; printing and selling checks and related documents; community development or advisory activities; selling money orders, savings bonds, or traveler's checks; and providing financial data processing and transmission services, facilities (including hardware, software, documentation, or operating personnel), data bases, advice, or access to these by technological means.

Section 4(k)(4)(G). The scope of the Act is not limited to activities abroad, because the text of Section 4(k)(4)(G) is “Engaging,

in the United States

, in any Section 4(k)(4)(G) activity that (i) a bank holding company may engage in outside of the United States; and (ii) the Board has determined to be usual in connection with the transaction of banking and financial operations abroad.” (Emphasis added.) The Board has provided a list of such activities in 12 CFR 211.5(d) and 12 CFR 225.86(b). The latter subsection was added as an interim rule published by the Board in the

Federal Register

upon enactment of the G-L-B Act (65 FR 14433; Mar. 14, 2000), subject to revision following a public comment period ending on May 12, 2000. The activities listed in 12 CFR 211.5(d) include leasing real or personal property (or acting as agent, broker, or advisor in such leasing) where the lease is functionally equivalent to an extension of credit; acting as fiduciary; providing investment, financial, or economic advisory services; and operating a travel agency in connection with financial services.

Section 4(k)(4)(G) uses “

day before the

date of ” rather than “date of ” in the quoted phrase.

Many industry commenters suggested revising the “financial institution” definition set forth in § 313.3(k) to narrow the scope to only those businesses that engage in traditional financial activities, arguing that Congress did not intend to cover businesses that conducted no such activities. On the other side, consumer commenters vigorously defended the broad scope, contending that the need to protect personal financial data extends beyond traditional financial institutions and that Congress intended to regulate a wide range of businesses that provide “financial” services to consumers when it enacted this statute. The G-L-B Act clearly covers more than parties in the credit, insurance, or securities industries; rather, an entity is a “financial institution” if it engages in any activity that the Board has determined to be a “financial activity.”

After a careful review of the comments received, the Commission finds no sound rationale for fundamentally revising the scope of the rule. Therefore, the Commission continues to interpret the act as written and has made no broad change to 16 CFR 313.1(b) in that regard.

However, as the Commission noted when it proposed this rule and repeats hereafter, some businesses that are technically “financial institutions” will have no disclosure obligations under the Act.

Furthermore, as is evident from the discussion of the term “customer relationship” that is defined in 16 CFR 313.3(i), many others will have only limited duties because they will not establish such relationships or they will be of very short duration.

However, as discussed in the definition of “financial institution” in § 313.3(k), the Commission has retained its interpretation that an institution is covered only if it is “significantly engaged” in such activities.

“Many entities that come within the broad definition of financial institution will likely not be subject to the disclosure requirements of the rule because not all financial institutions have ‘consumers’ or establish ‘customer relationships.’ ” 65 Fed. Reg. 11174, 11177 (Mar. 1, 2000).

Several commenters requested that the Commission clarify how its rule applies to insurance companies. The Commission notes that section 505 of G-L-B Act, which sets out the enforcement authority of the Agencies, explicitly commits the enforcement jurisdiction over “persons engaged in providing insurance” to state insurance authorities, thus excluding them from the Commission's authority (and, by operation of section 504(a)(1) of the G-L-B Act, from the Commission's rulemaking authority).

Several other commenters asked that the final rule state that certain transactions that are exempt from the coverage of the Truth in Lending Act (TILA; 15 U.S.C. 1601

et seq.

) and Regulation Z (Reg. Z, 12 CFR part 226) also be treated as beyond the scope of the privacy rule. TILA and Reg. Z, which impose disclosure requirements on credit extended to consumers under certain circumstances, exempt several transactions, including those involving business, commercial, or agricultural credit. 15 U.S.C. 1603(1); 12 CFR 226.3(a). The Commission agrees that transactions that fit within the business, commercial, and agricultural exemptions from TILA and Reg. Z for these types of credit also would fall outside the scope of the privacy rule, and has amended § 313.1(b) accordingly.

Thus, creditors may look at how this exemption is applied under Reg. Z for guidance on the scope of covered transactions under the privacy rule. It should be noted, however, that TILA exempts several other types of transactions that would be covered under the privacy rule if they are for the purpose of an individual obtaining a financial product or service as that term is defined in the privacy regulation.

See

15 U.S.C. 1603 (2) and (3).

Several comments suggested that the rule should not apply to entities that must comply with regulations issued by the HHS that implement the HIPAA. Given the broad definition of “financial institution” under the G-L-B Act, certain entities are subject to these privacy rules as well as rules promulgated under HIPAA regarding appropriate handling of protected health information. Accordingly, financial institutions may be covered both by this privacy rule and by the regulations promulgated by HHS under the authority of sections 262 and 264 of HIPAA once those regulations are finalized. Based on the proposed HIPAA rules, it appears likely that there will be areas of overlap between HIPAA and financial privacy rules. For instance, under the proposed HIPAA regulations, consumers must provide affirmative authorization before a covered institution may disclose medical information in certain instances, whereas under the financial privacy rules, institutions need only provide consumers with the opportunity to opt out of disclosures. In this case, the Agencies anticipate that compliance with the affirmative authorization requirement, consistent with the procedures required under HIPAA, would satisfy the opt out requirement under the financial privacy rules. After HHS publishes its final rules, the Commission and other Agencies will consult with HHS to avoid the imposition of duplicative or inconsistent requirements.

The Commission also received several comments from colleges and universities and their representatives requesting that institutions of higher education be excluded from the definition of financial institution. The Commission disagrees with those commenters who suggested that colleges and universities are not financial institutions. Many, if not all, such institutions appear to be significantly engaged in lending funds to consumers. However, such entities are subject to the stringent privacy provisions in the Federal Educational Rights and Privacy Act (“FERPA”), 20 U.S.C. 1232g, and its implementing regulations, 34 CFR part 99, which govern the privacy of educational records, including student financial aid records. The Commission has noted in its final rule, therefore, that institutions of higher education that are complying with FERPA to protect the privacy of their student financial aid records will be deemed to be in compliance with the Commission's rule.

Section 313.2 Rule of Construction

Proposed § 313.2 of the rule sets out a rule of construction intended to clarify the effect of the examples used in the rule. As noted in the proposal, these examples are not intended to be exhaustive; rather, they are intended to provide guidance about how the rule would apply in specific situations.

Commenters generally agreed that examples are helpful in clarifying how the rule will work in specific circumstances and suggested that the Commission should include more examples. Many commenters requested that the Commission provide examples of model disclosures. Commenters also generally agreed that it is useful to state that the list of examples is not intended to be exhaustive, and that compliance with one of the examples would be deemed compliance with the regulation. A few commenters suggested that the regulation state that a financial institution is not obligated to comply with an example but has the latitude to comply with the general rule in other ways. Others stated that the examples ought to be identical in each privacy regulation adopted by the Agencies. The Commission also received comments suggesting that the Commission defer to the expertise of other agencies when considering application of its rule to entities such as credit unions or investment advisors under its jurisdiction.

The Commission believes that more examples would be helpful and has included additional examples in appropriate places throughout the rule. The Commission has also provided sample clauses in Appendix A to the rule to aid financial institutions in their drafting of privacy notices. The sample clauses are provided to illustrate the level of detail the Commission believes is appropriate. The Commission cautions financial institutions against relying on the sample clauses without determining the relevance or appropriateness of the disclosure for their operations. The Commission has used statutory terms, such as “nonpublic personal information” and “nonaffiliated third parties,” in the sample clauses to convey generally the subject of the clauses. However, a financial institution that uses these terms must provide sufficient information to enable consumers to understand what these terms mean in the context of the institution's notices. Moreover, the Commission notes that, in providing the sample disclosures, the Commission is addressing solely the

level of detail required and is not attempting to provide guidance on issues such as type size, margin width, “clear and conspicuous” generally, and so on.

The rule does not contain a statement regarding a financial institution's ability to comply with the rule in ways other than as suggested in the examples, but does provide that the examples are not exclusive. The rule also states that compliance with the examples will constitute compliance with the rule. The Commission believes that, when read together, these provisions give financial institutions sufficient flexibility to comply with the regulation but also sufficient guidance about the use of examples.

The Commission understands that the NCUA and SEC have issued, or will issue, final rules with examples that are tailored to entities under their jurisdiction. Therefore, the Commission has stated in § 313.2 that compliance by non-federally insured credit unions with credit union examples in the NCUA rule will constitute compliance with the Commission's rule. Similarly, compliance by interstate securities broker-dealers and investment advisers that are not registered with the SEC with applicable examples in the SEC rule will constitute compliance with the Commission's rule.

Section 313.3 Definitions

Affiliate.

The proposal adopted the definition of “affiliate” that is used in section 509(6) of the G-L-B Act. An affiliation exists when one company “controls” (which is defined in § 313.3(g), below), is controlled by, or is under common control with another company. The definition includes both financial institutions and entities that are not financial institutions.

The Commission received comparatively few comments in response to this definition. A few commenters requested that the final rule state that a credit union service organization will be deemed to be an affiliate of every credit union that has an interest in it. The Commission has declined to adopt this suggestion. If the relationship between a credit union and a credit union service organization satisfies the test for affiliation set out in the statute and regulation, then an affiliation exists.

In light of the comparatively few comments received and the nature of those comments, the Commission adopts the definition of “affiliate” as proposed.

Clear and conspicuous.

Under the proposed rule, various notices must be “clear and conspicuous.” The proposed rule defines this term to mean that the notice must be reasonably understandable and designed to call attention to the nature and significance of the information contained in the notice. The proposal did not mandate the use of any particular technique for making the notices clear and conspicuous, but provided examples of how a notice may be made clear and conspicuous. As noted in the preamble to the proposed rule, each financial institution retains the flexibility to decide for itself how best to comply with this requirement.

The Commission received a large number of comments on this proposed definition. Some commenters favored adopting the definition as proposed, with some of these advocating that the final rule add a requirement that disclosures must be on a separate piece of paper in order to ensure that they will be conspicuous. Others stated that the definition was unnecessary, given the experience financial institutions have in complying with requirements that disclosures mandated by other laws be clear and conspicuous. Several commenters made the related point that the rule proposed is inconsistent with requirements in other consumer protection regulations such as Reg. Z and the Truth in Savings regulation (Regulation DD, 12 CFR part 230), which require only that a disclosure be reasonably understandable. Many of these commenters expressed concern that the examples would invite litigation because of ambiguities inherent in terms used in the examples in the proposed rule such as “ample line spacing,” “wide margins,” and “explanations * * * subject to different interpretations.” A few commenters questioned how the requirement would work in a document that contains several disclosures that each must be clearly and conspicuously disclosed, while others raised questions about how a disclosure may be clear and conspicuous on a web site. These comments are addressed below.

New standard for “clear and conspicuous”

The Commission recognizes that the proposed definition articulates the concept of “clear and conspicuous” in ways perhaps not familiar to some commenters. However, the Commission included the phrase “designed to call attention to the nature and significance of the information contained” to provide added meaning to the term “conspicuous.” The Commission believes that this standard, when coupled with the existing standard requiring that a disclosure be readily understandable, likely will result in notices to consumers that communicate effectively the information needed by consumers to make an informed choice about the privacy of their information, including whether to transact business with a financial institution.

The standard for clear and conspicuous adopted by the Commission in this rulemaking applies solely to disclosures required under the privacy rules. Disclosures governed by other rules requiring clear and conspicuous disclosures (such as Reg. Z) are beyond the scope of this rulemaking.

Examples of “clear and conspicuous”

The Commission recognizes that many of the examples require judgment in their application. The Commission believes, however, that more prescriptive examples, while perhaps easier to conform to, likely would result in requirements that would be inappropriate in a given circumstance. To avoid this result, the examples provide generally applicable guidance about ways in which a financial institution may make a disclosure clear and conspicuous. The Commission notes that the examples of how to make a disclosure clear and conspicuous are not mandatory. A financial institution must decide for itself how best to comply with the general rule and may use techniques not listed in the examples. To address these concerns, the Commission has incorporated several of the commenters' suggestions for ways to make the guidance more helpful.

Combination of several “clear and conspicuous” notices.

A document may combine several disclosures that each must be clear and conspicuous. The final rule provides an example, in § 313.3(b)(2)(ii)(E), of how a financial institution may make disclosures conspicuous, including disclosures on a combined notice. In order to avoid the potential conflicts envisioned by several commenters between two different requirements, the final rule does not mandate precise specifications for how various disclosures must be presented.

Because the Commission believes that privacy disclosures may be clear and conspicuous when contained in a document containing other disclosures, the rule does not mandate that disclosures be provided on a separate piece of paper. Such a requirement is not necessary and would significantly increase the burden on financial institutions. Moreover, it would not necessarily provide the most effective notice in all circumstances.

Disclosures on web pages.

Several commenters requested guidance on how they may clearly and conspicuously

disclose privacy-related information on their Internet sites. The Commission recognizes that disclosures over the Internet present some issues that will not arise in paper-based disclosures. There may be web pages within a financial institution's website that consumers may view in a different order each time they access the site, aided by hypertext links. Depending on the customer hardware and software used to access the Internet, some web pages may require consumers to scroll down to view the entire page. To address these issues, the Commission has included a statement in the example in § 313.3(b)(2)(iii) concerning Internet disclosures informing financial institutions that they may comply with the rule if they use text or visual cues to encourage scrolling down the page if necessary to view the entire notice and ensure that other elements on the web site (such as text, graphics, hyperlinks, or sound) do not distract attention from the notice. In addition, a financial institution is to place either a notice or a conspicuous link on a page frequently accessed by consumers, such as a page on which transactions are conducted.

Given current technology, there are a range of approaches a financial institution could take to comply with the rule. For example, a financial institution could use a dialog box that pops up to provide the disclosure before a consumer provides information to the institution. Another approach would be a simple, clearly labeled graphic located near the top of the page or in close proximity to the financial institution's logo, directing the customer, through a hypertext link or hotlink, to the privacy disclosures on a separate web page.

For the reasons advanced above, the Commission has adopted the definition of “clear and conspicuous,” with the changes previously described and with certain other changes intended to make the definition easier to apply.

Collect.

The statute requires a financial institution to include in its initial and annual notices a disclosure of the categories of nonpublic personal information that the institution collects. The proposal defined “collect” to mean obtaining any information that is organized or retrievable on a personally identifiable basis, irrespective of the source of the underlying information. This definition was included to provide guidance about the information that a financial institution must include in its notices and to clarify that the obligations arise regardless of whether the financial institution obtains the information from a consumer or from some other source.

Commenters suggested that the final rule treat information that is not organized and retrievable in an automated fashion as not “collected.” This approach would exclude separate documents not included in a file. The Commission disagrees that information should not be deemed to be collected simply because it is not retrievable in an automated fashion. The Commission believes that the method of retrieval is irrelevant to whether information should be protected under the rule. The Commission agrees, however, that the scope of the regulation should be refined, and has changed the definition of “collect” by using language taken from the Privacy Act of 1974 (5 U.S.C. 552a).

Other commenters requested that the rule clarify that information that is received by a financial institution but then immediately passed along without otherwise disclosing, using, or maintaining a copy of the information is not “collected” as this term is used in the final rule. The Commission believes that merely receiving information without maintaining it would not be “collecting” the information. The final rule reflects this by stating that the information must be organized or retrievable by the financial institution. Otherwise, the definition of “collect” is adopted as proposed.

Company.

The proposal defined “company,” which is used in the definition of “affiliate,” as any corporation, limited liability company, business trust, general or limited partnership, association, or similar organization.

The Commission received no substantive comments on this proposed definition.

Accordingly, the Commission adopts the definition of “company” as proposed.

However, the Commission did receive a few comments asking that sole proprietors be excluded from the definitions of both “company” and “financial institution.” Those comments are discussed in the context of § 313.3(k).

Consumer.

The G-L-B Act distinguishes “consumers” from “customers” for purposes of the notice requirements imposed by the Act. A financial institution is required to give a “consumer” the notices required under Title V only if the institution intends to disclose nonpublic personal information about the consumer to a nonaffiliated third party for purposes other than as permitted by section 502(e) of the statute (as implemented by §§ 313.14 and 313.15). By contrast, a financial institution must give all “customers” a notice of the institution's privacy policy at the time of establishing a customer relationship and annually thereafter during the continuation of the customer relationship.

The proposed rule defined “consumer” to mean an individual (and his or her legal representative) who obtains, from a financial institution, financial products or services that are to be used primarily for personal, family, or household purposes. Because “financial product or service” is defined to include the evaluation by a financial institution of an application to obtain a financial product or service (

see

further discussion of this point, below), a person becomes a consumer even if the application is denied or withdrawn. An individual also would be deemed to be a consumer (as well as a customer) of a financial institution that purchases the individual's account from some other institution.

The Commission received a large number of comments on this proposed definition, raising questions about how the definition would apply in a variety of situations. These comments are addressed below.

Distinction between “consumer” and “customer.”

While many agreed with the distinction drawn in the proposal between “consumer” and “customer,” a few commenters suggested that no distinction between “consumer” and “customer” should be made, given that, in these commenters” views, the statute appears to use the terms interchangeably. The Commission believes, however, that the distinction was deliberate and that the rule should implement it accordingly. A plain reading of the statute supports the conclusion that Congress created one set of protections for anyone who obtains a financial product or service (

i.e.,

who receives a financial institution's privacy policy and opt out notice only if a financial institution intends to disclose nonpublic personal information to nonaffiliated third parties), and an additional set of protections for anyone who establishes a relationship of a more lasting nature than an isolated transaction with a financial institution (

i.e.,

who gets a notice of the institution's privacy policy at the time of establishing a customer relationship, and annual notices as appropriate thereafter). Because the statute tailors the notice requirements to the type of relationship an individual has with a financial institution, that distinction is preserved in the rule.

Applicants as consumers.

Many of the comments received by the Commission concerning the proposed definition of “consumer” disagreed that someone should be deemed a consumer of a financial institution simply by

virtue of the institution evaluating an application. These commenters maintained that the individual has not obtained a financial product or service, as is required by the statutory definition of “consumer.” The Commission believes that the better reading of the G-L-B Act is that an individual has obtained a financial product or service when a financial institution evaluates information provided to the financial institution for the purpose of the individual obtaining some other financial product or service. Financial institutions frequently provide a range of services in connection with the delivery of a financial product. Included within these will be the evaluation by the financial institution of information provided by an individual. In certain instances, such as when an individual is shopping for the best rate on a mortgage loan or the lowest premium for an insurance policy, that evaluation may be the sole financial product or service obtained. In other instances, the evaluation may be one of several services provided that lead up to the eventual establishment of a customer relationship. In either case, the individual will have obtained a financial product or service from the financial institution when the financial institution evaluates the information and informs the individual of the outcome of that evaluation.

In addition to being consistent with the language of the statute, the proposed definition of “consumer” is consistent with one of the primary purposes of Title V of G-L-B Act, namely, to enable an individual to limit the sharing of nonpublic personal information by a financial institution with a nonaffiliated third party. The information provided by a person to a financial institution before a customer relationship is established is likely to contain precisely the types of information that the statute is designed to protect. This information is no less deserving of protection simply because an application is denied or withdrawn. For these reasons, the Commission has retained the individual whose application is evaluated by a financial institution as an example of “consumer” in § 313.3(e)(2)(i).

Loan sales.

Several commenters requested clarification of whether an individual becomes a consumer in various other scenarios involving loans. Commenters posited a wide variety of examples, which, if each were to be addressed specifically in the rule, would require a final rule of enormous complexity and detail. The Commission believes that a rule setting forth a general principle that is flexible enough to be applied in the array of loan transactions posited by the commenters is more appropriate. Towards this end, the Commission's rule provides, by example at § 313.3(e)(2)(iv), that a person will be a consumer of any entity that holds ownership or servicing rights to an individual's loan.

Financial institutions that own or service a loan are providing a financial product or service to the individual borrower in question. In some cases, the product or service is the funding of the loan, directly or indirectly. In other cases, the product or service is the processing of payments, sending account-related notices, responding to consumer questions and complaints about the handling of the account, and so on. The rule defines “consumer” in a way that covers individuals receiving financial products or services in each of these situations.

Such a person may not be a customer, however.

See

explanation of how the definition of “customer” will be applied in the loan context, in the discussion of the definition of § 313.3(h) and (i) below.

See also

the discussion of the effective date at § 313.18,

infra.

Section 4(k) of the Bank Holding Company Act established procedures whereby the Board can add activities to the list of activities that it is permissible for financial holding companies to engage in. To the extent these later added activities are financial activities, and not incidental activities, the rule will not be effective as to those new financial institutions until the Commission so determines.

Given the breadth of the definition, some commenters requested that the Commission provide a definitive list of the entities that are subject to the rule. The Commission deems it inappropriate to publish such a definitive list. The institutions covered by the rule currently are defined by reference to the comprehensive list of activities found at section 4(k)(4) of the Bank Holding Company Act.

The Commission has

reformatted and added additional examples of financial institutions in the final rule to guide the analysis of whether a particular entity is a financial institution through reference to section 4(k)(4) and particular sections of the Board regulations that are incorporated therein by reference.

See footnotes 5-8 and accompanying text,

supra.

These are activities either specified in

Section 4(k)(4) itself, or are activities listed in Board regulations referenced in Section 4(k)(4) already in effect on the effective date of the G-L-B Act. This list of activities may expand as the Board exercises its authority to add additional activities that are financial in nature pursuant to Section 4(k)(1-3) of the Bank Holding Company Act.

The Commission received several comments on the “significantly engaged” standard set forth in the examples in the proposed rule. A few expressed concern that the “significantly engaged” test was too imprecise to allow some businesses to know whether they were within the definition, usually suggesting alternatives that would exclude the industries they represent. The final rule does not define “significantly engaged.” The revenue tests suggested by some commenters are too inflexible to take into consideration all instances where an institution may be significantly engaged in a financial activity. The final rule retains the flexibility of the “significantly engaged” standard and provides guidance through examples. To that end, the Commission has moved the “significantly engaged” language into the text of the final rule and retains in the final rule those examples from the proposed rule of entities that are and are not significantly engaged in a financial activity. A retail business that issues its own credit card directly to consumers is a financial institution significantly engaged in the extension of credit, but a retail business that merely allows its retail clients to make payments through occasional lay-away plans is not significantly engaged in a financial activity. Similarly, a small merchant that informally extends credit when it “runs a tab” for some individuals is not significantly engaged in the business of extending credit. The Commission believes that the concept of “significantly engaged” is sufficiently clear to provide guidance to most entities in analyzing their specific factual situations.

Many commenters, especially some representatives of the consumer debt collection industry,

expressed concern at the breadth of the definition and asserted that Congress could not have intended to include all institutions that engage in the activities referenced in Section 4(k). The plain language of the statute, however, dictates that breadth and grants the Commission no authority to exclude particular entities from the definition. The broad scope of the Act, and the comments received by the Commission, are also discussed above in more detail in the context of § 313.1(b). While it is not possible to discuss every potential financial institution in detail, the Commission specifically sought comment on certain of the activities listed in section 4(k) and the Board regulations that are incorporated by reference.

The statute is clear that debt collection agencies are financial institutions under its terms. As noted in the discussion of the definition of “financial institution” below, the statute treats a broad range of activities as “financial in nature.” Section 509(3) of the G-L-B Act defines the term to mean “any institution the business of which is engaging in financial activities as described in section 4(k) of the Bank Holding Company Act of 1956.” Section 4(k)(4)(F) of the Bank Holding Company Act includes all financial activities deemed by the Federal Reserve Board “to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.” In Regulation Y, 12 CFR 225.28(b)(2)(iv), the Board specifically designated “collection agency services” as such a financial activity.

The proposed rule acknowledged that one of the activities characterized as financial in nature in Section 4(k)(4) of the Bank Holding Company Act is operating a travel agency in connection with offering financial services.

The Commission received few comments on the extent to which travel agents operate in connection with financial services. The comments did indicate that travel agents generally do sell travelers checks, trip insurance, and travel insurance, all of which constitute financial products or services. However, the Commission does not consider a travel agency's operations to be “in connection with offering financial services” and therefore covered simply because it offers travelers checks or travel related insurance to their travel clients. Rather, the Commission interprets the G-L-B Act to cover travel agencies only if their travel-related services are offered in addition to offering other financial services.

This would cover, for example, entities that offer credit, investment, or insurance products or services, and also offer travel-related services to their clients. For these types of entities, travel operations would thereby become covered services and their travel transactions would be protected by the G-L-B Act.

See

footnote 5 of the Commission's discussion of the proposal at 65 FR 11176. Section 4(k)(4)(G) of the Bank Holding Company Act includes all financial activities conducted in the United States deemed by the Federal Reserve Board “to be usual in connection with the transaction of banking or other financial operations abroad.” In Regulation K, 12 CFR 211.(d)(15), the Board specifically designated “[o]perating a travel agency * * * in connection with financial services” as such a financial activity.

This analysis is consistent with an interim rule published by the Board at 12 CFR 225.86(b)(2), in which it characterized the travel agency activity “operating a travel agency in connection with financial services offered by the financial holding company or others.” 65 FR 14433, 14439 (Mar. 17, 2000).

See

the Commission's discussion of “financial product or service” in the next section, as it relates to the Act's inapplicability to nonfinancial products or services of financial institutions.

Some commenters requested clarification concerning whether certain Internet industries are affected by the rule. The comments in this regard did not provide sufficient detail for the Commission to evaluate all of the concerns of the commenters, but the Commission notes that institutions operating on-line, like those operating off-line, will have to evaluate (1) whether they are engaged in a financial activity, and (2) if so, whether they have consumers or customers that trigger the disclosure or other requirements of the Act. On a related issue, the Commission notes that one of the financial activities incorporated by reference into Section 4(k) of the Bank Holding Company Act is:

“providing data processing and data transmission services, facilities (including data processing and data transmission hardware, software, documentation, or operating personnel), data bases, advice, and access to such services, facilities, or data bases by any technological means, if * * * [t]he data to be processed or furnished are financial, banking, or economic * * *.”

12 CFR 225.28 (b)(14). The Commission notes with respect to this activity that financial software and hardware manufacturers, as described, are financial institutions but will have no disclosure obligations if they sell only to businesses. Furthermore, in the case of an isolated one-time sale of software or hardware to a consumer, their disclosure obligations would be very limited. In addition, this language brings into the definition of financial institution an Internet company that compiles, or aggregates, an individual's on-line accounts (such as credit cards, mortgages, and loans) at that company's web site as a service to the individual, who then may access all of its account information through that Internet site.

Many entities that come within the broad definition of financial institution will likely not be subject to the disclosure requirements of the rule because not all financial institutions have “consumers” or establish “customer relationships.” Several commenters supported this distinction and the Commission retains it here. For example, management consulting is a “financial activity” but it is not likely

that any individual obtains management consulting services for personal, family or household purposes. Likewise, courier services, data processors, and real estate appraisers who perform services for a financial institution, but do not provide financial products or services to individuals, will not be required to make the disclosures mandated by the rule because they do not have “consumers” or “customers” as defined by the rule.

The Commission declines to adopt a definitive list, as requested by some commenters, of all of the financial institutions that do not have consumers and customers. Such a list inevitably will not be exclusive and may include some institutions that operate so that in some instances they have consumers and customers and in others they do not.

If such financial institutions receive consumers' nonpublic personal information from nonaffiliated financial institutions pursuant to one of the exceptions set forth in §§ 313.14 and 313.15, however, they would be required to observe the § 313.11 limitations on reuse and redisclosure of that information.

Some commenters suggested that sole proprietors be exempt from the definition, but provided no helpful rationale for doing so, while others requested clarification as to whether nonprofit entities could be financial institutions covered by the rule. Whether or not a commercial enterprise is operated by a single individual is not determinative in analyzing whether the entity is a “financial institution.” If an individual is in the “business of * * * engaging in financial activities * * *,” that “business” is included within the “financial institution” definition.

Similarly, nothing in the definition of financial institution excludes nonprofit entities from the definition of financial institution.

An individual who provides a financial service only informally (

e.g.,

preparing tax forms without remuneration for friends or family, or as community service) is not likely significantly engaged in a financial activity.

Few commenters addressed proposed § 313.3(j)(3)(iii), which incorporated the Act's exemption for institutions chartered by Congress to engage in secondary market sales and similar transactions related to consumers, as long as the institution does not sell or transfer nonpublic personal information to a nonaffiliated third party. This exemption applies even if the chartered institution sells or transfers information as permitted by the exceptions to the notice and opt out requirements in proposed §§ 313.10 and 313.11 (§§ 313.14 and 313.15 in the final rule). The Commission also sought comment on whether it should require chartered institutions, as a condition of their exemption, to enter into a confidentiality agreement with any nonaffiliated third parties with whom they share information pursuant to the exceptions. Chartered institutions supported the interpretation; one commenter contended that such additional language was not in keeping with the intent of the exemption. The Commission believes that its interpretation merely operates to allow chartered institutions to continue their normal business, and does not permit them (or any party receiving information from them) to disclose information unrestrained. In accord with the limitations on reuse and redisclosure in section 502(c) of the G-L-B Act, both chartered institutions and recipients of nonpublic personal information are limited in that regard. The Commission has adopted the provision as proposed.

Financial product or service.

The proposal defined “financial product or service” as a product or service that a financial institution could offer by engaging in an activity that is financial in nature under section 4(k) of the Bank Holding Company Act of 1956. The proposal's definition included the financial institution's evaluation of information collected in connection with an application by a consumer for a financial product or service even if the application ultimately is rejected or withdrawn. It also included the brokerage and distribution of information about a consumer for the purpose of assisting the consumer in obtaining a financial product or service.

The most frequent comment on this proposed definition was that the evaluation of application information should not be considered a financial product or service. For the reasons advanced above in the discussion of the definition of “consumer,” the Commission concludes that it is appropriate to retain evaluation activity within the scope of financial product or service covered by the rule. Evaluation is one of many financial services provided by financial institutions. Moreover, a consumer is likely to provide the type of information that the statute is designed to protect in the course of obtaining the financial institution's evaluation.

An entity's status as a financial institution does not cause every product or service offered by that entity to be a financial product or service. A retailer that issues its own credit card directly to consumers provides a financial service (credit) to consumers who utilize the card; but when that same retailer sells merchandise, it provides a nonfinancial product or service (retail sale of merchandise).

The Commission has retained the essence of the proposed definition, but has revised § 313.(l)(1) to mirror its change to the definition of “financial institution” in § 313.3(k) and eliminated the word “distribution” from § 313.3(l)(2) because it is not intended to mean anything different from “brokerage” and, therefore, its use invites confusion.

Nonaffiliated third party.

The proposal defined “nonaffiliated third party” as any person (which includes natural persons as well as corporate entities) except (1) an affiliate of a financial institution and (2) a joint employee of a financial institution and a third party. The proposal clarified the circumstances under which a company that is controlled by a financial institution pursuant to that institution's merchant banking activities or insurance company activities would be a “nonaffiliated third party” of that financial institution.

The Commission received very few comments in response to this proposed definition. One commenter requested that the final rule provide that a disclosure of information to someone who is serving as a joint employee of two financial institutions should be deemed to have been disclosed to both financial institutions. The Commission disagrees with this result. Instead, the Commission believes it is appropriate to deem the information to have been given to the financial institution that is providing the financial product or service in question. Thus, if an employee of a mortgage lender is a dual employee with a securities firm, information received by that person in connection with a securities transaction conducted with the securities firm would be deemed to have been received by the securities firm.

The Commission notes that its proposal omitted a section included in the other Agencies' rules relating to companies engaged in merchant banking, investment banking, or investment activities described in section 4(k)(4)(H-I) of the Bank Holding Company Act. For purposes of consistency with the rules to be adopted by the other Agencies, the Commission has included it at § 313.3(m)(2). Otherwise, the final rule defines “nonaffiliated third party” as proposed.

Nonpublic personal information.

Section 509(4) of the G-L-B Act defines “nonpublic personal information” to mean “personally identifiable financial information” that is provided by a consumer to a financial institution, results from any transaction with the

consumer or any service performed for the consumer, or is otherwise obtained by the financial institution. It also includes any “list, description, or other grouping of consumers (and publicly available information pertaining to them) that is derived using any nonpublic personal information other than publicly available information.” The statute excludes publicly available information (unless provided as part of the list, description or other grouping described above), as well as a list, description, or other grouping of consumers (and publicly available information pertaining to them) that is derived without using nonpublic personal information. The statute does not define either “personally identifiable financial information” or “publicly available information.”

The proposed rule restated the categories of information described above and presented two alternative approaches to identifying what information would be regarded as publicly available (and therefore, as a general rule, outside the definition of “nonpublic personal information”). Alternative A deemed information as publicly available only if a financial institution

actually obtained

the information from a public source while Alternative B treated information as publicly available if a financial institution

could

obtain it from such a source. Both Alternatives A and B included within the definition of “nonpublic personal information” publicly available information that is provided as part of a list, description, or other grouping of consumers. In addition to requesting comment on Alternatives A and B, the Commission requested comment concerning whether a variation of the two alternatives should be adopted that would require a financial institution to undertake reasonable procedures to establish that information is, in fact, publicly available.

Commenters favoring Alternative A noted that it provided the greatest protection for consumers by treating anything the consumer gives to a financial institution to obtain a financial product or service as nonpublic personal information. Under Alternative A, this protection would be lost only if a financial institution actually obtained the information from a public source. These commenters also preferred the bright-line distinction drawn by treating as nonpublic personal information any information given by a consumer to obtain a financial product or service or information that results from transactions between a financial institution and a consumer. However, the majority of those commenting on this issue favored Alternative B, noting that this alternative was consistent with the statute and would be far less burdensome on financial institutions. These commenters suggested that a requirement that the information actually be obtained from a public source would impose needless burdens on financial institutions (by requiring, for instance, that a financial institution “tag” information they obtained from public records) and is not required by the statute.

The final rule incorporates the benefits of both alternatives. Under the final rule, information will be deemed to be “publicly available” and therefore excluded from the definition of “nonpublic personal information” if a financial institution has a reasonable basis to believe that the information is lawfully made available to the general public from one of the three categories of sources listed in the rule.

See

§ 313.3(p)(1). The final rule provides that a financial institution will have a “reasonable basis” for believing that information is lawfully made available if the financial institution has taken steps to determine whether the information is of the type that is available to the general public, whether an individual can direct that the information not be made available to the general public, and, if so, that the financial institution's particular consumer has not so directed. In this way, a financial institution will be able to avoid the burden of having to actually obtain information from a public source, but will not be free simply to assume that information is publicly available without some reasonable basis for that belief.

An example of information a financial institution might have a reasonable basis to believe is publicly available, cited in the final rule, is the fact that someone has a loan that is secured by a mortgage, as long as the financial institution has determined that the mortgage information is included on the public record in the relevant jurisdiction.

See

§ 313.3(p)(3)(iii)(1). The rule also explains that a financial institution will have a reasonable basis to believe that a telephone number is publicly available only if the institution has either located the number in a telephone book or has been informed by the consumer that the number is not an unlisted telephone number.

See

§ 313.3(p)(3)(iii)(2). This approach is based on the underlying principle that a financial institution should not automatically assume that an individual's information is publicly available, especially if a consumer has some measure of control over the public availability of the information.

With regard to some types of information that may be available to the general public, the extent to which a consumer can control the release of that information should be well known. For example, in most jurisdictions, a borrower has no choice about whether a lender will make a mortgage a matter of public record; a lender must do so in order to protect its security interest. In the case of a telephone number, it is well established that a person may request that his or her number be unlisted; thus, the financial institution will have to takes steps to determine whether a particular consumer has exercised that option. In other instances, there will be more variation on the general availability of the information and the consumer's right to direct that it not be disclosed. Some jurisdictions, for example, make driver's license information more available than others.

In evaluating whether it is reasonable to believe that information is publicly available, a financial institution must consider whether the information is of a type that a consumer could keep from being a matter of public record.

The Driver's Privacy Protection Act, 18 U.S.C. 2721-2725, restricts the states' ability to disclose a driver's personal information without the driver's consent.

Reno

Condon

_ U.S. _, 120 S. Ct. 666 (2000).

To implement the Act's complex definition of “nonpublic personal information” that is provided in the statute, the final rule adopts a definition that consists, generally speaking, of (1) personally identifiable financial information, plus (2) a consumer list (and publicly available information pertaining to the consumers on that list) that is derived using personally identifiable financial information that is

not

publicly available. From that body of information, the final rule excludes publicly available information (except as noted above) and any consumer list that is derived without using personally identifiable financial information that is not publicly available.

See

§ 313.3(n)(1) and (2). Examples are provided in § 313.3(n)(3) to illustrate how this definition applies in the context of consumer lists.

Personally identifiable financial information.

The proposed rule defined “personally identifiable financial information” to include information that a consumer provides to a financial institution in order to obtain a financial product or service, information resulting from any transaction between the consumer and the financial institution involving a financial product or service,

and information about a consumer a financial institution otherwise obtains in connection with providing a financial product or service to the consumer. The proposed rule also treated the fact that someone is a customer of a financial institution as personally identifiable financial information. In essence, the proposed rule treated any personally identifiable information as financial if it was obtained by a financial institution in connection with providing a financial product or service to a consumer. The Commission noted in the preamble to the proposed rule that this interpretation may result in certain information being covered by the rule that may not be considered intrinsically financial, such as health status.

The Commission received a large number of comments in response to this definition, most of which stated that the definition inappropriately included certain identifying information that is not financial, such as name, address, and telephone number. Many others maintained that “personally identifiable financial information” should not include the fact that someone is a customer of a financial institution. These commenters typically noted that many customer relationships are matters of public record (such as would be the case, for instance, anytime a transaction results in the recordation of a security interest) while other customer relationships are matters of public knowledge (because consumers frequently disclose the relationships by writing checks, using credit cards, and so on). Many commenters stated that aggregate data about a financial institution's customers that lack personal identifiers should not be considered personally identifiable financial information.

Treatment of identifying information as financial.

The Commission continues to believe that any information should be considered financial information if it is requested by a financial institution for the purpose of providing a financial product or service. This approach is consistent with the broad definition of “financial institution” used in the statute, which encompasses not only traditional financial activities (such as banks, mortgage lenders, finance companies), but also a large number of entities that engage in activities not traditionally considered financial (such as financial career counselors, insurance companies, and data processors). As a consequence of that definition, the range of information that has a bearing on the terms and availability of a financial product or service or that is used by a financial institution in connection with providing a financial product or service is extremely broad and may include, for instance, medical information and other sorts of information that might not be thought of as financial.

Many commenters, including several hundred private investigators, expressed concern about the need for ready access to identifying information to locate people attempting to evade their financial obligations. These commenters consistently suggested that names, addresses, and telephone numbers should not be treated as financial information. However, financial institutions rely on a broad range of information that they obtain about consumers, including information such as addresses and telephone numbers, when providing financial products or services. Location information is used by financial institutions to provide a wide variety of financial services, from the sending of checking account statements to the disbursing of funds to a consumer. Other information, such as the maiden name of a consumer's mother often will be used by a financial institution to verify the consumer's identity. The Commission concluded that it would be inappropriate to carve out certain items of information that a particular financial institution might rely on when providing a particular financial product or service.

The Commission notes that names, addresses, and telephone numbers, if publicly available, will not be subject to the opt out provisions of the statute unless that information is “derivative information” (

i.e.,

information that is part of a list, description, or other grouping of consumers that is derived from personally identifiable financial information that is not publicly available). Thus, in instances involving specific requests about individuals, a financial institution still may disclose information about the individual that the institution has a reasonable basis to believe is publicly available, provided that in so doing the institution does not disclose the existence of a customer relationship (unless the relationship is a matter of public record, as in the case of most mortgage loans). Moreover, in instances when a consumer does not opt out, a financial institution may disclose any nonpublic personal information to a nonaffiliated third party provided that the disclosure is consistent with the institution's opt out and privacy notices.

Customer relationship as “personally identifiable financial information.”

The Commission disagrees with those commenters who maintain that customer relationships should not be considered to be personally identifiable financial information. Information that a particular person has a customer relationship identifies that person, and thus is personally identifiable. This information also is financial, because it communicates that the person in question has a transaction involving a financial product or service with a financial institution. While this information could in certain cases be a matter of public record, that does not change the analysis of whether the information is personally identifiable financial information.

Changes made to the definition.

The final rule makes various stylistic changes to the definition to make it easier to read and understand. In addition, the final rule adds to the examples of information covered by the rule any information that the institution collects through a “cookie.”

See

§ 313.3(o)(2)(F). This illustrates one of the various means by which a financial institution may “otherwise obtain” information about a consumer in connection with providing a financial product or service to that consumer.

A cookie is a small text file placed on a consumer's computer hard drive by a web server. The cookie transmits information back to the server that placed it.

An example in § 313.3(o)(2)(ii)(B) clarifies that aggregate information or blind data lacking personal identifiers is not covered by the definition of “personally identifiable financial information.” The Commission agrees with those commenters who opined that such data, by definition, do not identify any individual.

Publicly available information.

The proposal defined “publicly available information” to include information that is lawfully made available to the public from official public records (such as real estate recordations or security interest filings), information from widely distributed media (such as a telephone book, television or radio program, or newspaper), and information that is required to be disclosed to the general public by Federal, State, or local law (such as securities disclosure documents). The proposed rule stated that publicly available information from widely distributed media would include information from an Internet site that is available to the general public without requiring a password or similar restriction.

As noted in the discussion of “nonpublic personal information,” the Commission proposed two versions of the definition of “publicly available information.” The final rule more closely tracks the statute while

incorporating the benefits of both alternatives.

Several commenters questioned the appropriateness of excluding information from the definition of “publicly available information” if a person who seeks to obtain the information over the Internet must have a password or comply with a similar restriction. These commenters made the point that many Internet sites are available to a large number of people, each of whom need a user name and identification number to access the sites. Several of these commenters suggested that it is more appropriate to focus on whether the information was lawfully placed on the Internet.

The Commission agrees and has amended the final rule to remove the reference to passwords or similar restrictions from the example of the Internet as a “widely distributed” medium of communication. In its place, the Commission has substituted a standard requiring that the information be available on an unrestricted basis, and has then specified that a site is not restricted merely because an Internet service provider or a site operator requires a fee or password as long as access is otherwise available to the general public. The traditional use of passwords is to confine the access of individual customers to specific, individual information. However, website operators, in particular, may require user identifications and passwords as a method of tracking access rather than restricting access to the information available through the website. Fees may be levied to enhance the revenue of the Internet service provider or site operator rather than restrict access. Therefore, the Commission believes that the definition of “widely distributed media” should properly focus on whether the information is lawfully available to the general public, rather than on the type of medium from which information is obtained.

The concept of information being lawfully obtained was included in the proposal, and is retained in the final rule. Thus, information unlawfully obtained will not be deemed to be publicly available notwithstanding that it may be available to the general public through widely distributed media.

The following example illustrates how “nonpublic personal information,” “personally identifiable financial information,” and “publicly available information” will work under the final rule. Assume that Mary provides a mortgage lender with information in order to obtain a loan to finance a home purchase, and the same information to a retail store to open a credit card account. Under the final rule, all of this information would be personally identifiable financial information. Once Mary establishes the customer relationships she seeks, the fact that Mary is a mortgage loan customer and a credit card customer at the financial institutions also would be personally identifiable financial information.

Certain information provided by Mary, such as her name and address, may be publicly available. If the mortgage lender has a reasonable basis to believe that this information is publicly available, and if the information was included on a list of all of the institution's mortgage loan customers, then her name and address would fall outside the definition of “nonpublic personal information” in those jurisdictions where mortgages are a matter of public record. However, Mary's name and address would be protected as nonpublic personal information if the retailer wanted to include those items on a list of holders of its proprietary credit card. The difference in treatment stems from the distinction drawn in the statute between lists prepared using publicly available information (as would be the case in the mortgage loan hypothetical) and lists prepared using information that is not publicly available (as would be the case in the credit card hypothetical).

The Commission concludes that this relatively complex approach is mandated by the statute's definition of “nonpublic personal information.” The final rule also is consistent with the fact that certain relationships are matters of public record, and, therefore, less deserving of protection from disclosure.

You.

The Commission used the pronoun “you” to refer to financial institutions within its jurisdiction in the proposal and defined “you” to mean those entities.

The Commission received no comments in response to this definition and adopts the definition set forth in the proposed rule.

Section 313.4 Initial Privacy Notice to Consumers Required

The G-L-B Act requires a financial institution to provide an initial notice of its privacy policies and practices in two circumstances. For customers, the notice must be provided at the time of establishing a customer relationship. For consumers who are not customers, the notice must be provided prior to disclosing nonpublic personal information about the consumer to a nonaffiliated third party.

The proposed rule implemented these requirements by mandating that a financial institution provide the initial notice to an individual prior to the time a customer relationship is established and the opt out notice prior to disclosing nonpublic personal information to nonaffiliated third parties. These notices were required to be clear and conspicuous and to accurately reflect the institution's privacy policies and practices. The proposal also set out standards governing when a customer relationship is established and how a financial institution is to provide notice.

The Commission received many comments on proposed § 313.4. Most of the comments raised questions about the time by which initial notices must be provided, whether new notices are required for each new financial product or service obtained by a customer, the point at which a customer relationship is established, and how initial notices may be provided.

Providing initial notices “prior to” time customer relationship is established.

Many commenters stated that, because the statute requires only that the initial notice be provided “at the time of establishing a customer relationship,” the regulation should not require that the notice be provided “prior to” the point at which a customer relationship is established. These commenters were concerned that the rule could be interpreted as requiring a financial institution to provide disclosures at a point different from when they must provide other federally mandated consumer disclosures during the process of establishing a customer relationship.

In response to these comments, the Commission has clarified the timing for providing initial notices. The final rule provides that, as a general rule, the initial notice must be given not later than the time when a financial institution establishes a customer relationship.

See

§ 313.4(a)(1). As in the proposal, the initial notices may be provided at the same time a financial institution is required to give other notices, such as those required by the Board's regulations implementing the TILA. This approach, like the approach taken in the proposed rule, strikes a balance between (1) ensuring that consumers will receive privacy notices at a meaningful point along the continuum of “establishing a customer relationship” and (2) minimizing unnecessary burdens on financial institutions that may otherwise result if the final rule were to require financial institutions to provide consumers with a series of notices at different times in a transaction.

Providing notices after customer relationship is established.

Several commenters stated that the rule should provide financial institutions with the flexibility to deliver the initial notice after the customer relationship is established under certain circumstances. These commenters posited several situations in which a customer relationship is established without face-to-face contact between the consumer and financial institution. For example, collection agencies that purchase accounts in default noted that it frequently takes time to locate debtors on such accounts (and that sometimes they do not even try to do so.) The commenters stated that delivery of the initial notice

before

the customer relationship is established in these situations would be impractical, and a requirement along those lines would have a significant adverse effect on the ability to provide a financial product or service to a consumer as quickly as the consumer desires.

The Commission believes that it is appropriate for financial institutions to have flexibility in certain circumstances to provide the initial notice at a point after the customer relationship is established. To accommodate the wider range of situations presented by the commenters, the Commission has modified the relevant examples so that they now are more broadly applicable. As stated in the final rule in § 313.4(e), a financial institution may provide the initial notice within a reasonable time after establishing a customer relationship in two instances. First, notice may be provided after the fact if the establishment of the customer relationship is not at the customer's election.

See

§ 313.4(e)(1)(i). This might occur, for instance, when a credit account is sold. Second, a notice may be sent after establishing a customer relationship when to do otherwise would substantially delay the consumer's transaction and the consumer agrees to receive the notice at a later time.

See

§ 313.4(e)(1)(ii). An example of this would be when a transaction is conducted over the telephone and the customer desires prompt delivery of the item purchased. Another example of when this might occur is when a lender (other than a college or university) establishes a customer relationship with an individual under a student loan program as described in the final rule where loan proceeds are disbursed promptly without prior communication between the bank and the customer.

In most situations, and particularly where the establishment of a customer relationship is in person, a financial institution should give the initial notice at a point when the consumer still has a meaningful choice about whether to enter into the customer relationship. The exceptions listed in the examples, while not exhaustive, illustrate the less frequent situations when delivery either would pose a significant impediment to the conduct of a routine business practice or the consumer agrees to receive the notice later in order to obtain a financial product or service immediately.

In circumstances when it is appropriate to deliver an initial notice after the customer relationship is established, a financial institution should deliver the notice within a reasonable time thereafter. For example, a debt buyer that has purchased a defaulted account for collection in its own name would be authorized by § 313.4(e)(2)(i) to provide its privacy notice shortly after locating the debtor. Several commenters requested that the final rule specify precisely how many days a financial institution has in which to deliver the notice under these circumstances. However, the Commission believes that a rule prescribing the maximum number of days would be inappropriate because (a) the circumstances of when an after-the-fact notice is appropriate are likely to vary significantly, and (b) a rule that attempts to accommodate every circumstance is likely to provide more time than is appropriate in many instances. Thus, rather than establish an inflexible rule, the Commission has elected to retain the more general rule as set out in the proposal in § 313.4(e)(1).

Nothing in the rule is intended to discourage a financial institution from providing an individual with a privacy notice at an earlier point in the relationship if the institution wishes to do so in order to make it easier for the individual to compare its privacy policies and practices with those of other institutions in advance of conducting transactions.

New notices not required for each new financial product or service.

Several commenters asked whether a new initial notice is required every time a customer obtains a financial product or service from that financial institution. These commenters suggested that the public would not materially benefit from repeated disclosures of the same information, and that requiring additional initial notices to be provided to the same consumer would be burdensome on financial institutions.

The Commission agrees that it would be burdensome, with little corresponding benefit to the public, to require a financial institution to provide the same consumer with additional copies of its initial notice every time the consumer obtains a financial product or service. Accordingly, the final rule states, in § 313.4(d)(2), that a financial institution will satisfy the notice requirements when an existing customer obtains a new financial product or service if the institution's initial, revised, or annual notice (as appropriate) is accurate with respect to the new financial product or service.

Joint accountholders.

The majority of comments on how to provide notice suggested that the final rule state that a financial institution is not obligated to provide more than one notice to joint accountholders. Several of these commenters noted that disclosure obligations arising from joint accounts are well settled under other rules, such as the regulations implementing the Equal Credit Opportunity Act (Regulation B, 12 CFR part 202, ) and TILA. Under both Reg. B and Reg. Z, a financial institution is permitted to give only one notice. The authorities cited include requirements that the financial institution give disclosures, as appropriate, to the “primary applicant” if this is readily apparent (in the case of Reg. B;

see

12 CFR 202.9(f)) or to a person “primarily liable on the account” (in the case of Reg. Z;

see

12 CFR 226.5(b)).

The Commission agrees that a financial institution should be allowed to provide initial notices in a manner consistent with other disclosure obligations. There are also circumstances, however, where more than one of the joint account holders may want separate notices. Therefore, the final rule states in § 313.9 that the financial institution may send one notice, but must honor requests from one or more account holders for separate notices. Even absent a request, a financial institution may, in its discretion, provide notices to each party to the account. This situation might arise, for instance, when a financial institution does not want one opt out election to apply automatically to all joint accountholders (

see

discussion of how to provide opt out notices, below).

Mergers.

A few commenters requested guidance on what notices are required in the event of a merger of two financial institutions or an acquisition of one financial institution by another. In such a situation, the need to provide new initial (and opt out) notices to the customers of the entity that ceases to exist will depend on whether the notices previously given to those customers accurately reflect the policies and practices of the surviving entity. If

they do, the surviving entity will not be required under the rule to provide new notices.

As was stated in the preamble to the proposed rule, a financial institution must maintain any protections that it represents it will provide in its privacy notices. Financial institutions must take appropriate measures to adhere to their stated policies and practices.

Section 313.5 Annual Privacy Notice to Customers Required

Section 503 of the G-L-B Act requires a financial institution to provide notices of its privacy policies and practices at least annually to its customers “during the continuation” of a customer relationship. The proposed rule implemented this requirement by requiring a clear and conspicuous notice that accurately reflects the privacy policies and practices then in effect to be provided at least once during any period of twelve consecutive months. The proposed rule noted that provisions governing how to provide an initial notice also would apply to annual notices, and stated that a financial institution would not be required to provide annual notices to a customer with whom it no longer has a continuing relationship.

Several commenters requested that the final rule permit annual notices to be given each calendar year, instead of every twelve months. A variation suggested by a few commenters was to state that notices must be provided during each calendar year, with no more than 15 months elapsing between mailings. To clarify the extent of financial institutions' flexibility, the final rule retains the general rule requiring annual notices but then provides an example, in § 313.5(a)(2), stating that a financial institution may select a calendar year as the 12-month period within which notices will be provided and provide the first annual notice at any point in the calendar year following the year in which the customer relationship was established. The final rule also requires that a financial institution apply the 12-month cycle to its consumers on a consistent basis.

Several commenters suggested that a financial institution be permitted to make the annual notice available upon request only, particularly if there have been no material changes to the notice since it was last delivered or the customer has opted out. These commenters maintained that little value is added by providing customers with additional copies each year of the same information. Some suggested that financial institutions be permitted to provide a “short-form” annual notice, in which the institution informs its customers that there has been no change to its privacy policies and practices and that the customers may obtain a copy upon request.

The Commission has not amended the final rule to permit this approach, for two reasons. First, the Commission interprets the statute as contemplating complete disclosures annually to all customers during the duration of the customer relationship. Section 503 of the G-L-B Act states that “not less than annually during the continuation of [a customer] relationship, a financial institution shall provide a clear and conspicuous disclosure to such consumer [

i.e.,

one with whom a customer relationship has been formed], . . . of such financial institution's policies and practices with respect to” the information enumerated in the statute. The Commission believes that this provision contemplates a full set of disclosures to each customer once a year.

Second, the clarifications made in the final rule to the disclosure provisions make it clear that a financial institution is not required to provide a lengthy and detailed privacy notice to comply with the rule. Small institutions that do not share information with third parties beyond the statutory exceptions should be able to provide a short, streamlined notice. The rule also permits a financial institution to provide annual notices to customers over the institution's web site if the customer conducts transactions electronically and agrees to such disclosures (

see

additional discussion of this flexibility, below, in § 313.9). As a result, the final rule achieves much of the burden reduction sought by those requesting a short-form annual notice option.

Most of the remaining comments received in response to proposed § 313.5 addressed the sections governing when a customer relationship is terminated. Some noted that the examples used “consumer” when “customer” was appropriate, and the final rule is revised accordingly. A few commenters, including retailers and some whose business related to real estate transactions, stated that the example of no communication with a customer for twelve months should be amended to clarify that promotional materials would not be considered a communication about the relationship sufficient to reactivate a dormant or terminated customer relationship. These commenters generally suggested that the rule be tied to communications initiated by the customer. The Commission agrees that a communication that merely informs a person about, or seeks to encourage use of, a financial institution's products or services is not the type of communication that signifies an ongoing relationship. The final rule has been amended in § 313.5(b)(2)(vii) to reflect that the distribution of promotional materials will not prolong a customer relationship under the rule. The Commission disagrees, however, that the test should focus on whether there has been any customer-initiated contact, because there will be instances in which the customer will not initiate a contact with a financial institution within the relevant time period but nonetheless has an ongoing relationship.

Section 313.6 Information To Be Included in Initial and Annual Privacy Notices

Section 503 of the G-L-B Act identifies the items of information that must be included in a financial institution's initial and annual notices. Section 503(a) of the G-L-B Act sets out the general requirement that a financial institution must provide customers with a notice describing the institution's policies and practices with respect to, among other things, disclosing nonpublic personal information to affiliates and nonaffiliated third parties. Section 503(b) of the Act identifies certain elements that must be addressed in that notice.

The proposed rule implemented section 503 by requiring a financial institution to provide information concerning:

• The categories of nonpublic personal information that a financial institution may collect;

• The categories of nonpublic personal information that a financial institution may disclose;

• The categories of affiliates and nonaffiliated third parties to whom a financial institution discloses nonpublic personal information, other than those to whom information is disclosed pursuant to an exception in section 502(e) of the G-L-B Act;

• The financial institution's policies with respect to sharing information about former customers;

• The categories of information that are disclosed pursuant to agreements with third party service providers and joint marketers and the categories of third parties providing the services;

• A consumer's right to opt out of the disclosure of nonpublic personal information to nonaffiliated third parties;

• Any disclosures regarding affiliate information sharing opt outs a financial

institution is providing under the FCRA; and

• The financial institution's policies and practices with respect to protecting the confidentiality, security, and integrity of nonpublic personal information.

The Commission received a large number of comments concerning these requirements, with the majority of comments making the points summarized below.

Level of detail required.

Many commenters offered the general observation that the level of detail that would be required under the proposed rule would result in lengthy, complicated, and ultimately confusing disclosures. These comments have led the Commission to clarify the level of detail that is required in a financial institution's initial and annual disclosures to contain.

Neither the Act nor this rule requires a financial institution to publish lengthy disclosures that identify with precision every type of information collected or disclosed, the name of every entity with whom the financial institution shares information, a complete description of the technical specifications of methods used by the institution to protect its customers' records, or the identity of each employee who has access to the records. Instead, the Commission has concluded that the statute, by focusing on “categories” of information and recipients of information, is intended to require notices that provide consumers with a general description of the third parties to whom a financial institution discloses nonpublic personal information, the types of information it discloses, and the other information about the institution's privacy policies and practices listed above. The Commission's intent is that the notice must be reasonably designed to be meaningful to consumers. The final rule, like the proposal, permits a financial institution to comply with these notice requirements by providing a description that accurately represents its privacy policies and practices. The Commission believes that in most cases the initial and annual disclosure requirements can be satisfied by disclosures contained in a tri-fold brochure.

To address commenters' concerns about the likelihood that consumers will not read long, detailed disclosures, the Commission has revised the examples of the disclosures set out in proposed § 313.6(e), which appears in the final rule at § 313.6(c), to clarify the level of detail that it thinks is appropriate under the G-L-B Act. Sample clauses have been provided in Appendix A to the rule, and guidance for certain institutions has been set out below in Section D. Because the examples are not exclusive, the final rule permits a financial institution to use categories different from those provided in the examples, thereby providing additional flexibility for financial institutions in complying with the disclosure requirements. In addition, the language in § 313.6(a) that precedes the items of information to be addressed in the initial notice has been amended to clarify that a financial institution is required only to address those items that apply to the institution. Thus, for instance, if a financial institution does not disclose nonpublic personal information to third parties, it may simply omit any reference to the categories of affiliates and nonaffiliated third parties to whom the institution discloses nonpublic personal information. The Commission has made these changes to clarify financial institutions' obligations under the statute and thereby eliminate unnecessary confusion.

The required content is the same for both the initial and annual notices of privacy policies and practices. While the information contained in the notices must be accurate as of the time the notices are provided, a financial institution may prepare its notices based on current and anticipated policies and practices.

The Commission received conflicting suggestions relating to disclosures required about information provided to service providers and joint marketers. Some industry commenters suggested that the example in § 313.6(a)(5) required the same specificity as other disclosures and that it should be collapsed into § 313.6(a)(1-4). Some consumer advocates asked for more detail with respect to these disclosures, because consumers cannot opt out of them. The Commission believes that the example in § 313.6(a)(5) appropriately requires a “separate statement” on this point, and that this is sufficient to alert consumers about this practice. Therefore, it retains the example as proposed.

Short-form initial notice.

The Commission has reconsidered the need to give consumers a copy of a financial institution's complete initial notice when there is no customer relationship. In these circumstances, the Commission believes that the objectives of the statute can be accomplished in a less burdensome way than was proposed and has exercised its exemptive authority as provided in section 504(b) to create an exception to the general rule that otherwise requires a financial institution to provide both the initial and opt out notices to a consumer before disclosing nonpublic personal information about that consumer to nonaffiliated third parties.

This exception is set out in § 313.6(d) of the final rule, which states that a financial institution may provide a “short-form” initial privacy policy notice along with the opt out notice to a consumer with whom the institution does not have a customer relationship. The short-form notice, along with the opt out notice, must clearly and conspicuously state that the disclosure containing information about the institution's privacy policies and practices is available upon request and provide one or more reasonable means by which the consumer may obtain a copy of the notice. This approach reflects the conclusion that consumers who do not become customers of a financial institution generally will have less interest in the privacy policies of that financial institution and will benefit from obtaining a concise, but meaningful, opt out notice that informs the consumer about the categories of their information the institution intends to disclose and the categories of nonaffiliated third parties that will receive the information. Consumers who are interested in the more complete privacy disclosures will be provided with a convenient means to obtain them.

Information about affiliate sharing.

Another point made by several commenters in response to proposed § 313.6 was that the rule should not include a requirement that categories of affiliates with whom a financial institution shares information be included in the initial and annual notices. These commenters pointed out that the statute specifically requires disclosures of categories of nonaffiliated third parties only, and that the only statutorily mandated disclosures concerning affiliate sharing are disclosures required, if any, concerning affiliate sharing pursuant to section 603(d)(2)(A)(iii) of the FCRA.

These commenters concluded that the Commission, by expanding the disclosure requirements in the manner

prescribed in the proposed rule, would be exceeding its rulemaking authority and imposing unnecessary burdens on financial institutions.

Section 603(d)(2)(A)(iii) excludes from the definition of “consumer report” the communication of certain consumer information among affiliated entities if the consumer is notified about the disclosure of such information and given an opportunity to opt out of the disclosure of that information. The information that can be disclosed to affiliates under this provision includes information from consumer reports. It also includes personal information provided directly by consumers to institutions in applications for financial products or services, such as information on income and assets.

The language and legislative history of section 503 support requiring disclosures of affiliate sharing beyond what may be required by the FCRA. First, section 503(b) does not state that the items listed therein are to be the only items set out in a financial institution's initial and annual disclosures. Instead, it uses the nonrestrictive phrase “shall include” when discussing the contents of the disclosures, thereby preserving flexibility for the Commission (which was expressly granted authority under section 503(a) to prescribe rules governing these notices) to require that additional items be addressed in the disclosures consistent with those specifically enumerated.

Second, section 503(a) provides that the financial institution shall provide in its initial and annual notices “a clear and conspicuous disclosure * * * of such financial institution's policies and practices with respect to—(1) disclosing nonpublic personal information to affiliates and nonaffiliated third parties, consistent with section 502, including the categories of information that may be disclosed; * * *.” While the FCRA disclosures would be a subset of the disclosures required by section 503(a)(1), they may not be sufficient to fully satisfy that requirement.

Third, the legislative history of the G-L-B Act suggests that Congress intended for the disclosures to provide more information about affiliate sharing than what may be required under the FCRA.

That history underscores the Congressional intent of ensuring that individuals are given the opportunity to make informed decisions by reviewing the privacy policies and practices of financial institutions. The Commission believes that limiting the disclosures about affiliate sharing just to those disclosures required under the FCRA would frustrate that purpose.

See, e.g.

, remarks of Sen. Gramm (noting that the privacy bill contains “for the first time a full disclosure requirement. It requires every bank in America, when you open your account to tell you precisely what their policy is: Do they share personal financial information within the bank? Do they share it outside the bank?”), 145 Cong. Rec. S13786 (daily ed. Nov. 3, 1999); remarks of Sen. Hagel,

id.

at S13876 (“Financial institutions would be required to disclose their privacy policies to their customers on a timely basis. If customers do not believe adequate protections exist at their institution, they can take their business elsewhere.”).

Disclosures of the FCRA opt out right.

Another frequent comment was that a financial institution should not be required to include FCRA disclosures in its annual notices. As previously discussed, section 503(b)(4) of the G-L-B Act requires a financial institution's initial and annual notice to include the disclosures required, if any, under section 603(d)(2)(A)(iii) of the FCRA. The proposed rule implemented section 503(b)(4) of the G-L-B Act by including the requirement that a financial institution's initial and annual notice include any disclosures a financial institution makes under section 603(d)(2)(A)(iii) of the FCRA. Several commenters pointed out that the FCRA requires disclosures of a consumer's right to opt out of affiliate sharing only once. They noted that the G-L-B Act states, in section 506(c), that nothing in the G-L-B Act is to be construed to modify, limit, or supersede the operation of the FCRA. The “if any” language of section 503(b)(4), read in the context of section 506, suggests that, since at most only one notice must be provided under the FCRA, section 503 should require only one FCRA disclosure under the privacy rule. The commenters concluded that, by requiring more notices than are required under the FCRA, the Commission would be violating this express preservation of the FCRA.

In order to comply with the requirement of the G-L-B Act that it disclose its policies and practices with respect to sharing information with affiliated and nonaffiliated third parties, a financial institution, must describe the circumstances under which it will be sharing information with affiliates. Clearly, the ability of consumers to opt out of affiliate information sharing under the FCRA affects a financial institution's policies and practices with respect to disclosing information to its affiliates. The Commission finds that failing to include this information and an explanation of how the opt out right may be exercised would make the disclosures incomplete. Thus, a financial institution must include this information in its initial and annual notices.

The commenters' reading of sections 503 and 506 is wrong. Section 503 does not distinguish between the disclosures to be provided in the initial notice from those to be provided in the annual notice. Thus, a plain reading of section 503 suggests that any disclosures that are required under the FCRA must be included in both the initial and annual notices.

The “if any” language is a recognition that not all institutions provide FCRA notices because not all institutions engage in the type of affiliate sharing covered by the FCRA. By requiring the FCRA notice to appear as part of the annual notice under the privacy rule, the Commission is not modifying, limiting, or superseding the operation of the FCRA; financial institutions will have exactly the same FCRA obligations following the effective date of the privacy rule as they had before. The only difference will be that, as is required by the G-L-B Act, a financial institution's initial and annual disclosures about its privacy policy and practices will need to reflect how the financial institution complies with the affiliate sharing provisions of the FCRA.

Disclosures of the right to opt out.

Other commenters suggested that the final rule eliminate the requirement that the initial and annual notices contain disclosures about a consumer's right to opt out. These commenters pointed out that the statute does not specifically require these disclosures.

As previously discussed, section 503(a) of the statute requires a financial institution to disclose its policies and practices with respect to sharing information, both with affiliated and nonaffiliated third parties. Given that a financial institution's practices with respect to sharing nonpublic personal information with nonaffiliated third parties will be affected by the opt out rights created by the statute, an institution will need to describe these opt out rights in order to provide a complete disclosure that satisfies the statute.

Other comments.

Many commenters expressed support for a number of the provisions in proposed § 313.6. For instance, several commenters noted their agreement with the approach of permitting a financial institution to state generally that it makes disclosures to nonaffiliated third parties “as permitted by law” to describe disclosures made pursuant to one of the exceptions. Others agreed with the proposed flexibility to allow a disclosure to be based on current and contemplated information sharing. In addition, the Commission received may requests for model forms of privacy notices. In light of these comments, the Commission has adopted proposed § 313.6 with changes as discussed above, plus stylistic changes to the material in § 313.6 that are intended to make the rule easier to read, and added the sample clauses in Appendix A.

Section 313.7 Form of Opt Out Notice to Consumers; Opt Out Methods

Paragraph (a) of proposed § 313.8 required that any opt out notice provided by a financial institution be clear and conspicuous and accurately explain the right to opt out. The

proposed rule also required a financial institution to provide the consumer with a reasonable means by which to opt out, required a financial institution to honor an opt out election as soon as reasonably practicable, and stated that an opt out election survived until revoked by the consumer. The Commission received several comments in response to each of these provisions, addressing the application of these rules to joint accounts, the means by which an opt out right may be exercised, duration of an opt out, the level of detail required in the opt out notice, and the time by which an opt out election must be honored. These points are addressed below.

Joint accounts.

Most of the commenters on this issue stated that a financial institution should have the option of providing one notice per account, regardless of the number of persons on the account. The Commission has added a new § 313.7(d) to address this issue. Under the final rule, a financial institution has the option of providing only one initial, annual, and opt out notice per account. However, if one or more of the joint account holders requests separate notices, the financial institution must honor that request. Even in instances where only one notice is provided, any of the accountholders must have the right to opt out. The final rule requires a financial institution to state in the opt out notice provided to a joint accountholder whether the institution will consider an opt out by a joint accountholder as an opt out by all of the associated accountholders or whether each accountholder is permitted to opt out separately.

Means of opting out.

Another issue addressed by many commenters concerned the means by which consumers may opt out. Several suggested that a financial institution, after having provided reasonable means of opting out, should be able to require consumers to use those means exclusively. The Commission recognizes that a financial institution may not have trained personnel or systems in place to handle opt out elections at each point of contact between a consumer and financial institution. Assuming a financial institution offers one or more of the opt out means provided in the examples in the final rule or a means of opting out that is comparably convenient for a consumer, the institution may require consumers to opt out in accordance with those means and choose not to honor opt out elections communicated to the institution through alternative means. A new paragraph (iv) has been added to § 313.7(a)(2)(iv) to reflect this. However, as stated in § 313.7(a)(2)(iii)(A), a financial institution may not require a consumer to write his or her own letter in order to opt out.

Several commenters supported the alternative ways in which financial institutions could provide for consumers to opt out, especially the toll-free number set forth in § 313.8(a)(2)(ii)(D) in the Commission's proposal that was not included in the other Agencies' proposed rule. The Commission has retained that example in § 313.7(a)(2)(ii)(D) of the final rule, and the other Agencies have added the toll-free telephone number to their lists of examples. The Commission also received numerous comments indicating that one of the proposal's means of opting out, providing a self-addressed stamped envelope with a detachable card, was too burdensome. The Commission has, therefore, revised that example to provide for a reply form that contains the relevant address to facilitate the consumers ability to return it.

Duration of opt out.

Several commenters questioned the practicality of the rule concerning duration of an opt out, as provided in § 313.8(e) of the proposal. These commenters noted that, under the proposal, a financial institution would be required to keep track of opt out elections forever. To illustrate their point, the commenters posited the example of a person who opts out during the course of establishing a customer relationship with a financial institution, terminates that relationship, and then establishes another customer relationship several years later, perhaps under a different name or with someone on a joint account. The commenters suggested that it would be more appropriate in these circumstances to treat the opt out election made in connection with the first relationship as applying solely to that relationship.

The Commission agrees. Thus, under the final rule, a financial institution is not required to treat an opt out election made by a customer in connection with a prior customer relationship as applying solely to the nonpublic personal information that the financial institution collected during, or related to, that relationship. That opt out will continue until the customer revokes it. However, if the customer relationship terminates and a new one is established at a later point, the financial institution must then provide a new opt out notice to the customer in connection with the new relationship and any prior opt out election does not apply to the new relationship.

Level of detail required in opt out notice.

A few commenters expressed concern about the level of detail they perceived the proposed rule to require in an opt out notice. These commenters interpreted the statement in proposed § 313.8(a)(2) that a financial institution “provides adequate notice . . . if [the institution] identifies all of the categories of nonpublic personal information that [the institution] discloses or reserves the right to disclose to nonaffiliated third parties as described in [§ 313.6]” as requiring a more detailed disclosure of categories of nonpublic personal information and nonaffiliated third parties than is required in the initial and annual notices.

The Commission did not intend this result, and specifically referred to § 313.6 in the proposed opt out provision to address precisely the concern raised by these commenters. The disclosures in the initial and annual notices of the categories of nonpublic personal information being disclosed and the categories of nonaffiliated third parties to whom the information is disclosed will suffice for purposes of the opt out notices as well. If the opt out notice is a part of the same document that contains the disclosures that must be included in the initial notice, then the financial institution is not required to restate the same information in the opt out notice. In this instance, the rule requires only that the categories of nonpublic personal information the institution intends to share and the categories of nonaffiliated third parties with whom it will share are clearly disclosed to the consumer when the opt out and privacy notices are read together.

One commenter suggested that, while a financial institution should have the option of providing an opt out notice that is sufficiently broad to cover anticipated disclosures, the financial institution also should be permitted to provide a customer who already has opted out with a new opt out notice in connection with a new financial product or service and, if the consumer does not opt out a second time, be free to disclose nonpublic personal information obtained in connection with that financial product or service to nonaffiliated third parties. The Commission believes that a financial institution should be permitted the flexibility to provide opt out notices that are either clearly limited to specific types of nonpublic personal information and types of nonaffiliated third parties, or that are more broadly worded to anticipate future disclosure plans. However, if a consumer opts out after

receiving an opt out notice from a financial institution that is broad enough to cover the new type of information sharing desired by that institution, the failure of the consumer to opt out again does not revoke the earlier opt out election.

Time by which opt out must be honored.

Under the proposal, a financial institution is directed to comply with an opt out election “as soon as reasonably practicable.” A large number of comments asked the Commission to clarify in the final rule how long a financial institution has after receiving an opt out election to cease disclosing nonpublic personal information to nonaffiliated third parties. Suggestions for a more precise standard ranged from mandating that a financial institution stop disclosing information immediately to a mandatory cessation within several months of receiving the opt out. As was the case with other suggestions for bright-line standards in different contexts, the Commission believes that it is appropriate to retain a more general rule in light of the wide range of practices throughout the various financial institutions within its jurisdiction. A potential drawback of a more prescriptive rule is that an institution might use the standard as a safe harbor in all instances and thus fail to honor an opt out election as early as it is otherwise capable of doing. Another drawback is that a standard that is set in light of current industry practices and capabilities may become outmoded as advances in technology increase efficiency. The Commission therefore declines to adopt a more rigid standard and instead retains the rule as set out in § 313.7(e) of the final rule.

For the reasons stated above, the Commission adopts, in § 313.7, the rule governing the form of opt out notices and methods of opting out as discussed above. This section contains other stylistic changes to what was proposed in order to make the final rule easier to read.

Section 313.8 Revised Privacy Notices

The proposed rule, in § 313.8(c) (“Notice of change in terms”), prohibited a financial institution (directly, or through its affiliates) from disclosing nonpublic personal information about its consumers to nonaffiliated third parties unless the institution first provided a copy of its privacy notice and opt out notice. The proposal also required that these notices be accurate when given. Thus, if an institution wants to disclose nonpublic personal information in a way that is not accurately described in its notices, the institution would be required under the proposed rule to provide new notices before making the disclosure in question.

The only comments relating to these requirements received by the Commission posited that a revised notice should be required only upon material changes. Section 313.8(a)(i) addresses this point—no new notice is required if the original notice “accurately describes” the institution's policies. Accordingly, the Commission adopts the rule as proposed, but places the relevant provisions in a separate section (§ 313.8, “Revised privacy notices”) in the final rule for emphasis. The final rule sets out examples in § 313.8(b) of when a new notice would, and would not, be required.

Section 313.9 Delivering Privacy and Opt Out Notices

The proposed rules governing delivery of initial, annual, and opt out notices were set out in proposed §§ 313.4(d), 313.5(b), and 313.8(b), respectively. Given the substantial similarities between the three sets of rules, the Commission has decided to combine the rules in one section in order to make it easier for the reader. Accordingly, the final rule states these rules in § 313.9.

The general rule requires that notices be provided in a manner so that each consumer can reasonably be expected to receive actual notice in writing, or, if the consumer agrees, electronically. The Commission received a number of comments on the various provisions governing delivery, as discussed below.

Posting initial notices on a web site.

A few commenters suggested that a financial institution be allowed to deliver initial notices simply by posting its notice on the institution's web site. Some of them criticized the example in proposed § 313.4(d)(5)(C) that required the consumer to acknowledge receipt of an electronic communication as tantamount to an “opt-in” provision; conversely, at least one consumer representative vigorously contended that it was essential that the consumer affirmatively respond in this situation because computer literacy cannot be presumed from the use of a web site.

There will be instances when a notice on a web site may be delivered in a way that will enable the financial institution to reasonably expect that the consumer will receive it. The final rule retains, as an example of one way to comply with the rule, the posting of a notice on a web site and requiring a consumer to acknowledge receipt of the notice as a step in the process of obtaining a financial product or service.

See

§ 313.9(b)(1)(iii). However, the mere posting of a notice on a web site would not be sufficient in all cases for the financial institution to reasonably expect its consumers to receive the notice. Accordingly, the Commission does not view the limited acknowledgment of receipt in this context as equivalent to an opt in requirement.

Posting annual notices on a web site.

Several commenters requested that a privacy notice posted by a financial institution on its web site be deemed to satisfy the annual notice requirement, at least for customers who agree to receive notices on the institution's web site. The final rule contains a new § 313.9(c)(i) to clarify that a financial institution may reasonably expect that a customer who uses the institution's web site to access financial products or services will receive actual notice if the customer has agreed to accept notices at the institution's web site and the financial institution posts a current notice of its privacy policies and practices continuously and in a clear and conspicuous manner on the web site.

The Commission views it as appropriate to post the annual notice on the web site only where the customer is in a relationship with the financial institution that is conducted almost entirely at the web site and where the customer has explicitly agreed to receive all of its notices and financial information at the web site. Moreover, the financial institution must position any link or links to the privacy policy such that they are evident to the customer wherever the customer may go on the web site to conduct transactions or obtain information. In those circumstances, the Commission agrees that it is appropriate to provide annual notices in this way for customers who conduct transactions electronically and agree to accept notices on a web site. This will reduce burden on financial institutions while ensuring that customers who transact business electronically will have access to institutions' privacy policies and practices.

Disclosures to customers requesting no communication.

Several commenters suggested the Commission clarify in the final rule how the disclosure obligations may be met in the case of a customer who requests that the institution refrain from sending information about the customer's relationship. These commenters stated that, in this case, the customer's request should be honored.

The Commission agrees. When a customer provides explicit instructions for a financial institution not to communicate with that customer, the

Commission believes that the request should be honored. The final rule clarifies, in § 313.9(c)(ii), that financial institutions need not send notices to a customer who requests no communication, provided that a notice is available upon request.

Reaccessing a notice.

A few commenters stated that the requirement that a privacy policy be provided in a way that enables a customer to either retain or reaccess the notice should clarify that the rule obligates a financial institution to make available only the privacy policy currently in effect. These commenters were concerned about the potential for confusion and the burden stemming from a rule that would require a financial institution to make available every version of its privacy policies. The Commission agrees that it is appropriate to require only that the current privacy policy be made available to someone seeking to obtain it after having received the initial notice, and has revised the final rule accordingly in § 313.9(e)(2)(iii).

Joint notices.

Other commenters requested that the rule clarify that the privacy policies and practices of several different affiliated financial institutions may be described on a single notice. Further, commenters requested that the final rule address whether affiliated financial institutions, each of whom has a customer relationship with the same consumer, may elect to send only one notice to the consumer on behalf of all of the affiliates covered by the notice and have that one notice satisfy the disclosure obligations under § 313.4 of each affiliate. Financial institutions should be able to combine initial disclosures in one document. The Commission also believes that it is appropriate to permit financial institutions that prepare a combined initial or annual notice to give, on a collective basis, a consumer only one copy of the notice. The final rule reflects this flexibility, in § 313.9(f). The notice must be accurate for all financial institutions using the notice, and must identify by name each of the institutions. The Commission also notes that financial institutions that provide one combined notice must be capable of keeping track of whether a consumer has opted out in order to ensure that disclosures are made in accordance with whatever opt out instructions a consumer provides after having received the joint notice.

Section 313.10 Limits on Disclosure of Nonpublic Personal Information to Nonaffiliated Third Parties

Section 502(a) of the G-L-B Act generally prohibits a financial institution, directly or through its affiliates, from sharing nonpublic personal information about a consumer with a nonaffiliated third party unless the institution provides the consumer with a notice of the institution's privacy policies and practices. Section 502(b) further requires that the financial institution provide the consumer with a clear and conspicuous notice that the consumer's nonpublic personal information may be disclosed to nonaffiliated third parties, that the consumer be given an opportunity to opt out of that disclosure, and that the consumer be informed of how to opt out. Section 313.7 of the proposed rule implemented these provisions by requiring a financial institution to give the consumer the initial notice required by § 313.4, the opt out notice required by § 313.8, and a reasonable opportunity to opt out.

Most of the comments addressing these requirements focused on the question of what is a reasonable opportunity to opt out. Suggestions ranged from a financial institution having the right to begin sharing information immediately (when the opt out and initial notices are provided as part of a transaction being conducted electronically, such as might be the case in an ATM transaction) up to a mandatory delay of 120 days from the time the notices are provided.

The wide variety of suggestions underscores the appropriateness of a more general test that avoids setting a mandatory waiting period applicable in all cases. For isolated transactions where a financial institution intends to disclose nonpublic personal information that it obtains through an electronic transaction and the consumer is pro

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