Fair Credit Reporting Affiliate Marketing Regulations

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 41

[Docket ID. OCC-2007-0010]

RIN 1557-AC88

FEDERAL RESERVE SYSTEM

12 CFR Part 222

[Regulation V; Docket No. R-1203]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 334

RIN 3064-AC83

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 571

[Docket ID. OTS-2007-0020]

RIN 1550-AB90

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 717

Fair Credit Reporting Affiliate Marketing Regulations

AGENCIES:

Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS); and National Credit Union Administration (NCUA).

ACTION:

Final rules.

SUMMARY:

The OCC, Board, FDIC, OTS, and NCUA (Agencies) are publishing final rules to implement the affiliate marketing provisions in section 214 of the Fair and Accurate Credit Transactions Act of 2003, which amends the Fair Credit Reporting Act. The final rules generally prohibit a person from using information received from an affiliate to make a solicitation for marketing purposes to a consumer, unless the consumer is given notice and a reasonable opportunity and a reasonable and simple method to opt out of the making of such solicitations.

DATES:

Effective Date:

These rules are effective January 1, 2008.

Mandatory Compliance Date:

October 1, 2008.

FOR FURTHER INFORMATION CONTACT:

OCC:

Amy Friend, Assistant Chief Counsel, (202) 874-5200; Michael Bylsma, Director, or Stephen Van Meter, Assistant Director, Community and Consumer Law, (202) 874-5750; or Patrick T. Tierney, Senior Attorney, Legislative and Regulatory Activities Division, (202) 874-5090, Office of the Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.

Board:

David A. Stein, Counsel; Ky Tran-Trong, Counsel; or Amy E. Burke, Attorney, Division of Consumer and Community Affairs, (202) 452-3667 or (202) 452-2412; or Kara Handzlik, Attorney, Legal Division, (202) 452-3852, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551. For users of a Telecommunications Device for the Deaf (TDD) only, contact (202) 263-4869.

FDIC:

Ruth R. Amberg, Senior Counsel, (202) 898-3736, or Richard M. Schwartz, Counsel, Legal Division, (202) 898-7424; April Breslaw, Chief, Compliance Section, (202) 898-6609; David P. Lafleur, Policy Analyst, Division of Supervision and Consumer Protection, (202) 898-6569, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.

OTS:

Suzanne McQueen, Consumer Regulations Analyst, Compliance and Consumer Protection Division, (202) 906-6459; or Richard Bennett, Senior Compliance Counsel, (202) 906-7409, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.

NCUA:

Linda Dent, Staff Attorney, Office of General Counsel, (703) 518-6540, National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314-3428.

SUPPLEMENTARY INFORMATION:

I. Background

The Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA or Act), which was enacted in 1970, sets standards for the collection, communication, and use of information bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. (15 U.S.C. 1681-1681x.) In 1996, the Consumer Credit Reporting Reform Act extensively amended the FCRA. (Pub. L. 104-208, 110 Stat. 3009.)

The FCRA, as amended, provides that a person may communicate to an affiliate or a non-affiliated third party information solely as to transactions or experiences between the consumer and the person without becoming a consumer reporting agency.

1

In addition, the communication of such transaction or experience information among affiliates will not result in any affiliate becoming a consumer reporting agency.

See

FCRA §§ 603(d)(2)(A)(i) and (ii).

1

The FCRA creates substantial obligations for a person that meets the definition of a “consumer reporting agency” in section 603(f) of the statute.

Section 603(d)(2)(A)(iii) of the FCRA provides that a person may communicate “other” information—that is, information that is not transaction or experience information—among its affiliates without becoming a consumer reporting agency if it is clearly and conspicuously disclosed to the consumer that such information may be communicated among affiliates and the consumer is given an opportunity, before the information is communicated, to “opt out” or direct that the information not be communicated among such affiliates, and the consumer has not opted out.

The Fair and Accurate Credit Transactions Act of 2003

The President signed into law the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) on December 4, 2003. (Pub. L. 108-159, 117 Stat. 1952.) In general, the FACT Act amends the FCRA to enhance the ability of consumers to combat identity theft, increase the accuracy of consumer reports, restrict the use of medical information in credit eligibility determinations, and allow consumers to exercise greater control regarding the type and number of solicitations they receive.

Section 214 of the FACT Act added a new section 624 to the FCRA. This provision gives consumers the right to restrict a person from using certain information obtained from an affiliate to make solicitations to that consumer. Section 624 generally provides that if a person receives certain consumer eligibility information from an affiliate, the person may not use that information to make solicitations to the consumer about its products or services, unless the consumer is given notice and an opportunity and a simple method to opt out of such use of the information, and the consumer does not opt out. The statute also provides that section 624 does not apply, for example, to a person using eligibility information: (1) To make solicitations to a consumer with whom the person has a pre-existing business relationship; (2) to perform services for another affiliate subject to certain conditions; (3) in response to a communication initiated by the

consumer; or (4) to make a solicitation that has been authorized or requested by the consumer. Unlike the FCRA affiliate sharing opt-out and the Gramm-Leach-Bliley Act (GLBA) non-affiliate sharing opt-out, which apply indefinitely, section 624 provides that a consumer's affiliate marketing opt-out election must be effective for a period of at least five years. Upon expiration of the opt-out period, the consumer must be given a renewal notice and an opportunity to renew the opt-out before information received from an affiliate may be used to make solicitations to the consumer.

Section 624 governs the

use

of information by an affiliate, not the

sharing

of information among affiliates, and thus is distinct from the affiliate sharing opt-out under section 603(d)(2)(A)(iii) of the FCRA. Nevertheless, the affiliate marketing and affiliate sharing opt-outs and the information subject to the two opt-outs overlap to some extent. As noted above, the FCRA allows transaction or experience information to be shared among affiliates without giving the consumer notice and an opportunity to opt out, but provides that “other” information, such as information from credit reports and credit applications, may not be shared among affiliates without giving the consumer notice and an opportunity to opt out. The new affiliate marketing opt-out applies to both transaction or experience information and “other” information. Thus, certain information will be subject to two opt-outs, a sharing opt-out and a marketing use opt-out.

Section 214(b) of the FACT Act requires the Agencies, the Federal Trade Commission (FTC), and the Securities and Exchange Commission (SEC) to prescribe regulations, in consultation and coordination with each other, to implement the FCRA's affiliate marketing opt-out provisions. In adopting regulations, each Agency must ensure that the affiliate marketing notification methods provide a simple means for consumers to make choices under section 624, consider the affiliate sharing notification practices employed on the date of enactment by persons subject to section 624, and ensure that notices may be coordinated and consolidated with other notices required by law.

II. The Interagency Proposal

On July 15, 2004, the Agencies published a notice of proposed rulemaking in the

Federal Register

(69 FR 42502) to implement section 214 of the FACT Act.

2

The proposal defined the key terms “pre-existing business relationship” and “solicitation” essentially as defined in the statute. The Agencies did not propose to include additional circumstances within the meaning of “pre-existing business relationship” or other types of communications within the meaning of “solicitation.”

2

The FTC published its proposed affiliate marketing rule in the

Federal Register

on June 15, 2004 (69 FR 33324). The SEC published its proposed affiliate marketing rule in the

Federal Register

on July 14, 2004 (69 FR 42301).

To address the scope of the affiliate marketing opt-out, the proposal defined “eligibility information” to mean any information the communication of which would be a “consumer report” if the statutory exclusions from the definition of “consumer report” in section 603(d)(2)(A) of the FCRA for transaction or experience information and for “other” information that is subject to the affiliate-sharing opt-out did not apply. The Agencies substituted the term “eligibility information” for the more complicated statutory language regarding the communication of information that would be a consumer report, but for clauses (i), (ii), and (iii) of section 603(d)(2)(A) of the FCRA.

3

In addition, the proposal incorporated each of the scope limitations contained in the statute, such as the pre-existing business relationship exception.

3

Under section 603(d)(1) of the FCRA, a “consumer report” means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for credit or insurance to be used primarily for personal, family, or household purposes, employment purposes, or any other purpose authorized in section 604 of the FCRA. 15 U.S.C. 1681a(d).

Section 624 does not state which affiliate must give the consumer the affiliate marketing opt-out notice. The proposal provided that the person communicating information about a consumer to its affiliate would be responsible for satisfying the notice requirement, if applicable. A rule of construction provided flexibility to allow the notice to be given by the person that communicates information to its affiliate, by the person's agent, or through a joint notice with one or more other affiliates. The Agencies designed this approach to provide flexibility and to facilitate the use of a single coordinated notice, while taking into account existing affiliate sharing notification practices. At the same time, the approach sought to ensure that the notice would be effective because it generally would be provided by or on behalf of an entity from which the consumer would expect to receive important notices, and would not be provided along with solicitations.

The proposal also provided guidance on the contents of the opt-out notice, what constitutes a reasonable opportunity to opt out, reasonable and simple methods of opting out, and the delivery of opt-out notices. Finally, the proposal provided guidance on the effect of the limited duration of the opt-out and the requirement to provide an extension notice upon expiration of the opt-out period.

III. Overview of Comments Received

Each agency received the following number of comment letters: OCC—30, Board—42, FDIC—29, OTS—20, NCUA—18. Many commenters sent copies of the same letter to more than one Agency. The Agencies received comments from a variety of banks, thrifts, credit unions, credit card companies, mortgage lenders, other non-bank creditors, and industry trade associations. The Agencies also received comments from consumer groups, the National Association of Attorneys General (“NAAG”), and individual consumers. In addition, the Agencies considered comments submitted to the FTC and the SEC.

Most industry commenters objected to several key aspects of the proposal. The most significant areas of concern raised by industry commenters related to which affiliate would be responsible for providing the notice, the scope of certain exceptions to the notice and opt-out requirement, and the content or the inclusion of definitions for terms such as “clear and conspicuous” and “pre-existing business relationship.” Consumer groups and NAAG generally supported the proposal, although these commenters believed that the proposal could be strengthened in certain respects. A more detailed discussion of the comments is contained in the Section-by-Section Analysis below.

IV. Section-by-Section Analysis

Section _.1 Purpose, Scope, and Effective Dates

Section _.1 of the proposal set forth the purpose and scope of each Agency's regulations. The Agencies received few comments on this section. Some of the Agencies have revised this section in the final rules for clarity and to reflect the fact that the institutions subject to the FCRA regulation will vary in different subparts of the Agencies' FCRA rules. The coverage provision for

each Agency's affiliate marketing rule is set forth in Subpart C, § _.20(a).

Section _.2 Examples

Proposed § __.2 described the scope and effect of the examples included in the proposed rule. Most commenters supported the proposed use of non-exclusive examples to illustrate the operation of the rules. One commenter, concerned that the use of examples would increase the risk of litigation, urged the Agencies to delete all examples.

The Agencies adopted § _.2 as part of the final medical information rules.

See

70 FR 70664 (Nov. 22, 2005). The comments received in this rulemaking do not warrant any revisions to § _.2. The Agencies do not believe the use of illustrative examples will materially increase the risk of litigation, but rather will provide useful guidance for compliance purposes, which may alleviate litigation risks for institutions. Therefore, it is unnecessary to re-publish § _.2 in these final rules.

As § _.2 states, examples in a paragraph illustrate only the issue described in the paragraph and do not illustrate any other issue that may arise in the part. Similarly, the examples do not illustrate any issues that may arise under other laws or regulations.

4

4

NCUA has modified examples in its final rule text where the original example referenced products or services impermissible for federal credit unions.

Section _.3 Definitions

Section _.3 of the proposal contained definitions for the following terms: “Act,” “affiliate” (as well as the related terms “company” and “control”); “clear and conspicuous”; “consumer”; “eligibility information”; “person”; “pre-existing business relationship”; “solicitation”; and, except for the OCC's proposal, “you.”

The Agencies have previously defined the terms “Act,” “affiliate,” “company,” “consumer,” and “person,” along with a definition of “common ownership or common corporate control” as a substitute for the definition of “control,” as part of the final medical information rules.

See

70 FR 70664 (Nov. 22, 2005). Those definitions that elicited comment are discussed below. However, it is unnecessary to re-publish § _.3 in these final rules because the Agencies have not revised these definitions.

The Agencies have moved the definitions of “clear and conspicuous,” “eligibility information,” “pre-existing business relationship,” “solicitation,” and “you” or “bank” to Subpart C, § _.20(b). Three of these terms relate solely to the affiliate marketing provisions and, thus, are more appropriately defined in Subpart C. For the reasons discussed below, the Agencies also believe that it is more appropriate to define “clear and conspicuous” for the limited purpose of the affiliate marketing rules. Each of these definitions is discussed in detail below.

Affiliate, Common Ownership or Common Corporate Control, and Company

Several FCRA provisions apply to information sharing with persons “related by common ownership or affiliated by corporate control,” “related by common ownership or affiliated by common corporate control,” or “affiliated by common ownership or common corporate control.”

E.g.

, FCRA, sections 603(d)(2), 615(b)(2), and 625(b)(2). Each of these provisions was enacted as part of the 1996 amendments to the FCRA. Similarly, section 2 of the FACT Act defines the term “affiliate” to mean “persons that are related by common ownership or affiliated by corporate control.” In contrast, the GLBA defines “affiliate” to mean “any company that controls, is controlled by, or is under common control with another company.”

See

15 U.S.C. 6809(6).

In the proposal, the Agencies sought to harmonize the various FCRA and FACT Act formulations by defining “affiliate” to mean “any person that is related by common ownership or common corporate control with another person.” Industry commenters generally supported the Agencies' goal of harmonizing the various FCRA definitions of “affiliate” for consistency. Many of these commenters, however, believed that the most effective way to do this was for the Agencies to incorporate into the FCRA the definition of “affiliate” used in the GLBA privacy regulations. In addition, a few industry commenters urged the Agencies to incorporate into the definition of “affiliate” certain concepts from California's Financial Information Privacy Act so as to exempt certain classes of corporate affiliates from the restrictions on affiliate sharing or marketing.

5

5

These commenters noted that the California law places no restriction on information sharing among affiliates if they: (1) Are regulated by the same or similar functional regulators; (2) are involved in the same broad line of business, such as banking, insurance, or securities; and (3) share a common brand identity.

In the final medical information rules, the Agencies defined the term “affiliate” to mean a company that is related by common ownership or common corporate control with another company.

See

70 FR 70,664 (Nov. 22, 2005).

6

The Agencies substituted the term “company” for “person” in the definition because they did not believe that certain types of persons, such as individuals, could be related by common ownership or common corporate control.

6

For purposes of the regulation, an “affiliate” includes an operating subsidiary of a bank or savings association, and a credit union service organization that is controlled by a federal credit union.

The Agencies do not believe there is a substantive difference between the FACT Act definition of “affiliate” and the definition of “affiliate” in section 509 of the GLBA. The Agencies are not aware of any circumstances in which two entities would be affiliates for purposes of the FCRA but not for purposes of the GLBA privacy rules, or vice versa. Also, even though affiliated entities have had to comply with different FCRA and GLBA formulations of the “affiliate” definition since 1999, commenters did not identify any specific compliance difficulties or uncertainty resulting from the fact that the two statutes use somewhat different wording to describe what constitutes an affiliate.

As explained in the supplementary information to the final medical information rules, the Agencies declined to incorporate into the definition of “affiliate” exceptions for entities regulated by the same or similar functional regulators, entities in the same line of business, or entities that share a common brand or identity.

See

70 FR 70,665 (Nov. 22, 2005). These exceptions were incorporated into the California Financial Information Privacy Act in August 2003.

7

Congress, however, did not incorporate these exceptions from California law into the definition of “affiliate” when it enacted the FACT Act at the end of 2003. Accordingly, the Agencies believe that the approach followed in the final medical information rules best effectuates the intent of Congress.

7

See Cal. Financial Code § 4053(c).

Under the GLBA privacy rules, the definition of “control” determines whether two or more entities meet the definition of “affiliate.”

8

The Agencies included the same definition of “control” in the proposal and received no comments on the proposed definition. The Agencies interpret the phrase “related by common ownership or common corporate control” used in the FACT Act to have the same meaning

as “control” in the GLBA privacy rules. For example, if an individual owns 25 percent of two companies, the companies would be affiliates under both the GLBA and FCRA definitions. However, the individual would not be considered an affiliate of the companies because the definition of “affiliate” is limited to companies. For purposes of clarity, the final medical information rules defined the term “control” to mean “common ownership or common corporate control” in order to track more closely the terminology used in the FACT Act.

See

70 FR 70,664 (Nov. 22, 2005).

9

8

See 12 CFR 40.3(g), 216.3(g), 332.3(g), 573.3(g), and 716(g).

9

For purposes of the regulation, NCUA presumes that a federal credit union has a controlling influence over the management or policies of a credit union service organization if it is 67 percent owned by credit unions.

The proposal also defined the term “company” to mean any corporation, limited liability company, business trust, general or limited partnership, association, or similar organization. The proposed definition of “company” excluded some entities that are “persons” under the FCRA, including estates, cooperatives, and governments or governmental subdivisions or agencies, as well as individuals. The Agencies received no comments on the proposed definition of “company,” which was adopted in the final medical information rules.

The Agencies adopted definitions of “affiliate,” “common ownership and common corporate control,” and “company” in the final FCRA medical information rules.

See

70 FR 70,664 (Nov. 22, 2005). It is unnecessary to re-publish those definitions in these rules.

Consumer

Proposed paragraph (e) defined the term “consumer” to mean an individual. This definition is identical to the definition of “consumer” in section 603(c) of the FCRA.

Several commenters asked the Agencies to narrow the proposed definition to apply only to individuals who obtain financial products or services primarily for personal, family, or household purposes, in part to achieve consistency with the definition of “consumer” in the GLBA. The FCRA's definition of “consumer,” however, differs from, and is broader than, the definition of that term in the GLBA. The Agencies believe that the use of distinct definitions of “consumer” in the two statutes reflects differences in the scope and objectives of each statute. Therefore, the Agencies adopted the FCRA's statutory definition of “consumer” in the final medical information rules.

See

70 FR 70,664 (Nov. 22, 2005). It is unnecessary to re-publish the definition in these rules. For purposes of this definition, an individual acting through a legal representative would qualify as a consumer.

Person

Proposed paragraph (l) defined the term “person” to mean any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity. This definition is identical to the definition of “person” in section 603(b) of the FCRA.

One commenter requested clarification of how the proposed definition of “person” would affect other provisions of the affiliate marketing rules. Specifically, this commenter asked how the supplementary information's discussion of agents might affect the scope provisions of the rule.

The supplementary information to the proposal stated that a person may act through an agent, including but not limited to a licensed agent (in the case of an insurance company) or a trustee. The supplementary information also provided that actions taken by an agent on behalf of a person that are within the scope of the agency relationship would be treated as actions of that person. The Agencies included these statements to address comprehensively the status of agents and to eliminate the need to refer specifically to licensed agents in the proposed definition of “pre-existing business relationship.” As discussed below, many commenters believed that licensed agents should be expressly included in the definition of “pre-existing business relationship.” The Agencies have revised the final rules in response to those comments. By specifically addressing licensed agents, the final rules do not alter the general principles of principal-agent relationships that apply to all agents, not just licensed agents. The Agencies will treat actions taken by an agent on behalf of a person that are within the scope of the agency relationship as actions of that person, regardless of whether the agent is a licensed agent or not.

The Agencies adopted the FCRA's statutory definition of “person” in the final medical information rules.

See

70 FR 70664 (Nov. 22, 2005). Therefore, it is unnecessary to re-publish the definition in these rules.

Section _.20 Coverage and definitions

Coverage

Section _.20(a) of the final rules identifies the persons covered by Subpart C of each Agency's rule. Section _.20(a) thus describes the scope of each Agency's rule.

Definitions

Section _.20(b) of the final rules contains the definitions of six terms for purposes of Subpart C.

Clear and Conspicuous

Proposed § _.3(c) defined the term “clear and conspicuous” to mean reasonably understandable and designed to call attention to the nature and significance of the information presented. Under this definition, institutions would retain flexibility in determining how best to meet the clear and conspicuous standard. The supplementary information to the proposal provided guidance regarding a number of practices that institutions might wish to consider in making their notices clear and conspicuous. These practices were derived largely from guidance included in the GLBA privacy rules.

Industry commenters urged the Agencies not to define “clear and conspicuous” in the final rules. The principal objection these commenters raised was that this definition would significantly increase the risk of litigation and civil liability. Although these commenters recognized that the proposed definition was derived from the GLBA privacy regulations, they noted that compliance with the GLBA privacy regulations is enforced exclusively through administrative action, not through private litigation. These commenters also stated that the Board had withdrawn a similar proposal to define “clear and conspicuous” for purposes of Regulations B, E, M, Z, and DD, in part because of concerns about civil liability. Some industry commenters believed that it was not necessary to define the term in order for consumers to receive clear and conspicuous disclosures based on industry's experience in providing clear and conspicuous affiliate sharing opt-out notices. Consumer groups believed that incorporation of the standard and examples from the GLBA privacy regulations was not adequate because they did not believe that the existing standard has proven sufficient to ensure effective privacy notices.

In the final rules, the Agencies have relocated the definition of “clear and conspicuous” to § _.20(b)(1) in order to limit its applicability to the affiliate

marketing opt-out notice and renewal notice. Except for certain non-substantive changes made for purposes of clarity, the definition of “clear and conspicuous” is the same as in the proposal and is substantively the same as the definition used in the GLBA privacy rules. The Agencies believe that the clear and conspicuous standard for the affiliate marketing opt-out notices should be substantially similar to the standard that applies to GLBA privacy notices because the affiliate marketing opt-out notice may be provided on or with the GLBA privacy notice.

In defining “clear and conspicuous,” the Agencies believe it is more appropriate to focus on the affiliate marketing opt-out notices that are the subject of this rulemaking, rather than adopting a generally applicable definition governing all consumer disclosures under the FCRA. This approach gives the Agencies the flexibility to refine or clarify the clear and conspicuous requirement for different disclosures, if necessary. In addition, this approach is consistent with the approach the Board indicated it would take when it withdrew its proposed clear and conspicuous rules. The Board noted that it intended “to focus on individual disclosures and to consider ways to make specific improvements to the effectiveness of each disclosure.”

See

69 FR 35541, 35543 (June 25, 2004).

The statute directs the Agencies to provide specific guidance regarding how to comply with the clear and conspicuous standard.

See

15 U.S.C. 1681s-3(a)(2)(B). For that reason, the Agencies do not agree with commenters that requested the elimination of the definition of “clear and conspicuous” and related guidance. Rather, the Agencies believe it is necessary to define “clear and conspicuous” in the final rules and provide specific guidance for how to satisfy that standard in connection with this notice.

Accordingly, the final rules contain two types of specific guidance on satisfying the requirement to provide a clear and conspicuous opt-out notice. First, as in the proposal, the supplementary information to the final rules describes certain techniques that may be used to make notices clear and conspicuous. These techniques are described below. Second, the Agencies have adopted model forms that may, but are not required to, be used to facilitate compliance with the affiliate marketing notice requirements. The requirement for clear and conspicuous notices would be satisfied by the appropriate use of one of the model forms.

As noted in the supplementary information to the proposal, institutions may wish to consider a number of methods to make their notices clear and conspicuous. The various methods described below for making a notice clear and conspicuous are suggestions that institutions may wish to consider in designing their notices. Use of any of these methods alone or in combination is voluntary. Institutions are not required to use any particular method or combination of methods to make their disclosures clear and conspicuous. Rather, the particular facts and circumstances will determine whether a disclosure is clear and conspicuous.

A notice or disclosure may be made reasonably understandable through various methods that include: Using clear and concise sentences, paragraphs, and sections; using short explanatory sentences; using bullet lists; using definite, concrete, everyday words; using active voice; avoiding multiple negatives; avoiding legal and highly technical business terminology; and avoiding explanations that are imprecise and are readily subject to different interpretations. In addition, a notice or disclosure may be designed to call attention to the nature and significance of the information in it through various methods that include: Using a plain-language heading; using a typeface and type size that are easy to read; using wide margins and ample line spacing; and using boldface or italics for key words. Further, institutions that provide the notice on a Web page may use text or visual cues to encourage scrolling down the page, if necessary, to view the entire notice and may take steps to ensure that other elements on the Web site (such as text, graphics, hyperlinks, or sound) do not distract attention from the notice. When a notice or disclosure is combined with other information, methods for designing the notice or disclosure to call attention to the nature and significance of the information in it may include using distinctive type sizes, styles, fonts, paragraphs, headings, graphic devices, and appropriate groupings of information. However, there is no need to use distinctive features, such as distinctive type sizes, styles, or fonts, to differentiate an affiliate marketing opt-out notice from other components of a required disclosure, for example, where a GLBA privacy notice combines several opt-out disclosures in a single notice. Moreover, nothing in the clear and conspicuous standard requires segregation of the affiliate marketing opt-out notice when it is combined with a GLBA privacy notice or other required disclosures.

The Agencies recognize that it will not be feasible or appropriate to incorporate all of the methods described above all the time. The Agencies recommend, but do not require, that institutions consider the methods described above in designing their opt-out notices. The Agencies also encourage the use of consumer or other readability testing to devise notices that are understandable to consumers.

Finally, although the Agencies understand the concerns of some industry commenters about the potential for civil liability, the Agencies believe that these concerns are mitigated by the safe harbors afforded by the model forms in Appendix C. The Agencies note that the affiliate sharing opt-out notice under section 603(d)(2)(A)(iii) of the FCRA, which may be enforced through private rights of action, must be included in the GLBA privacy notice. Therefore, the affiliate sharing opt-out notice generally is disclosed in a manner consistent with the clear and conspicuous standard set forth in the GLBA privacy regulations. Commenters did not identify any litigation that has resulted from the requirement to provide a clear and conspicuous affiliate sharing opt-out notice. The Agencies believe that compliance with the examples and use of the model forms, although optional, should minimize the risk of litigation.

Concise

Proposed § _.21(b) defined the term “concise” to mean a reasonably brief expression or statement. The proposal also provided that a notice required by Subpart C may be concise even if it is combined with other disclosures required or authorized by federal or state law. Such disclosures include, but are not limited to, a GLBA privacy notice, an affiliate-sharing notice under section 603(d)(2)(A)(iii) of the FCRA, and other consumer disclosures. Finally, the proposal clarified that the requirement for a concise notice would be satisfied by the appropriate use of one of the model forms contained in proposed Appendix C to each Agency's FCRA rule, although use of the model forms is not required. The Agencies received no comments on the proposed definition of “concise.” The final rules renumber the definition of “concise” as § _.20(b)(2). The reference to the model forms has been moved to Appendix C, but otherwise the definition is adopted as proposed.

Eligibility Information

Proposed § _.3(j) defined the term “eligibility information” to mean any information the communication of which would be a consumer report if the exclusions from the definition of “consumer report” in section 603(d)(2)(A) of the FCRA did not apply. As proposed, eligibility information would include a person's own transaction or experience information, such as information about a consumer's account history with that person, and “other” information under section 603(d)(2)(A)(iii), such as information from consumer reports or applications.

Most commenters generally supported the proposed definition of “eligibility information” as an appropriate means of simplifying the statutory terminology without changing the scope of the information covered by the rule. A number of commenters requested that the Agencies clarify that certain types of information do not constitute eligibility information, such as name, address, telephone number, Social Security number, and other identifying information. One commenter requested the exclusion of publicly available information from the definition. Another commenter requested additional clarification regarding the term “transaction or experience information.” A few commenters suggested that the Agencies include examples of what is and is not included within “eligibility information.” Finally, one commenter urged the Agencies to revise the definition to restate much of the statutory definition of “consumer report” to eliminate the need for cross-references.

The final rules renumber the definition of “eligibility information” as _.20(b)(3). The Agencies have revised the definition to clarify that the term “eligibility information” does not include aggregate or blind data that does not contain personal identifiers. Examples of personal identifiers include account numbers, names, or addresses, as indicated in the definition, as well as Social Security numbers, driver's license numbers, telephone numbers, or other types of information that, depending on the circumstances or when used in combination, could identify the individual.

The Agencies also believe that further clarification of, or exclusions from, the term “eligibility information,” such as the categorical exclusion of names, addresses, telephone numbers, other identifying information, or publicly available information, would directly implicate the definitions of “consumer report” and “consumer reporting agency” in sections 603(d) and (f), respectively, of the FCRA. The Agencies decided not to define the terms “consumer report” and “consumer reporting agency” in this rulemaking and not to interpret the meaning of terms used in those definitions, such as “transaction or experience” information. The Agencies anticipate addressing the definitions of “consumer report” and “consumer reporting agency” in a separate rulemaking after the required FACT Act rules have been completed. The Agencies also note that financial institutions have relied on these statutory definitions for many years.

Pre-Existing Business Relationship

Proposed § _.3(m) defined the term “pre-existing business relationship” to mean a relationship between a person and a consumer based on the following:

(1) A financial contract between the person and the consumer that is in force;

(2) The purchase, rental, or lease by the consumer of that person's goods or services, or a financial transaction (including holding an active account or a policy in force or having another continuing relationship) between the consumer and that person, during the 18-month period immediately preceding the date on which a solicitation covered by Subpart C is sent to the consumer; or

(3) An inquiry or application by the consumer regarding a product or service offered by that person during the three-month period immediately preceding the date on which a solicitation covered by Subpart C is sent to the consumer.

The proposed definition generally tracked the statutory definition contained in section 624 of the FCRA, with certain revisions for clarity. Although the statute gave the Agencies the authority to identify by regulation other circumstances that qualify as a pre-existing business relationship, the Agencies did not propose to exercise this authority. In the final rules, the definition of “pre-existing business relationship” has been renumbered as § _.20(b)(4).

Industry commenters suggested certain revisions to the proposed definition of “pre-existing business relationship.” Many industry commenters asked the Agencies to include in the definition statutory language relating to “a person's licensed agent.” A number of these commenters noted that this concept was particularly important to the insurance industry where independent, licensed agents frequently act as the main point of contact between the consumer and the insurance company.

In the final rules, the phrase “or a person's licensed agent” has been added to the definition of “pre-existing business relationship” to track the statutory language. For example, assume that a person is a licensed agent for the affiliated ABC life, auto, and homeowners' insurance companies. A consumer purchases an ABC auto insurance policy through the licensed agent. The licensed agent may use eligibility information about the consumer obtained in connection with the ABC auto policy it sold to the consumer to market ABC life and homeowner's insurance policies to the consumer for the duration of the pre-existing business relationship without offering the consumer the opportunity to opt out of that use.

Regarding the first basis for a pre-existing business relationship (a financial contract in force), several industry commenters asked the Agencies to clarify that a financial contract includes any in-force contract that relates to a financial product or service covered by title V of the GLBA. One commenter objected to the requirement that the contract be in force on the date of the solicitation. This commenter believed that the Agencies should interpret the statute to permit the exception to apply if a contract is in force at the time the affiliate uses the information, rather than when the solicitation is sent, noting that there may be a delay between the use and the solicitation.

The Agencies have revised the first prong of the definition of “pre-existing business relationship” to reflect the definition's relocation to Subpart C, but have otherwise adopted it as proposed. Although a comprehensive definition of the term “financial contract” has not been included in the final rules, the Agencies construe the statutory term “financial contract” at least to include a contract that relates to a consumer's purchase or lease of a financial product or service that a financial holding company could offer under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)). In addition, a financial contract which is in force will, in virtually all instances, qualify as a “financial transaction,” as that term is used in the second prong of the definition of “pre-existing business relationship.” The Agencies do not agree with the suggestion that the financial contract should be in force on the date of use rather than on the date the solicitation is sent. The approach taken in the proposed and final rules is consistent with the approach used in the other two prongs of the statutory definition.

Industry commenters also suggested certain clarifications to the second basis for a pre-existing business relationship—a purchase, rental, or lease by the consumer of the person's goods or services, or a financial transaction between the consumer and the person during the preceding 18 months. Several industry commenters noted that, notwithstanding the example in the proposal regarding a lapsed insurance policy, it was not clear from what point in time the 18-month period begins to run in the case of many purchase, rental, lease, or financial transactions. These commenters asked the Agencies to clarify that the 18-month period begins to run at the time all contractual responsibilities of either party under the purchase, rental, lease, or financial transaction expire. In addition, some commenters indicated that the term “active account” should be clarified to mean any account with outstanding contractual responsibilities on either side of an account relationship, regardless of whether specific transactions do or do not occur on that account.

The Agencies have revised the second prong of the definition of “pre-existing business relationship” to reflect the definition's relocation to Subpart C, but have otherwise adopted it as proposed. The Agencies decline to interpret the term “active account” as requested by some commenters. The Agencies note that section 603(r) of the FCRA defines the term “account” to have the same meaning as in section 903 of the Electronic Fund Transfer Act (EFTA). Under the EFTA, the term “account” means a demand deposit, savings deposit, or other asset account established primarily for personal, family, or household purposes. Some commenters, however, apparently believed that the term “active account” included extensions of credit. Credit extensions presumably would qualify as “another continuing relationship,” as used in the definition of “pre-existing business relationship.”

More generally, however, even though a “financial transaction” would include in virtually all cases a financial contract which is in force, as noted above, the Agencies do not believe it is appropriate to state that the 18-month period begins to run when all outstanding contractual responsibilities of both parties expire, regardless of whether specific transactions occur. Such a clarification would not appropriately address circumstances such as charge-offs, bankruptcies, early terminations, or extended periods of credit inactivity that could trigger commencement of the 18 month period. In addition, some contract provisions, such as arbitration clauses and choice of law provisions, may continue to have legal effect after all contractual performance has ended. The Agencies do not believe that the continued effectiveness of such provisions should delay commencement of the 18-month period.

Nevertheless, the Agencies believe that a few examples may provide useful guidance to facilitate compliance. For example, in the case of a closed-end mortgage or auto loan, the 18-month period generally would begin to run when the consumer pays off the outstanding balance on the loan. In a lease or rental transaction, the 18-month period generally would begin to run when the lease or rental agreement expires or is terminated by mutual agreement. In the case of general purpose credit cards that are issued with an expiration date, the 18-month period generally would begin to run when the consumer pays off the outstanding balance on the card and the card is either cancelled or expires without being renewed.

Commenters also made certain suggestions regarding the third basis for a pre-existing business relationship—an inquiry or application by the consumer regarding a product or service offered by the person during the preceding three months. Consumer groups urged the Agencies to clarify that an inquiry must be made of the specific affiliate, rather than a general inquiry about a product or service. Industry commenters expressed concern about certain statements in the supplementary information that explained the meaning of an inquiry.

The Agencies do not agree that an inquiry must be made of a specific affiliate. Many affiliated institutions use a central call center to handle consumer inquiries. The clarification urged by consumer groups could preclude the establishment of a pre-existing business relationship based on a consumer's call to a central call center about a specific product or service offered by an affiliate.

In the supplementary information to the proposal, the Agencies noted that certain elements of the definition of “pre-existing business relationship” were substantially similar to the definition of “established business relationship” under the amended Telemarketing Sales Rule (TSR) (16 CFR 310.2(n)). The TSR definition was informed by Congress's intent that the “established business relationship” exemption to the “do not call” provisions of the Telephone Consumer Protection Act (47 U.S.C. 227

et seq.

) should be grounded on the reasonable expectations of the consumer.

10

The Agencies observed that Congress's incorporation of similar language in the definition of “pre-existing business relationship”

11

suggested that it would be appropriate to consider the reasonable expectations of the consumer in determining the scope of this exception. Thus, the Agencies explained that, for purposes of this regulation, an inquiry would include any affirmative request by a consumer for information after which the consumer would reasonably expect to receive information from the affiliate about its products or services.

12

Moreover, a consumer would not reasonably expect to receive information from the affiliate if the consumer did not request information or did not provide contact information to the affiliate.

10

H.R. Rep. No. 102-317, at 14-15 (1991).

See also

68 FR 4,580, 4,591-94 (Jan. 29, 2003).

11

149 Cong. Rec. S13,980 (daily ed. Nov. 5, 2003) (statement of Senator Feinstein) (noting that the “pre-existing business relationship” definition “is the same definition developed by the Federal Trade Commission in creating a national ‘Do Not Call’ registry for telemarketers”).

12

See

68 FR at 4,594.

Industry commenters objected to the discussion in the supplementary information. Some of these commenters believed that looking to the reasonable expectations of the consumer would narrow the scope of the exception and impose on institutions a subjective standard that depended upon the consumer's state of mind. These commenters also maintained that the availability of the exception should not depend upon the consumer both requesting information and providing contact information to the affiliate. Some commenters noted that either requesting information or providing contact information should suffice to establish an expectation of receiving solicitations. Other commenters noted that consumers would not provide contact information if they believed that the affiliate would already have the consumer's contact information or would obtain it from the consumer's financial institution. Some commenters believed that the consumer should not have to make an affirmative request for information in order to have an inquiry. Commenters also expressed concern that the discussion in the supplementary information would require consumers to use specific words to trigger the exception.

The Agencies have revised the third prong of the definition of “pre-existing business relationship” to reflect the definition's relocation to Subpart C, but have otherwise adopted it as proposed. The Agencies continue to believe that it

is appropriate to consider what the consumer says in determining whether the consumer has made an inquiry about a product or service. It may not be necessary, however, for the consumer to provide contact information in all cases. As discussed below, the Agencies have revised the examples of inquiries to illustrate different circumstances.

Consumer groups and NAAG urged the Agencies not to expand the definition of “pre-existing business relationship” to include any additional types of relationships. Industry commenters suggested a number of additional bases for establishing a pre-existing business relationship. Several industry commenters believed that the term “pre-existing business relationship” should be defined to include relationships arising out of the ownership of servicing rights, a participation interest in lending transactions, and similar relationships. These commenters provided no further explanation for why such an expansion was necessary. One commenter urged the Agencies to expand the definition of “pre-existing business relationship” to apply to affiliates that share a common trade name, share the same employees or representatives, operate out of the same physical location or locations, and offer similar products.

In addition, a number of industry commenters requested clarification of the term “pre-existing business relationship” as applied to manufacturers that make sales through dealers. These commenters explained that automobile manufacturers do not sell vehicles directly to consumers, but through franchised dealers. Vehicle financing may be arranged through a manufacturer's captive finance company or independent sources of financing. These commenters noted that manufacturers often provide consumers with information about warranty coverage, recall notices, and other product information. According to these commenters, manufacturers also send solicitations to consumers about their products and services, drawing in part on transaction or experience information from the captive finance company. These commenters asked the Agencies to clarify that the relationship between a manufacturer and a consumer qualifies as a pre-existing business relationship based on the purchase, rental, or lease of the manufacturer's goods, or, alternatively, to exercise their authority to add this relationship as an additional basis for a pre-existing business relationship. One commenter asked the Agencies to clarify that a pre-existing business relationship could be established even if the person provides a product or service to the consumer without charging a fee.

The Agencies do not believe it is necessary to add any additional bases for a pre-existing business relationship. The Agencies acknowledge that a pre-existing business relationship exists where a person owns the servicing rights to a consumer's loan and such person collects payments from, or otherwise deals directly with, the consumer. In the Agencies' view, however, that situation qualifies as a financial transaction and thus falls within the second prong of the definition of “pre-existing business relationship.” The Agencies have included an example, discussed below, to illustrate how the ownership of servicing rights can create a pre-existing business relationship.

A pre-existing business relationship does not arise, however, solely from a participation interest in a lending transaction because such an interest does not result in a financial contract or a financial transaction between the consumer and the participating party. The Agencies decline to add a specific provision for franchised dealers. The statute contains no special provision addressing franchised dealers, as it does for licensed agents. Moreover, a franchised dealer and a manufacturer generally are not affiliates and thus are subject to the GLBA privacy rules relating to information sharing with non-affiliated third parties. The Agencies also find no basis for including within the meaning of “pre-existing business relationship” any affiliate that shares a common trade name or representatives, or that operates from the same location or offers similar products. Finally, the Agencies decline to add a provision that would create a pre-existing business relationship when a consumer obtains a product or service without charge from a person. Such a provision would be overly broad, is not necessary given the breadth of the statutory definition of “pre-existing business relationship,” and could result in circumvention of the notice requirement.

Proposed § _.20(d)(1) provided four examples of the pre-existing business relationship exception. In the final rules, these examples have been renumbered as § _.20(b)(4)(ii) and (iii), and revised to illustrate the definition of “pre-existing business relationship,” rather than the corresponding exception.

The two examples relating to the first and second prongs of the definition of “pre-existing business relationship” have been revised in § _.20(b)(4)(ii)(A) and (B) to focus on a depository institution as the person with the pre-existing business relationship, but are otherwise substantively similar to the proposal. One commenter recommended expanding the example now contained in § _.20(b)(4)(ii)(A) to refer to the licensed agent that wrote the policy or services the relationship. The Agencies believe that adding the term “licensed agent” to the definition is sufficient and see no reason to further complicate this example to illustrate how the definition applies to licensed agents.

Section _.20(b)(4)(ii)(C) is new and illustrates when a pre-existing business relationship is created in the context of a mortgage loan. This example specifically addresses circumstances where either the loan or ownership of the servicing rights to the loan is sold to a third party. As this example illustrates, sale of the entire loan by the original lender terminates the financial transaction between the consumer and that lender and creates a new financial transaction between the consumer and the purchaser of the loan. However, the original lender's sale of a fractional interest in the loan to an investor does not create a new financial transaction between the consumer and the investor. When the original lender sells a fractional interest in the consumer's loan to an investor but also retains an ownership interest in the loan, however, the original lender continues to have a pre-existing business relationship with the consumer because the consumer obtained a loan from the lender and the lender continues to own an interest in the loan. In addition, the ownership of servicing rights coupled with direct dealings with the consumer results in a financial transaction between the consumer and the owner of the servicing rights, thereby creating a pre-existing business relationship between the consumer and the owner of the servicing rights. The Agencies note that a financial institution that owns servicing rights generally has a customer relationship with the consumer and an obligation to provide a GLBA privacy notice to the consumer.

The example in proposed § _.20(d)(1)(iii) regarding applications and inquiries elicited comment. Some industry commenters urged the Agencies to revise this example so that it does not depend upon the consumer's expectations or the consumer providing contact information. These commenters noted, for example, that the contact information would be self-evident if the consumer makes an e-mail request or provides a return address on an envelope. These commenters also believed that in the case of a telephone

call initiated by a consumer, a captured telephone number should be sufficient to create an inquiry if the consumer requests information about products or services.

In the final rules, the Agencies have crafted three separate examples from proposed § _.20(d)(1)(iii). Section _.20(b)(4)(ii)(D) provides an example where a consumer applies for a product or service, but does not obtain the product or service for which she applied. Contact information is not mentioned in this example because the consumer presumably would have supplied it on the application.

Section _.20(b)(4)(ii)(E) provides an example where a consumer makes a telephone inquiry about a product or service offered by a depository institution and provides contact information to the institution, but does not obtain a product or service from or enter into a financial transaction with the institution. The Agencies do not believe that an institution's capture of a consumer's telephone number during a telephone conversation with the consumer about the institution's products or services is sufficient to create an inquiry. In that circumstance, to ensure that an inquiry has been made, the institution should ask the consumer to provide his or her contact information, or confirm with the consumer that the consumer has a pre-existing business relationship with an affiliate.

Section _.20(b)(4)(ii)(F) provides an example where the consumer makes an e-mail inquiry about a product or service offered by a depository institution, but does not separately provide contact information. In that case, the consumer provides the financial institution with contact information in the form of the consumer's e-mail address. In addition, e-mail communications, unlike telephone communications, do not provide institutions with the same opportunity to ask for the consumer's contact information.

Industry commenters recommended deleting the example in proposed § _.20(d)(1)(iv) illustrating a call center scenario where a consumer would not reasonably expect to receive information from an affiliate. In the final rules, the Agencies have included a positive example of an inquiry made by a consumer through a call center in § _.20(b)(4)(ii)(G), while retaining the negative example from the proposal in § _.20(b)(4)(iii)(A). In addition, the Agencies have included in § _.20(b)(4)(iii)(B) an example of a consumer call to ask about retail locations and hours, which does not create a pre-existing business relationship. This example is substantively similar to the example from proposed § _.20(d)(2)(iii).

A new example in § _.20(b)(4)(iii)(C) illustrates a case where a consumer responds to an advertisement that offers a free promotional item, but the advertisement does not indicate that an affiliate's products or services will be marketed to consumers who respond to the advertisement. The example illustrates that the consumer's response does not create a pre-existing business relationship because the consumer has not made an inquiry about a product or service, but has merely responded to an offer for a free promotional item. Similarly, if a consumer is directed by a company with which the consumer has a pre-existing business relationship to contact the company's affiliate to receive a promotional item but the company does not mention the affiliate's products or services, the consumer's contact with the affiliate about the promotional item does not create a pre-existing business relationship between the consumer and the affiliate.

Solicitation

Proposed § _.3(n) defined the term “solicitation” to mean marketing initiated by a person to a particular consumer that is based on eligibility information communicated to that person by its affiliate and is intended to encourage the consumer to purchase a product or service. The proposed definition further clarified that a communication, such as a telemarketing solicitation, direct mail, or e-mail, would be a solicitation if it is directed to a specific consumer based on eligibility information. The proposed definition did not, however, include communications that were directed at the general public without regard to eligibility information, even if those communications were intended to encourage consumers to purchase products and services from the person initiating the communications.

Congress gave the Agencies the authority to determine by regulation that other communications do not constitute a solicitation. The Agencies did not propose to exercise this authority. The Agencies solicited comment on whether, and to what extent, various tools used in Internet marketing, such as pop-up ads, may constitute solicitations as opposed to communications directed at the general public, and whether further guidance was needed to address Internet marketing.

Most commenters believed that the proposed definition tracked the statutory definition contained in section 624 of the FCRA. A number of industry commenters, however, believed that the proposed definition misstated the types of marketing that would not qualify as a solicitation. Specifically, the first sentence of proposed § _.3(n)(2) provided that “[a] solicitation does not include communications that are directed at the general public and distributed without the use of eligibility information communicated by an affiliate.” These commenters believed that a solicitation should not include

either

marketing directed at the general public

or

marketing distributed without the use of eligibility information communicated by an affiliate. Several industry commenters also requested that the Agencies include the phrase “of a product or service” in the introductory language for consistency with the statutory definition. Some industry commenters sought clarification that certain types of communications would not constitute solicitations, for example, marketing announcements delivered via pre-recorded call center messages, automated teller machine screens, or Internet sites, or product information provided at or through educational seminars, customer appreciation events, or newsletters.

NAAG urged the Agencies to clarify the portion of the definition that refers to “a particular consumer.” NAAG believed that mass mailings of the same or similar marketing materials to a large group of consumers could fall within the definition of “solicitation,” so long as the marketing is based on eligibility information received from an affiliate. NAAG expressed concern that some might construe the term “particular” to narrow the meaning of a “solicitation.”

With regard to Internet marketing, industry commenters urged the Agencies not to address such practices in this rulemaking. These commenters believed that the definition of “solicitation” should provide specific guidance that “pop-up” ads and other forms of Internet marketing generally were directed to the general public and not based on eligibility information received from an affiliate, or that such marketing would fall within an exception. NAAG believed that such advertisements should be treated as solicitations if they were based on any eligibility information received from an affiliate. Consumer groups believed that if an affiliate's pop-up ads and other Internet marketing were the result of specific actions by the consumer or information collected based upon a consumer's experience on the Internet,

then such marketing should be considered solicitations. These commenters also believed that pop-up ads and other Internet marketing targeted to all customers of a company should be treated as solicitations if based on the consumer's experience on the Internet.

Section _.20(b)(5) of the final rules contains the definition of “solicitation.” The definition has been revised to track the statutory language more closely. The phrase “of a product or service” has been added to the definition, as requested by some commenters. To ensure consistency with the definition of “pre-existing business relationship,” the phrase “or obtain” has been retained so that the definition of “solicitation” will include marketing for the rental or lease of goods or services, financial transactions, and financial contracts. The Agencies have also deleted as unnecessary the reference to communications “distributed without the use of eligibility information communicated by an affiliate.” Marketing that is undertaken without the use of eligibility information received from an affiliate is not covered by the affiliate marketing rules. Moreover, there is no restriction on using eligibility information received from an affiliate in marketing directed at the general public, such as radio, television, or billboard advertisements. The phrase “to a particular consumer” has been retained because it is part of the statutory definition. The Agencies do not believe that the phrase “to a particular consumer” excludes large-scale marketing campaigns from the definition of “solicitation” because, within such campaigns, eligibility information received from an affiliate may be used to target individual consumers.

The definition of “solicitation” does not distinguish between different mediums. A determination of whether a marketing communication constitutes a solicitation depends upon the facts and circumstances. The Agencies have decided not to make those determinations in this rulemaking. Thus, the Agencies are not adopting special rules or guidance regarding Internet-based marketing; whether Internet-based marketing is a solicitation in a particular case will be determined according to the same criteria that apply to other means of marketing. The Agencies also decline to exclude categorically from the definition of “solicitation” marketing messages on voice response units, ATM screens, or other forms of media. Marketing delivered via such media may be solicitations if such marketing is targeted to a particular consumer based on eligibility information received from an affiliate. For example, a marketing message on an ATM screen would be a solicitation if it is targeted to a particular consumer based on eligibility information received from an affiliate, but would not be a solicitation if it is delivered to all consumers that use the ATM.

Similarly, the Agencies decline to exclude educational seminars, customer appreciation events, focus group invitations, and similar forms of communication from the definition of “solicitation.” The Agencies believe that such activities must be evaluated according to the facts and circumstances and some of those activities may be coupled with, or a prelude to, a solicitation. For example, an invitation to a financial educational seminar where the invitees are selected based on eligibility information received from an affiliate may be a solicitation if the seminar is used to solicit the consumer to purchase investment products or services.

You or Bank

Section _.20(b)(6) of each Agency's rule defines either “you” or “bank” to include persons covered by Subpart C of the Agency's rule, as described in § _.20(a).

Section _.21 Affiliate Marketing Opt-out and Exceptions

Initial Notice and Opt-out Requirement

The Agencies proposed to establish certain rules relating to the requirement to provide the consumer with notice and a reasonable opportunity and a simple method to opt out of a person's use of eligibility information that it obtained from an affiliate for the purpose of making or sending solicitations to the consumer. The Agencies noted that the statute is ambiguous because it does not specify which affiliate must provide the opt-out notice to the consumer. The Agencies addressed this ambiguity by proposing to place certain responsibilities on the communicating affiliate and other responsibilities on the receiving affiliate.

Proposed § _.20(a) set forth the duties of a communicating affiliate. That section required the communicating affiliate to provide a notice to the consumer before a receiving affiliate could use eligibility information to make or send solicitations to the consumer. Under the proposal, the opt-out notice would state that eligibility information may be communicated to and used by the receiving affiliate to make or send solicitations to the consumer regarding the affiliate's products and services, and would give the consumer a reasonable opportunity and a simple method to opt out.

Proposed § _.20(a) also contained two rules of construction relating to the communicating affiliate's duty to provide the notice. The first rule of construction would have allowed the notice to be provided either in the name of a person with which the consumer currently does or previously has done business or in one or more common corporate names shared by members of an affiliated group of companies that includes the common corporate name used by that person. The rule of construction also would have provided alternatives regarding the manner in which the notice could be given, such as by allowing the communicating affiliate to provide the notice either directly to the consumer, through an agent, or through a joint notice with one or more of its affiliates. The second rule of construction would have clarified that, to avoid duplicate notices, it would not be necessary for each affiliate that communicates the same eligibility information to provide an opt-out notice to the consumer, so long as the notice provided by the affiliate that initially communicated the information was broad enough to cover use of that information by each affiliate that received and used it to make solicitations. The proposal included examples to illustrate how each of these rules of construction would work.

Proposed § _.20(b) set forth the general duties of a receiving affiliate. That section would have prohibited the receiving affiliate from using eligibility information it received from an affiliate to make solicitations to the consumer unless, prior to such use, the consumer was provided an opt-out notice that applied to that affiliate's use of eligibility information to make solicitations and a reasonable opportunity and simple method to opt out, and the consumer did not opt out of that use.

Most industry commenters maintained that the final rules should not require any specific entity to provide the opt-out notice, but should only require that the consumer be provided an opt-out notice covering an affiliate's use of eligibility information before a solicitation is made to the consumer. These commenters believed the final rules should provide flexibility and allow either the receiving affiliate, the communicating affiliate, or any other affiliate to provide the opt-out notice. These commenters maintained that the statute is not ambiguous and

does not impose any obligations on a specific entity, such as the communicating affiliate, to provide the opt-out notice. Some of these commenters acknowledged, however, that the communicating affiliate would, as a practical matter, most likely give the opt-out notice.

A number of industry commenters expressed concern that the proposed rules would create a basis for civil liability against the communicating affiliate under section 624 because that section is covered by the FCRA's private right of action provisions in sections 616 and 617. Some commenters noted that, to avoid exposure to civil liability, a communicating affiliate would have to require receiving affiliates to commit to not using the information to make solicitations, give an opt-out notice whenever they share eligibility information with affiliates, or never share eligibility information with affiliates. These commenters maintained that, in many cases, none of these solutions would be practical, for example, where a receiving affiliate negligently failed to comply with a commitment not to make solicitations unless notice has been given to the consumer.

Several industry commenters noted that the language in section 624(a)(1)(A) that “information may be communicated” could be included in an opt-out notice provided by the receiving affiliate. These commenters also believed that the statutory requirement that the Agencies consider existing affiliate sharing notification practices and permit coordinated and consolidated notices did not imply that the communicating affiliate should be responsible for providing the opt-out notice.

Industry commenters made several suggestions for revising the language of the proposal. Some suggested revising proposed § _.20(a) to omit any reference to the communicating affiliate and to incorporate the passive voice used in the statute. Others suggested various ways of merging proposed § _.20(b) into proposed § _.20(a) to focus exclusively on the responsibilities of the receiving affiliate. One commenter identified certain drafting problems it believed arose from the fact that the proposal focused alternately on the communicating affiliate and the receiving affiliate and that those two entities may be regulated by different regulatory agencies.

A few industry commenters acknowledged that the Agencies had raised legitimate concerns in the supplementary information to the proposal about how meaningful a notice could be when provided by a receiving affiliate that the consumer may not recognize. These commenters believed that this concern could be addressed through other means. One commenter, for example, suggested the following introductory language in paragraph (a)(2): “The notice required by this paragraph (a) may be provided either in the name of the bank receiving the information (provided that such bank also identifies the affiliate which provided such information), in the name of the affiliate which provided such information, or in one or more common corporate names shared by such bank and the affiliate which provided the information, and may be provided in the following manner * * * ” Another industry commenter expressed support for the rules of construction with revisions to allow the use of brand names and trade names, as well as the actual “corporate” name, and to allow an agent or affiliate to send a common notice that uses more than one common name in a non-deceptive manner.

Consumer group commenters supported making the communicating affiliate responsible for providing the notice and opportunity to opt out. These commenters believed that allowing the receiving affiliate to send the opt-out notice would invite consumer confusion as to whether or not the opt-out notice itself is a solicitation. These commenters also believed that the Agencies should require the names of the receiving affiliates to be clearly disclosed to the consumer. Consumer groups also believed that the proposed rules of construction struck a reasonable balance by allowing commonly named affiliates to share a notice while making clear that a notice from an affiliate with whom the consumer is not familiar will not be effective. They also suggested that the company with the pre-existing business relationship should be clearly marked on the opt-out notice.

NAAG believed that a receiving affiliate should not be permitted to give the opt-out notice solely on its own behalf because a receiving affiliate is unlikely to be an entity from which the consumer would expect to receive important communications. NAAG also requested that the Agencies revise certain portions of the proposed rules of construction, for example, by deleting from proposed § _.20(a)(2)(i) the phrase “or previously has done business” based on concerns that it would render the notice partially ineffective because, even without this phrase, the notice would not be required for 18 months after a customer relationship ends. NAAG also requested that the Agencies revise proposed §§ _.20(a)(2)(B)(2) and (a)(2)(C) to clarify that the common name used must be one that includes the name used by the person providing the opt-out notice.

In the proposal, the Agencies did not require the opt-out notice to be provided in writing. The Agencies noted, however, that they contemplated that the opt-out notice would be provided to the consumer in writing or, if the consumer agrees, electronically. The proposal solicited comment on whether there were circumstances in which it would be necessary and appropriate to allow oral notice and opt out and how an oral notice could satisfy the clear and conspicuous standard in the statute.

Industry commenters believed that the final rules should permit oral notices. These commenters identified circumstances in which a relationship is established by telephone as an example of when oral notice would be appropriate. Some industry commenters also noted that an oral notice should be permitted because the affiliate sharing opt-out notice under section 603(d)(2)(A)(iii) may be given orally, as well as in writing or electronically. Several industry commenters noted that the FTC in the Telemarketing Sales Rule and the OCC in regulations relating to debt cancellation contracts and debt suspension agreements have permitted clear and conspicuous oral notices. These commenters did not believe that allowing oral notice in these circumstances had created any enforcement difficulties for the FTC or OCC. Other industry commenters noted that institutions could demonstrate compliance through the use of scripts or by monitoring or recording calls.

Consumer groups believed that a written opt-out notice should be required in all cases. These commenters believed that, with an oral notice, it is impossible to ensure that a consumer receives the appropriate notice or information on the right to opt out. They believed that allowing oral notices would create enforcement barriers for regulators. Consumer groups also believed that institutions have strong economic incentives to prevent consumers from opting out and would engage in misrepresentations or otherwise use language in their scripts that is designed to discourage consumers from opting out. NAAG believed that oral notices would not meet the statutory requirement for a clear, conspicuous, and concise notice, that consumers would be less likely to comprehend oral notices, and enforcement would be more difficult if oral opt-out notices were allowed.

Section _.21(a) of the final rules contains the revised provisions

regarding the initial notice and opt out requirement. Although the language of this section has been revised and simplified, the substance of this provision is substantially similar to the proposal.

Section _.21(a)(1) sets forth the general rule. This section contains the three conditions that must be met before a person may use eligibility information about a consumer that it receives from an affiliate to make a solicitation for marketing purposes to the consumer. First, it must be clearly and conspicuously disclosed to the consumer in writing or, if the consumer agrees, electronically, in a concise notice that the person may use shared eligibility information to make solicitations to the consumer. Second, the consumer must be provided a reasonable opportunity and a reasonable and simple method to opt out of the use of that eligibility information to make solicitations to the consumer. Third, the consumer must not have opted out. Section _.21(a)(2) of the final rules provides an example of the general rule.

The Agencies have concluded that the opt-out notice may not be provided orally, but must be provided in writing or, if the consumer agrees, electronically. The statute requires the Agencies to consider the affiliate sharing notification practices employed on the date of enactment and to ensure that notices and disclosures may be coordinated and consolidated in promulgating regulations. The affiliate sharing notice under section 603(d)(2)(A)(iii) of the FCRA generally must be included in the GLBA privacy notice, which must be provided in writing, or if the consumer agrees, electronically. Requiring the affiliate marketing opt-out notice to be provided in writing, or if the consumer agrees, electronically, is thus consistent with existing affiliate sharing notification practices and promotes coordination and consolidation of the three privacy-related opt-out notices. The Agencies are not persuaded that there are any circumstances where it would be necessary to provide an oral opt-out notice. A number of key exceptions to the initial notice and opt-out requirement, such as the pre-existing business relationship exception, consumer-initiated communication exception, and consumer authorization or request exception, may be triggered by an oral communication with the consumer. It also could be more difficult for the Agencies to monitor and enforce compliance with the final rules if oral opt-out notices were allowed. Accordingly, the final rules require the opt-out notice to be provided in writing or, if the consumer agrees, electronically.

Section _.21(a)(3) identifies those affiliates who may provide the initial opt-out notice. This section provides that the initial opt-out notice must be provided either by an affiliate that has or has previously had a pre-existing business relationship with the consumer, or as part of a joint notice from two or more members of an affiliated group of companies, provided that at least one of the affiliates on the joint notice has or has previously had a pre-existing business relationship with the consumer. The final rules follow the general approach taken in the proposal to ensure that the notice is provided by an entity known to the consumer, while eliminating potentially ambiguous and confusing terms like “communicating affiliate” and “receiving affiliate.”

The Agencies also have eliminated as unnecessary the rules of construction. Joint notices are now addressed directly in § _.21(a)(3). The Agencies also have concluded that the provisions from the proposal relating to notice provided by an agent are unnecessary. General agency principles, however, continue to apply. An affiliate that has or has previously had a pre-existing business relationship with the consumer may direct its agent to provide the opt-out notice on its behalf.

The Agencies have concluded that the statute's silence with regard to which affiliates may provide the opt-out notice makes the statute ambiguous on this point, despite industry comments to the contrary. The Agencies also continue to believe that consumers are more likely to pay attention to a notice provided by a person known to the consumer. The Agencies remain concerned that a notice provided by an entity unknown to the consumer may not provide meaningful or effective notice, and that consumers may ignore or discard notices provided by unknown entities. Industry comments on the proposal did little to address those concerns. For practical reasons, the Agencies believe that affiliate marketing opt-out notices typically would be provided by an affiliate that has or has previously had a pre-existing business relationship with the consumer, or as part of a joint notice, whether or not required by the rule.

The Agencies appreciate industry concerns about civil liability and have revised the final rules to address those concerns. Specifically, in contrast to the proposal, the final rules do not impose duties on any affiliate other than the affiliate that intends to use shared eligibility information to make solicitations to the consumer. Although an opt-out notice must be provided by an affiliate that has or has previously had a pre-existing business relationship with the consumer (or as part of a joint notice), that affiliate has no duty to provide such a notice. Instead, the final rule provides that absent such a notice, an affiliate must not use shared eligibility information to make solicitations to the consumer. Industry concerns about civil liability also may be mitigated to some extent by the Supreme Court's recent decision in

Safeco Ins. Co. of America

v.

Burr

, 127 S. Ct. 2201 (June 4, 2007).

Finally, many institutions currently require consumers to provide their Social Security numbers when exercising their existing GLBA and FCRA opt-out rights. The Agencies believe that institutions likely would follow their existing practice with regard to affiliate marketing opt-outs. To combat identity theft and prevent “phishing,” however, the Agencies, along with many institutions, have been educating consumers

not

to provide their Social Security numbers to unknown entities. Furthermore, as participants in the President's Identity Theft Task Force, the Agencies have made a commitment to examine and recommend ways to limit the private sector's use of Social Security numbers.

The approach recommended by industry commenters would allow an unknown entity not only to provide an affiliate marketing opt-out notice to the consumer, but also to require the consumer to reveal his or her Social Security number to that unknown entity in order to exercise the opt-out right. Such an approach would send conflicting messages to consumers about providing Social Security numbers to unknown entities. This approach also would be inconsistent with the Agencies' current efforts to develop a comprehensive record on the uses of the Social Security number in the private sector and evaluate their necessity, as recommended by the President's Identity Theft Task Force.

13

13

See Combating Identity Theft: A Strategic Plan

at 26-27 (April 2007) (available at

www.idtheft.gov

).

Making Solicitations

The proposal repeatedly referred to “making or sending” solicitations. Several commenters suggested revising the regulations to eliminate all references to “sending” solicitations. These commenters believed that the statute only concerns the use of eligibility information to “make” solicitations and does not address “sending” solicitations. Commenters expressed concern that by referring to

“sending” solicitations, the proposal would apply the notice and opt-out requirements to servicers that send solicitations on behalf of another entity.

The Agencies have revised the final rules to eliminate all combined references to “making or sending” solicitations. The general rule in section 624(a)(1), along with the duration provisions in section 624(a)(3) and the pre-existing business relationship exception in section 624(a)(4)(A), refer to “making” or “to make” a solicitation. Other provisions of the statute, such as the consumer choice provision in section 624(a)(2)(A), the service provider exception in section 624(a)(4)(C), the non-retroactivity provision in section 624(a)(5), and the definition of “pre-existing business relationship” in section 624(d)(1), refer to “sending” or “to send” a solicitation. The verb “to send,” as used in the statute, refers to a ministerial act that a service provider, such as a mail house, performs for the person making the solicitation, (

see

15 U.S.C. 1681s-3(a)(4)(C)), or indicates the point in time after which solicitations are no longer permitted.

See

15 U.S.C. 1681s-3(d)(1)(B) and (C).

The Agencies conclude that “making” and “sending” solicitations are different activities and that the focus of the statute is primarily on the “making” of solicitations. For example, a service provider may send a solicitation on behalf of another entity, but it is the entity on whose behalf the solicitation is sent that is making the solicitation and thus is subject to the general prohibition on making a solicitation, unless the consumer is given notice and an opportunity to opt out. Accordingly, the Agencies have revised the final rules to refer to “making” a solicitation, except where the statute specifically refers to “sending” solicitations.

The statute, however, does not describe what a person must do in order “to make” a solicitation. Similarly, the legislative history does not contain guidance as to the meaning of “making” a solicitation. Nevertheless, the Agencies believe it is important to provide clear guidance regarding what activities result in making a solicitation.

One commenter suggested that the test for making a solicitation should turn on whether an affiliate having a pre-existing business relationship with the consumer retains the discretion to determine whether or not to send the solicitation. This commenter provided an example where a financial institution obtains a list of an affiliate's customers from a common shared database, applies its own criteria to this list, and then requests the affiliate with an existing business relationship to solicit the affiliate's own customers to purchase the financial institution's products or services. (Thus, the financial institution would be using eligibility information to select a list of its affiliate's customers to receive the financial institution's marketing materials.) This commenter believed that section 624 should not apply so long as the affiliate with the existing business relationship has discretion to determine whether or not to send the solicitations. This commenter also maintained that the applicability of section 624's notice and opt-out requirement should depend on who markets the product and not on what the product is or whose product it is.

Nothing in the statute indicates that the discretion of the affiliate providing the eligibility information to determine whether or not to send a solicitation on behalf of a person who has received eligibility information from that affiliate is the test for what constitutes making a solicitation. Rather, the statute focuses on whether the person receiving eligibility information from an affiliate uses that information to market its products or services to consumers. A “discretion to send” test would also inappropriately link the terms “making” and “sending” in a manner that would promote confusion and undercut arguments made by commenters urging the Agencies to disassociate the two terms. Finally, a “discretion to send” test could foster circumvention of the notice and opt-out requirement, restrict the ability of consumers to prohibit solicitations in a manner not contemplated by the statute, and make it difficult for the Agencies to administer and enforce the statute.

Section _.21(b) of the final rules clarifies what constitutes “making” a solicitation for purposes of Subpart C. Section _.21(b)(1) provides that a person makes a solicitation for marketing purposes to a consumer if: (a) The person receives eligibility information from an affiliate; (b) the person uses that eligibility information to do one of the following—identify the consumer or type of consumer to receive a solicitation, establish the criteria used to select the consumer to receive a solicitation, or decide which of its products or services to market to the consumer or tailor its solicitation to that consumer; and (c) as a result of the person's use of the eligibility information, the consumer is provided a solicitation about the person's products or services.

The Agencies recognize that several common industry practices may complicate application of the rule outlined in § _.21(b)(1). First, affiliated groups often use a common database as the repository for eligibility information obtained by various affiliates, and information in that database may be accessible to multiple affiliates. Second, affiliated companies often use service providers to perform marketing activities, and some of those service providers may provide services for a number of different affiliates. Third, an affiliate may use its own eligibility information to market the products or services of another affiliate. Sections _.21(b)(2)-(5) address these issues.

Section _.21(b)(2) clarifies that a person may receive eligibility information from an affiliate in various ways, including when the affiliate places that information into a common database that the person may access. Of course, receipt of eligibility information from an affiliate is only one element of the rule outlined in § _.21(b)(1). In the case of a common database,

use

of the eligibility information will be the key element in determining whether a person has made a solicitation.

Section _.21(b)(3) provides that a person receives or uses an affiliate's eligibility information if a service provider acting on behalf of the person receives or uses that information in the manner described in §§ _.21(b)(1)(i) or (b)(1)(ii), except as provided in § _.21(b)(5), which is discussed below. Section _.21(b)(3) also provides that all relevant facts and circumstances will determine whether a service provider is acting on behalf of a person when it receives or uses an affiliate's eligibility information in connection with marketing that person's products or services.

Section _.21(b)(4) addresses constructive sharing. In the supplementary information to the proposal, the Agencies solicited comment on whether the notice and opt-out requirements of these rules should apply to circumstances that involve a “constructive sharing” of eligibility information to conduct marketing, given the policy objectives of section 214 of the FACT Act. By way of example, in a “constructive sharing” scenario, a consumer has a relationship with a financial institution, and the financial institution is affiliated with an insurance company. The insurance company develops specific eligibility criteria, such as consumers having combined deposit balances in excess of $50,000 or average monthly demand account deposits in excess of $10,000, without the use of eligibility information received from the financial institution. The insurance company provides its criteria to the financial

institution and asks the institution to identify financial institution consumers that meet the eligibility criteria and send insurance company marketing materials to those consumers. The financial institution sends the marketing materials to those consumers who meet the insurance company's eligibility criteria. A consumer who meets the eligibility criteria contacts the insurance company after receiving the insurance company marketing materials in the manner specified in those materials. The consumer's response provides the insurance company with discernible eligibility information, such as through a response form that is coded to identify the consumer as an individual who meets the specific eligibility criteria.

14

14

The supplementary information to the proposal noted that the notice and opt-out requirement would not apply if, for example, an insurance company asked its affiliated financial institution to include insurance company marketing material in periodic statements sent to consumers by the financial institution without regard to eligibility information.

Industry commenters urged the Agencies not to apply the notice and opt-out requirement to “constructive sharing” situations. The principal arguments made by these commenters in support of their position were as follows. First, in a constructive sharing scenario, there is no sharing of eligibility information among affiliates. Rather, the consumer provides information to an affiliate when responding. Second, section 624 applies when a person

uses

eligibility information furnished by its affiliate to make a solicitation for its own products or services to the consumer. In constructive sharing, however, the person does not use eligibility information and does not make a solicitation as defined in the statute. Third, the affiliate that sends the marketing material has a pre-existing business relationship with the consumer and is thus exempt from the notice and opt-out requirements. Fourth, if the consumer responds to the marketing materials, for example, by returning a response card to an affiliate, one or more of the exceptions to the notice and opt-out requirement would apply, such as the consumer-initiated communication exception, the pre-existing business relationship exception, or both.

Consumer groups believed that constructive sharing contravenes the intent of Congress and amounts to a loophole that should be fixed. Similarly, NAAG believed that the letter and spirit of section 624 required subjecting constructive sharing to the notice and opt-out requirements and that to find otherwise would create a significant and unwarranted exception.

After considering the constructive sharing issue, the Agencies conclude that the statute only covers situations where a person

uses

eligibility information that it received from an affiliate to make a solicitation to the consumer about its products or services. In a “constructive sharing” scenario like that described above, a pre-existing business relationship is established between the consumer and the insurance company when the consumer contacts the insurance company to inquire about or apply for insurance products as a result of the consumer's receipt of the insurance marketing materials. This pre-existing business relationship is established before the insurance company uses any shared eligibility information to make solicitations to the consumer. Because the insurance company does not use shared eligibility information to make solicitations to the consumer before it establishes a pre-existing business relationship with the consumer, the statute does not apply.

The Agencies acknowledge the concerns expressed by consumer groups and NAAG regarding the decision not to apply the notice and opt-out requirements to constructive sharing situations. The statute's affiliate marketing provisions, however, only limit the use of eligibility information received from an affiliate to make solicitations to a consumer. A separate provision of the FCRA, section 603(d)(2)(A)(iii), regulates the sharing of eligibility information among affiliates and prohibits the sharing of non-transaction or experience information, such as credit scores from a consumer report or income from an application, among affiliates, unless the consumer is given notice and an opportunity to opt out of such sharing. The FCRA does not restrict the sharing of transaction or experience information among affiliates unless that information is medical information. Section 603(d)(2)(A)(iii) operates independent of the affiliate marketing rules. Thus, the existence of a pre-existing business relationship between a consumer and an affiliate that seeks to use shared eligibility information, such as credit scores or income, to market to that consumer (or the applicability of another exception to these affiliate marketing rules) does not relieve the entity sharing the credit score or income information of the requirement to comply with the affiliate sharing notice and opt-out provisions of section 603(d)(2)(A)(iii) of the FCRA before it shares that non-transaction or experience information with its affiliate.

15

15

A sharing of information occurs if a reference code included in marketing materials reveals one affiliate's information about a consumer to another affiliate upon receipt of a consumer's response.

Section _.21(b)(4) describes two situations where a person is deemed

not

to have made a solicitation subject to Subpart C. Both situations assume that the person has not used eligibility information received from an affiliate in the manner described in § _.21(b)(1)(ii). First, a person does not make a solicitation subject to Subpart C if that person's affiliate uses its own eligibility information that it obtained in connection with a pre-existing business relationship it has or had with the consumer to market the person's products or services to the consumer. Second, if, in the situation just described, the person's affiliate directs its service provider to use the affiliate's own eligibility information to market the person's products or services to the consumer, and the person does not communicate directly with the service provider regarding that use of the eligibility information, then the person has not made a solicitation subject to Subpart C.

The core concept underlying the second prong of this provision is that the affiliate that obtained the eligibility information in connection with a pre-existing business relationship with the consumer controls the actions of the service provider using that information. Therefore, the service provider's use of the eligibility information should not be attributed to the person whose products or services will be marketed to consumers. In such circumstances, the service provider is acting on behalf of the affiliate that obtained the eligibility information in connection with a pre-existing business relationship with the consumer, and not on behalf of the person whose products or services will be marketed to that affiliate's consumers.

The Agencies also recognize that there may be situations where the person whose products or services are being marketed

does

communicate with the affiliate's service provider. This may be the case, for example, where the service provider performs services for various affiliates relying on information maintained in and accessed from a common database. In certain circumstances, the person whose products or services are being marketed may communicate with the affiliate's service provider, yet the service provider is still acting on behalf of the affiliate when it uses the affiliate's

eligibility information in connection with marketing the person's products or services. Section _.21(b)(5) describes the conditions under which a service provider would be deemed to be acting on behalf of the affiliate with the pre-existing business relationship, rather than the person whose products or services are being marketed, notwithstanding direct communications between the person and the service provider.

Section _.21(b)(5) builds upon the concept of control of a service provider and thus is a natural outgrowth of § _.21(b)(4). Under the conditions set out in § _.21(b)(5), the service provider is acting on behalf of an affiliate that obtained the eligibility information in connection with a pre-existing business relationship with the consumer because, among other things, the affiliate controls the actions of the service provider in connection with the service provider's receipt and use of the eligibility information. This provision is designed to minimize uncertainty that may arise from application of the facts and circumstances test in § _.21(b)(3) to cases that involve direct communications between a service provider and a person whose products and services will be marketed to consumers.

Section _.21(b)(5) provides that a person does not make a solicitation subject to Subpart C if a service provider (including an affiliated or third-party service provider that maintains or accesses a common database that the person may access) receives eligibility information from the person's affiliate that the person's affiliate obtained in connection with a pre-existing business relationship it has or had with the consumer and uses that eligibility information to market the person's products or services to the consumer, so long as the following five conditions are met.

First,

the person's affiliate controls access to and use of its eligibility information by the service provider (including the right to establish specific terms and conditions under which the service provider may use such information to market the person's products or services). This requirement must be set forth in a written agreement between the person's affiliate and the service provider. The person's affiliate may demonstrate control by, for example, establishing and implementing reasonable policies and procedures applicable to the service provider's access to and use of its eligibility information.

Second,

the person's affiliate establishes specific terms and conditions under which the service provider may access and use that eligibility information to market the person's products or services (or those of affiliates generally) to the consumer, and periodically evaluates the service provider's compliance with those terms and conditions. These terms and conditions may include the identity of the affiliated companies whose products or services may be marketed to the consumer by the service provider, the types of products or services of affiliated companies that may be marketed, and the number of times the consumer may receive marketing materials. The specific terms and conditions established by the person's affiliate must be set forth in writing, but need not be set forth in a written agreement between the person's affiliate and the service provider. If a periodic evaluation by the person's affiliate reveals that the service provider is not complying with those terms and conditions, the Agencies expect the person's affiliate to take appropriate corrective action.

Third,

the person's affiliate requires the service provider to implement reasonable policies and procedures designed to ensure that the service provider uses the affiliate's eligibility information in accordance with the terms and conditions established by the affiliate relating to the marketing of the person's products or services. This requirement must be set forth in a written agreement between the person's affiliate and the service provider.

Fourth,

the person's affiliate is identified on or with the marketing materials provided to the consumer. This requirement will be construed flexibly. For example, the person's affiliate may be identified directly on the marketing materials, on an introductory cover letter, on other documents included with the marketing materials, such as a periodic statement, or on the envelope which contains the marketing materials.

Fifth,

the person does not directly use the affiliate's eligibility information in the manner described in § _.21(b)(1)(ii).

These five conditions together ensure that the service provider is acting on behalf of the affiliate that obtained the eligibility information in connection with a pre-existing business relationship with the consumer because that affiliate controls the service provider's receipt and use of that affiliate's eligibility information.

Section _.21(b)(6) provides six illustrative examples of the rules relating to making solicitations as set forth in §§ _.21(b)(1)-(5).

Exceptions

Proposed § _.20(c) contained exceptions to the requirements of Subpart C and incorporated each of the statutory exceptions to the affiliate marketing notice and opt-out requirements that are set forth in section 624(a)(4) of the FCRA. The Agencies have revised the preface to the exceptions for clarity to provide that the provisions of Subpart C do not apply to “you” or “the bank” if a person uses eligibility information that it receives from an affiliate in certain circumstances. In addition, each of the exceptions has been moved to § _.21(c) in the final rules and is discussed below.

Pre-Existing Business Relationship Exception

Proposed § _.20(c)(1) provided that the provisions of Subpart C would not apply to an affiliate using eligibility information to make a solicitation to a consumer with whom the affiliate has a pre-existing business relationship. As noted above, a pre-existing business relationship exists when: (1) There is a financial contract in force between the affiliate and the consumer; (2) the consumer and the affiliate have engaged in a financial transaction (including holding an active account or a policy in force or having another continuing relationship) during the 18 months immediately preceding the date of the solicitation; (3) the consumer has purchased, rented, or leased the affiliate's goods or services during the 18 months immediately preceding the date of the solicitation; or (4) the consumer has inquired about or applied for a product or service offered by the affiliate during the 3-month period immediately preceding the date of the solicitation. Proposed § _.20(d)(1) provided examples of the pre-existing business relationship exception. As explained above, the Agencies have revised the examples from proposed § _.20(d)(1) in the final rules and included them as examples of the definition of “pre-existing business relationship” rather than as examples of the pre-existing business relationship exception.

Section _.21(c)(1) of the final rules revises the pre-existing business relationship exception to delete the word “send” and to eliminate as unnecessary the cross-reference to the location of the definition of “pre-existing business relationship.” As discussed above, commenters made a number of suggestions regarding the definition of “pre-existing business relationship.” The Agencies have

addressed those comments elsewhere. Most commenters supported the proposed text of the pre-existing business relationship exception, which generally tracks the statutory language.

Some commenters, however, apparently believed that the pre-existing business relationship exception is broader than it actually is. For example, assume that an insurance company has a pre-existing business relationship with a consumer and shares eligibility information about the consumer with its affiliates by putting that information into a common database that is accessible by all affiliates. The insurance company's depository institution affiliate accesses the database, reviews the data on the insurance company's consumers and, based on its review, decides to market to some of the insurance company's consumers. Rather than sending the solicitations itself, the depository institution asks the insurance company with the pre-existing business relationship to send solicitations on its behalf to the insurance company's consumers. As noted above, one commenter believed that in this circumstance the pre-existing business relationship exception would apply so long as the insurance company retained the discretion to decide whether or not to send the solicitations on behalf of the depository institution. However, the Agencies conclude that this situation does not fall within the pre-existing business relationship exception. Instead, the depository institution makes the solicitation because it used eligibility information received from an affiliate to select the consumer to receive a solicitation about its products or services and, as a result, the consumer is provided a solicitation. To eliminate any confusion and clarify the scope of the exception, the Agencies have added an example in § _.21(d)(1) of the final rules to illustrate a situation where the pre-existing business relationship exception would apply.

Employee Benefit Plan Exception

Proposed § _.20(c)(2) provided that the provisions of Subpart C would not apply to an affiliate using the information to facilitate communications to an individual for whose benefit the affiliate provides employee benefit or other services under a contract with an employer related to and arising out of a current employment relationship or an individual's status as a participant or beneficiary of an employee benefit plan. One commenter believed that the exception should be revised to permit communications “to an affiliate about an individual for whose benefit an entity provides employee benefit or other services pursuant to a contract with an employer related to and arising out of the current employment relationship or status of the individual as a participant or beneficiary of an employee benefit plan.” This commenter also suggested deleting the phrase “you receive from an affiliate” in the introduction to proposed § _.20(c). This commenter believed that this exception should permit an employer or plan sponsor to share information with its affiliates in order to offer other financial services, such as brokerage accounts or IRAs, to its employees. This commenter further requested clarification on whether the exception applies only if related to products offered as an employee benefit.

Section _.21(c)(2) of the final rules adopts the employee benefit exception as proposed. The Agencies decline to adopt the changes suggested by the one commenter. First, the suggestion to make the exception applicable to communications “to an affiliate about an individual for whose benefit an entity provides employee benefit or other services” differs from the language of the statute. The language of the proposed and final rules focuses on facilitating communications “to an individual for whose benefit the person provides employee benefit or other services,” which tracks the statutory language better than the alternative language proposed by the commenter.

Second, the only person to whom section 624 might apply is a person that receives eligibility information from an affiliate. Specifically, the statutory preface to the exceptions provides that “[t]his section shall not apply to a person” using information to do certain things. The language of the statute thus makes clear that the exceptions in section 624(a)(4) of the FCRA were meant to apply to persons that otherwise would be subject to section 624. In the case of the employee benefit exception, the person using the information is also “the person provid[ing] employee benefit or other services pursuant to a contract with an employer.” Therefore, the Agencies conclude that this exception, like the other provisions of Subpart C, should apply only to a person that uses eligibility information it receives from an affiliate to make solicitations to consumers about its products or services.

Service Provider Exception

Proposed § _.20(c)(3) provided that the provisions of Subpart C would not apply to an affiliate using the information to perform services for another affiliate, unless the services involve making or sending solicitations on its own behalf or on behalf of an affiliate and the service provider or such affiliate is not permitted to make or send such solicitations as a result of the consumer's election to opt out. Thus, under the proposal, when the notice has been provided to a consumer and the consumer has opted out, an affiliate subject to the consumer's opt-out election may not circumvent the opt-out by instructing the person with the consumer relationship or another affiliate to send solicitations to the consumer on its behalf.

Several industry commenters urged the Agencies to revise the proposed exception to conform to the statutory language. Specifically, with respect to the exclusion from the service provider exception, these commenters recommended that the Agencies delete the references to solicitations on behalf of the service provider. Some of these commenters maintained that the references to solicitations on behalf of the service provider itself would impose additional burdens and costs on companies that use a single affiliate to provide various administrative services to other affiliates and would make it more difficult to provide general educational materials to consumers. Some of these commenters also asked the Agencies to clarify that the limitation in the service provider exception has no applicability to any other exception.

Section _.21(c)(3) of the final rules revises the service provider exception to delete as surplusage the references to solicitations by a service provider on its own behalf. The Agencies note that the general rule in § _.21(a)(1) prohibits a service provider from using eligibility information it received from an affiliate to make solicitations to the consumer about its own products or services unless the consumer is given notice and an opportunity to opt out or unless one of the other exceptions applies. The service provider exception simply allows a service provider to do what the affiliate on whose behalf it is acting may do, such as using shared eligibility information to make solicitations to consumers to whom the affiliate is permitted to make such solicitations. The final rules also delete the word “make” from the exception to the service provider exception because, as discussed above, “making” and “sending” solicitations are distinct activities and this provision of the statute uses the verb “to send.” The Agencies note that, although the statute contains separate service provider and

pre-existing business relationship exceptions, nothing in those exceptions prevents an affiliate that has a pre-existing business relationship with the consumer from relying upon the service provider exception, where appropriate. Section _.21(d)(2) of the final rules provides examples of the service provider exception.

Consumer-Initiated Communication Exception

Proposed § _.20(c)(4) provided that the provisions of Subpart C would not apply to an affiliate using the information to make solicitations in response to a communication initiated by the consumer. The proposed rule further clarified that this exception may be triggered by an oral, electronic, or written communication initiated by the consumer.

The supplementary information noted that to be covered by the proposed exception, the use of eligibility information must be responsive to the communication initiated by the consumer. The supplementary information also explained that the time period during which solicitations remain responsive to the consumer's communication would depend on the facts and circumstances. As illustrated in the example in proposed § _.20(d)(2)(iii), if a consumer were to call an affiliate to ask about retail locations and hours, the affiliate could not use eligibility information to make solicitations to the consumer about specific products because those solicitations would not be responsive to the consumer's communication. Conversely, the example in proposed § _.20(d)(2)(i) illustrated that if the consumer calls an affiliate to ask about its products or services and provides contact information, solicitations related to those products or services would be responsive to the communication and thus permitted under the exception. Finally, as illustrated by the example in proposed § _.20(d)(2)(ii), the Agencies also contemplated that a consumer would not initiate a communication if an affiliate made the initial call and left a message for the consumer to call back, and the consumer responded.

Commenters generally supported the text of the proposed consumer-initiated communication exception. Several commenters, however, urged the Agencies to either delete the phrase “orally, electronically, or in writing” from the regulation or modify the language to read “whether orally, electronically, or in writing.” These commenters maintained that other means of communication may be used by consumers in the future and should not be precluded by the regulations. Another commenter welcomed the reference to oral communications and requested that the Agencies clarify that electronic communications refers to both e-mail and facsimile transmissions.

Many industry commenters objected to the statement in the supplementary information that to qualify for this exception, the use of eligibility information “must be responsive” to the communication initiated by the consumer. These commenters believed that the concept of “responsiveness” creates a vague, subjective, and narrow standard that could subject institutions to compliance risk. These commenters noted that the Agencies did not and could not provide a clear definition of what would be “responsive.” Some of these commenters noted that consumers may not be familiar with the various types of products or services available to them and the different affiliates that offer those products or services and may rely on the institution to inform them about available options. For this reason, most of these commenters maintained that the exception should not limit an affiliate from responding with solicitations about any product or service. Some of these commenters believed that it would be difficult to monitor compliance with or to develop scripts for a “responsiveness” standard by customer service representatives. One commenter noted that the Senate bill used more restrictive language in this exception than the final bill passed by Congress. Some commenters also objected to the statement that the time period during which solicitations remain responsive would depend on the facts and circumstances.

NAAG supported the statement in the supplementary information that, to qualify for this exception, the use of eligibility information “must be responsive” to the communication initiated by the consumer. NAAG believed this clarification was so important that it should be incorporated into the rule itself. NAAG also suggested imposing a specific time limit to allow solicitations to be made for no more than 30 days after the consumer-initiated communication under this exception.

Industry commenters also objected to some of the examples. In particular, industry commenters objected to the example in proposed § _.20(d)(2)(i) on two grounds. First, these commenters believed that the consumer should not have to supply contact information in order to trigger the exception. These commenters noted that such a requirement would seem to preclude solicitations over the phone during the same call by presuming that a solicitation would be made by mail or e-mail. Some of these commenters also believed that consumers would expect an affiliated company, especially a company with a common brand, to have their contact information already and would not want to provide it again. Second, as noted above, some commenters maintained that the affiliate should be able to respond by making solicitations about any product or service, not just those mentioned by the consumer.

Many industry commenters objected to the example in proposed § _.20(d)(2)(ii) about the consumer responding to a call back message. These commenters believed that such a call back should qualify as a consumer-initiated communication, noting that the consumer has the option of not returning the call. Moreover, these commenters noted that the customer service representative receiving the call would not know what prompted the consumer's call. Several commenters acknowledged that there may be concerns about calls made under false pretenses to prompt consumers to return the call but suggested that those concerns should be addressed by other means, such as enforcement of the laws dealing with unfair or deceptive acts or practices.

Finally, some industry commenters expressed concerns about the example in proposed § _.20(d)(2)(iii) regarding the consumer who calls to ask for retail locations and hours. These commenters noted that it is impossible to know what will transpire on a particular telephone call. One commenter noted, for example, that if a consumer called to ask for directions to an office, the customer service representative might ask why the consumer needed to go to that office. This, in turn, could prompt the consumer to mention a product or service that the consumer hoped to obtain and lead to a discussion of specific products or services that might be appropriate for the consumer.

Section _.21(c)(4) of the final rules revises the consumer-initiated communications exception to delete the reference to oral, electronic, or written communications. The Agencies believe that any form of communication may come within the exception as long as the consumer initiates the communication, whether in-person or by mail, e-mail, telephone, facsimile, or through other means. New forms of communication that may develop in the future could also come within the exception.

Section _.21(c)(4) of the final rules also provides that the communications

covered by the exception are consumer-initiated communications about a person's products or services. For the exception to apply, the statute requires that a person use eligibility information “in response to” a communication initiated by a consumer. The Agencies believe this statutory language contemplates that the consumer-initiated communications will relate to a person's products or services and that the solicitations covered by the exception will be those made in response to that communication.

The Agencies also believe the exceptions should be construed narrowly to avoid undermining the general rule requiring notice and opt out. Thus, consistent with the purposes of the statute, the Agencies do not believe that a consumer-initiated communication that is unrelated to a product or service should trigger the exception. A rule that allowed any consumer-initiated communication, no matter how unrelated to a product or service, to trigger the exception would not to give meaning to the phrase “in response to” and could produce incongruous results. For example, if a consumer calls an affiliate solely to obtain retail hours and directions or solely to opt out, the exception is not triggered because the communication does not relate to the affiliate's products or services and making a solicitation about products or services to the consumer in those circumstances would not be a reasonable response to that communication.

The Agencies recognize, however, that if the conversation shifts to a discussion of products or services that the consumer may need, solicitations may be responsive depending upon the facts and circumstances. Likewise, if a consumer who has opted out of an affiliate's use of eligibility information to make solicitations calls the affiliate for information about a particular product or service, for example, life insurance, solicitations regarding life insurance could be made in response to that call, but solicitations regarding other products or services would not be responsive. Finally, the Agencies do not believe it is appropriate to adopt a specific time limit for making solicitations following a consumer-initiated communication about products or services because solicitations will likely be made quickly and any time limit would be arbitrary.

In the final rules, the Agencies have renumbered the example in proposed § _.20(d)(2)(i) as § _.21(d)(3)(i), and revised it to delete the references to a telephone call as the specific form of communication and the reference to providing contact information. As discussed above and illustrated in the examples in §§ _.20(b)(4)(ii)(E) and (F), the need to provide contact information may vary depending on the form of communication used by the consumer. The new example in § _.21(d)(3)(ii) responds to commenters' concerns by illustrating a circumstance involving a consumer-initiated communication in which a consumer does not know exactly what products or services he or she wants, but initiates a communication to obtain information about investing for a child's college education.

The Agencies have renumbered the call-back example in proposed § _.20(d)(2)(iii) as § _.21(d)(3)(iii) and revised it. The revised example provides that where the financial institution makes an initial marketing call without using eligibility information received from an affiliate and leaves a message that invites the consumer to apply for the credit card by calling a toll-free number, the consumer's response qualifies as a consumer-initiated communication about a product or service. The revised example balances commenters' concerns about tracking which calls are call backs and the Agencies' concerns that consumers may be induced into triggering the consumer-initiated communication exception as a result of inaccurate, incomplete, or deceptive telephone messages. Moreover, the revised example is similar to a provision in the Board's Regulation Z commentary, 12 CFR part 226, supplement I, § 226.5a(a)(3)-2.

For the reasons discussed above, the Agencies have renumbered the retail hours example in proposed § _.20(d)(2)(iv) as § _.21(d)(3)(iv), but otherwise adopted it as proposed. In addition, the new example in § _.21(d)(3)(v) responds to commenters' concerns by illustrating a case where a consumer calls to ask about retail locations and hours and the call center representative, after eliciting information about the reason why the consumer wants to visit a retail location, offers to provide information about products of interest to the consumer by telephone and mail, thus demonstrating how the conversation may develop to the point where making solicitations would be responsive to the consumer's call.

Consumer Authorization or Request Exception

Proposed § _.20(c)(5) clarified that the provisions of Subpart C would not apply to an affiliate using the information to make solicitations affirmatively authorized or requested by the consumer. The proposal further provided that this exception may be triggered by an oral, electronic, or written authorization or request by the consumer. However, a pre-selected check box or boilerplate language in a disclosure or contract would not constitute an affirmative authorization or request under the proposal.

The proposal noted that the consumer authorization or request exception could be triggered, for example, if a consumer obtains a mortgage from a mortgage lender and authorizes or requests to receive solicitations about homeowner's insurance from an insurance affiliate of the mortgage lender. The consumer could provide the authorization or make the request either through the person with whom the consumer has a business relationship or directly to the affiliate that will make the solicitation. Proposed § _.20(d)(3) provided an example of the affirmative authorization or request exception.

Most industry commenters argued that the proposed exception did not track the language of the statute because the Agencies included the word “affirmative” in the proposed exception. These commenters believed that including the word “affirmative” in the proposed rules narrowed the exception in a manner not intended by Congress. Several of these commenters noted that the Agencies had declined to specify what constitutes consumer consent under the GLBA privacy rules and indicated that they were not aware of any policy considerations or compliance issues that would warrant a departure from the Agencies' prior position.

Some industry commenters believed that a pre-selected check box should be sufficient to evidence a consumer's authorization or request for solicitations. In other words, a consumer's decision not to deselect a pre-selected check box should constitute a knowing act of the consumer to authorize or request solicitations. Other industry commenters believed that preprinted language in a disclosure or contract should be sufficient to evidence a consumer's authorization or request for solicitations. One commenter cited case law and FTC informal staff opinion letters relating to a consumer's written instructions to obtain a consumer report pursuant to section 604(a)(2) of the FCRA as support for allowing boilerplate language to constitute authorization or request.

A few industry commenters requested that the Agencies clarify that a consumer's authorization or request does not have to refer to a specific

product or service or to a specific provider of products or services in order for the exception to apply. As discussed above, industry commenters had differing views regarding the reference to oral, written, or electronic means of triggering the exception.

NAAG suggested imposing a specific time limit to allow solicitations to be made for no more than 30 days after the consumer's authorization or request under this exception.

Section _.21(c)(5) of the final rules revises the consumer authorization or request exception to delete the word “affirmative” as surplusage. The deletion of the word “affirmative” does not change the meaning of the exception however. The consumer still must take affirmative steps to “authorize” or “request” solicitations.

The Agencies construe this exception, like the other exceptions, narrowly and in a manner that does not undermine the general notice and opt-out requirement. For that reason, the Agencies believe that affiliated companies cannot avoid use of the statute's notice and opt-out provisions by including preprinted boilerplate language in the disclosures or contracts they provide to consumers, such as language stating that by applying to open an account, the consumer authorizes or requests to receive solicitations from affiliates. Such an interpretation would permit the exception to swallow the rule, a result that cannot be squared with the intent of Congress to give consumers notice and an opportunity to opt out of solicitations.

The comparison made by some commenters to the GLBA privacy rules is misplaced. The GLBA and the privacy rules create an exception to permit the disclosure of nonpublic personal information “with the consent or at the direction of the consumer.” Section 624 of the FCRA creates an exception to permit the use of shared eligibility information “in response to solicitations authorized or requested by the consumer.” The Agencies interpret the “authorized or requested” language in the FCRA exception to require the consumer to take affirmative steps in order to trigger the exception.

The Agencies have made conforming changes to the example in proposed § _.20(d)(3), which has been renumbered as § _.21(d)(4)(i) in the final rules. In addition, the Agencies have added three additional examples. The example in § _.21(d)(4)(ii) illustrates how a consumer can authorize or request solicitations by checking a blank check box. The examples in §§ _.21(d)(4)(iii) and (iv) illustrate that preprinted boilerplate language and a pre-selected check box would not meet the authorization or request exception.

The Agencies do not believe it is appropriate to set a fixed time period for an authorization or request. As noted in the proposal, the duration of the authorization or request depends on what is reasonable under the facts and circumstances. In addition, an authorization to make solicitations to the consumer terminates if the consumer revokes the authorization.

For the same reasons discussed above, the Agencies have deleted the reference to oral, electronic, or written communications from this exception to track the language of the statute. Further, the Agencies do not believe it is necessary to clarify the elements of an authorization or request. The statute clearly refers to “solicitations authorized or requested by the consumer.” The facts and circumstances will determine what solicitations have been authorized or requested by the consumer.

Compliance With Applicable Laws Exception

Proposed § _.20(c)(6) clarified that the provisions of Subpart C would not apply to an affiliate if compliance with the requirements of section 624 by the affiliate would prevent that affiliate from complying with any provision of state insurance laws pertaining to unfair discrimination in a state where the affiliate is lawfully doing business. See FCRA, section 624(a)(4). The Agencies received no comments on this provision. Section _.21(c)(6) of the final rules adopts the state insurance law compliance exception as proposed.

One commenter requested the creation of an additional exception to permit the sharing of eligibility information among affiliates that are aligned under one line of business within an organization and that share common management, branding, and regulatory oversight (

i.e.

, banking, securities, and insurance companies). This commenter was focused on private banking enterprises. As discussed above, the Agencies find no statutory basis for creating such an exception to the notice and opt-out requirement.

Relation to Affiliate-Sharing Notice and Opt-Out

Proposed § _.20(f) clarified the relationship between the affiliate sharing notice and opt-out under section 603(d)(2)(A)(iii) of the FCRA and the affiliate marketing notice and opt out in new section 624 of the FCRA. Specifically, the proposal provided that nothing in the affiliate marketing rules limits the responsibility of a company to comply with the notice and opt-out provisions of section 603(d)(2)(A)(iii) of the FCRA before it shares information other than transaction or experience information among affiliates to avoid becoming a consumer reporting agency.

One commenter urged the Agencies to delete this provision as unnecessary. In the alternative, this commenter requested that the Agencies clarify that section 603(d)(2)(A)(iii) applies to the sharing of information that would otherwise meet the definition of a “consumer report,” and that the sharing affiliate does not automatically become a consumer reporting agency, but risks becoming a consumer reporting agency.

This provision has been renumbered as § _.21(e) in the final rules. Section _.21(e) has been revised to delete the clause that referred to becoming a consumer reporting agency and to substitute in its place the neutral phrase “where applicable.”

Section _.22 Scope and Duration of Opt-Out

Scope of the Opt-Out

The Agencies addressed issues relating to the scope of the opt-out in various sections of the proposal. In the supplementary information to the proposal, the Agencies stated that the opt-out would be tied to the consumer, rather than to the information. Some industry commenters supported the approach of tying the opt-out to the consumer, rather than to the information. Other industry commenters, however, believed it was inappropriate to tie the opt-out to the consumer and requested that institutions have the flexibility to implement the consumer's opt-out at the account level, rather than at the consumer level. These commenters believed that an account-by-account approach would be consistent with the menu of opt-out choices provided in this rule and the GLBA privacy rules. These commenters also noted that an account-based approach would provide the consumer with a new notice and opportunity to opt out when a former customer decides to re-establish a new relationship with the institution.

Proposed § _.21(c) provided that the notice could be designed to allow a consumer to choose from a menu of alternatives when opting out, such as by selecting certain types of affiliates, certain types of information, or certain modes of delivery from which to opt out, so long as one of the alternatives gave the consumer the opportunity to opt out with respect to all affiliates, all

eligibility information, and all methods of delivering solicitations. Several industry commenters objected to the requirement that the institution provide a single universal opt-out option that would allow consumers to opt out completely of all solicitations. In addition, one commenter found the reference to all types of eligibility information confusing, while another commenter noted that some institutions may want to implement the opt-out on an account-by-account basis.

Section _.25(d) of the proposal provided that if a consumer's relationship with an institution terminated for any reason when a consumer's opt-out election was in force, the opt-out would continue to apply indefinitely, unless revoked by the consumer. Most industry commenters objected to having the opt-out period continue to apply indefinitely upon termination of the consumer's relationship with the institution. These commenters believed that this approach was not supported by the statute, would prove costly and difficult to administer, and would require the indefinite tracking of opt-outs. These commenters also believed that the five-year opt-out period would provide sufficient protection to consumers that terminate their relationship. One commenter noted that the proposed rule would impose particular hardships on mortgage lenders because those lenders often have consumer relationships of very short duration on account of selling the loans they originate into the secondary market. Consumer groups supported the proposed treatment of opt-outs for terminated consumer relationships.

Upon further examination, the Agencies believe that the scope of the opt-out should be addressed comprehensively in a single section of the final rules. The Agencies also conclude that tying the opt-out to the consumer could have had unintended consequences. For example, if the opt-out were tied to the consumer, an institution would have to track the consumer indefinitely, even if the consumer's relationship with the institution terminated and a new relationship were subsequently established with that institution years later. The Agencies do not believe that institutions should be required to track consumers indefinitely following termination. In addition, an opt-out tied to the consumer could apply to the use of all eligibility information, not just to eligibility information about the consumer, received from an affiliate and used to make solicitations to the consumer. It is not clear from the statute or the legislative history that Congress intended the opt-out provisions of section 624 to apply to eligibility information about consumers other than the consumer to whom a solicitation is made. Finally, the Agencies do not believe it is necessary to make the opt-out effective in perpetuity upon termination of the relationship.

Section _.22(a) of the final rules brings together these different scope considerations to address comprehensively the scope of the opt-out. Under the revised approach, the scope of the opt-out is derived from language of section 624(a)(2)(A) of the FCRA and generally depends upon the content of the opt-out notice. Section _.22(a)(1) provides that, except as otherwise provided in that section, a consumer's election to opt out prohibits any affiliate covered by the opt-out notice from using the eligibility information received from another affiliate as described in the notice to make solicitations for marketing purposes to the consumer.

Section _.22(a)(2)(i) clarifies that, in the context of a continuing relationship, an opt-out notice may apply to eligibility information obtained in connection with a single continuing relationship, multiple continuing relationships, continuing relationships established subsequent to delivery of the opt-out notice, or any other transaction with the consumer. Section _.22(a)(2)(ii) provides examples of continuing relationships. These examples are substantially similar to the examples used in the GLBA privacy rules with added references to relationships between the consumer and an affiliate.

Section _.22(a)(3)(i) limits the scope of an opt-out notice that is not connected with a continuing relationship. This section provides that if there is no continuing relationship between the consumer and a person or its affiliate, and if the person or its affiliate provides an opt-out notice to a consumer that relates to eligibility information obtained in connection with a transaction with the consumer, such as an isolated transaction or a credit application that is denied, the opt-out notice only applies to eligibility information obtained in connection with that transaction. The notice cannot apply to eligibility information that may be obtained in connection with subsequent transactions or a continuing relationship that may be subsequently established by the consumer with the person or its affiliate. Section _.22(a)(3)(ii) provides examples of isolated transactions.

Section _.22(a)(4) provides that a consumer may be given the opportunity to choose from a menu of alternatives when electing to prohibit solicitations. An opt-out notice may give the consumer the opportunity to elect to prohibit solicitations from certain types of affiliates covered by the opt-out notice but not other types of affiliates covered by the notice, solicitations based on certain types of eligibility information but not other types of eligibility information, or solicitations by certain methods of delivery but not other methods of delivery, so long as one of the alternatives is the opportunity to prohibit all solicitations from all of the affiliates that are covered by the notice. The Agencies continue to believe that the language of section 624(a)(2)(A) of the FCRA requires the opt-out notice to contain a single opt-out option for all solicitations within the scope of the notice.

The Agencies recognize that consumers could receive a number of different opt-out notices, even from the same affiliate. The Agencies will monitor industry notice practices and evaluate whether further action is needed.

Section _.22(a)(5) contains a special rule for notice following termination of a continuing relationship. This rule provides that a consumer must be given a new opt-out notice if, after all continuing relationships with a person or its affiliate have been terminated, the consumer subsequently establishes a new continuing relationship with that person or the same or a different affiliate and the consumer's eligibility information is to be used to make a solicitation. This special rule affords the consumer and the company a fresh start following termination of all continuing relationships by requiring a new opt-out notice if a new continuing relationship is subsequently established.

The new opt-out notice must apply, at a minimum, to eligibility information obtained in connection with the new continuing relationship. The new opt-out notice may apply more broadly to information obtained in connection with a terminated relationship and give the consumer the opportunity to opt out with respect to eligibility information obtained in connection with both the terminated and the new continuing relationships. Further, the consumer's failure to opt out does not override a prior opt-out election by the consumer applicable to eligibility information obtained in connection with a terminated relationship that is still in effect, regardless of whether the new opt-out notice applies to eligibility information obtained in connection

with the terminated relationship. The final rules also contain an example of this special rule. The Agencies note, however, that where a consumer was not given an opt-out notice in connection with the initial continuing relationship because eligibility information obtained in connection with that continuing relationship was not shared with affiliates for use in making solicitations, an opt-out notice provided in connection with a new continuing relationship would have to apply to any eligibility information obtained in connection with the terminated relationship that is to be shared with affiliates for use in making future solicitations.

Duration and Timing of Opt-Out

Proposed § _.25 addressed the duration and effect of the consumer's opt-out election. Proposed § _.25(a) provided that the consumer's election to opt out would be effective for the opt-out period, which is a period of at least five years beginning as soon as reasonably practicable after the consumer's opt-out election is received. The supplementary information noted that if a consumer elected to opt out every year, a new opt-out period of at least five years would begin upon receipt of each successive opt-out election.

Some industry commenters believed that the proposal was inconsistent with the statute because it provided that the opt-out period would begin as soon as reasonably practicable after the consumer's opt-out election is received. These commenters believed that the opt-out period should begin on the date the consumer's opt-out is received and that the final rules also should allow institutions a reasonable period of time to implement a consumer's initial or renewal opt-out election before it becomes effective. Consumer groups believed that the requirement to honor an opt-out “beginning as soon as reasonably practicable” was too vague. These commenters believed that a consumer's opt-out should be honored within a specific length of time not to exceed 30 days after the consumer responds to the opt-out notice.

A few industry commenters urged the Agencies to allow consumers to revoke an opt-out election orally. Other industry commenters requested that the final rules include a clear statement that an opt-out period may be shortened to a period of less than five years by the consumer's revocation of an opt-out election. Consumer groups approved of the Agencies' statement that if a consumer opts out again during the five-year opt-out period, then a new five-year period begins. Consumer groups also supported allowing institutions to make the opt-out period effective in perpetuity so long as this is clearly disclosed to the consumer in the original notice.

The general provision regarding the duration of the opt-out has been renumbered as § _.22(b) in the final rules, consistent with the Agencies' decision to address all scope issues in the same section. The Agencies have revised the duration provision to clarify that the opt-out period expires if the consumer revokes the opt-out in writing, or if the consumer agrees, electronically. The requirement for a written or electronic revocation is retained and is consistent with the approach taken in the GLBA privacy rules. The Agencies do not believe it is necessary or appropriate to permit oral revocation. The Agencies note that many of the exceptions to the notice and opt-out requirements may be triggered by oral communications, as discussed above, which would enable the use of shared eligibility information to make solicitations pending receipt of a written or electronic revocation. Also, as noted in the proposal, nothing prohibits setting an opt-out period longer than five years, including an opt-out period that does not expire unless revoked by the consumer.

The Agencies do not agree that the opt-out period should begin on the date the consumer's election to opt out is received. Commenters generally recognized that institutions cannot instantaneously implement a consumer's opt-out election but need time to do so. The Agencies interpret the statutory language to mean that the consumer's opt-out election must be honored for a period of at least five years from the date such election is implemented. The Agencies believe that Congress did not intend for the opt-out period to be shortened to a period of less than the five years specified in the statute to reflect the time between the date the consumer's opt-out election is received and the date the consumer's opt-out election is implemented.

The Agencies also believe it is neither necessary nor desirable to set a mandatory deadline for implementing the consumer's opt-out election. A general standard is preferable because the time it will reasonably take to implement a consumer's opt-out election may vary.

Consistent with the special rule for a notice following termination of a continuing relationship, the duration of the opt-out is not affected by the termination of a continuing relationship. When a consumer opts out in the course of a continuing relationship and that relationship is terminated during the opt-out period, the opt-out remains in effect for the rest of the opt-out period. If the consumer subsequently establishes a new continuing relationship while the opt-out period remains in effect, the opt-out period may not be shortened with respect to information obtained in connection with the terminated relationship by sending a new opt-out notice to the consumer when the new continuing relationship is established, even if the consumer does not opt out upon receipt of the new opt-out notice. A person may track the eligibility information obtained in connection with the terminated relationship and provide a renewal notice to the consumer, or may choose not to use eligibility information obtained in connection with the terminated relationship to make solicitations to the consumer.

Proposed § _.25(c) clarified that a consumer may opt out at any time. As explained in the supplementary information to the proposal, even if the consumer did not opt out in response to the initial opt-out notice or if the consumer's election to opt out was not prompted by an opt-out notice, a consumer may still opt out. Regardless of when the consumer opts out, the opt-out must be effective for a period of at least five years.

The Agencies received few comments on this provision. Consumer groups urged the Agencies to reinforce the continuing nature of the right to opt out by requiring institutions to give the opt-out notice annually along with the annual GLBA privacy notice. These commenters acknowledged that the FCRA does not specifically state that the notice is required annually, but noted that the statute also does not say that the consumer has only one opportunity to opt out.

The Agencies have renumbered the provision giving the consumer the right to opt out at any time as § _.22(c) in the final rules, but otherwise adopted the provision as proposed. The Agencies find no statutory basis for requiring the provision of an annual opt-out notice to consumers along with the GLBA privacy notice.

Section _.23 Contents of Opt-Out Notice; Consolidated and Equivalent Notices

Contents in General

Section _.21 of the proposal addressed the contents of the opt-out notice. Proposed § _.21(a) would have required that the opt-out notice be clear,

conspicuous, and concise, and accurately disclose: (1) That the consumer may elect to limit a person's affiliate from using eligibility information about the consumer that it obtains from that person to make or send solicitations to the consumer; (2) if applicable, that the consumer's election will apply for a specified period of time and that the consumer will be allowed to extend the election once that period expires; and (3) a reasonable and simple method for the consumer to opt out.

Some commenters expressed concern about requiring the notice to specify the applicable time period and the consumer's right to extend the election once the opt-out expires. One commenter believed this would require institutions to determine in advance the length of the opt-out period. Another commenter urged the Agencies to clarify that institutions could subsequently increase the duration of the opt-out or make it permanent without providing another notice to the consumer.

The Agencies have renumbered the provisions addressing the contents of the opt-out notice as § _.23(a) in the final rules and revised them. Section _.23(a)(1) of the final rules requires additional information in opt-out notices. Section _.23(a)(1)(i) provides that all opt-out notices must identify, by name, the affiliate(s) that is providing the notice. A group of affiliates may jointly provide the notice. If the notice is provided jointly by multiple affiliates and each affiliate shares a common name, such as “ABC,” then the notice may indicate that it is being provided by multiple companies with the ABC name or multiple companies in the ABC group or family of companies. Acceptable ways of identifying the multiple affiliates providing the notice include stating that the notice is provided by “all of the ABC companies,” “the ABC banking, credit card, insurance, and securities companies,” or by listing the name of each affiliate providing the notice. A representation that the notice is provided by “the ABC banking, credit card, insurance, and securities companies” applies to all companies in those categories, not just some of those companies. But if the affiliates providing the notice do not all share a common name, then the notice must either separately identify each affiliate by name or identify each of the common names used by those affiliates. For example, if the affiliates providing the notice do business under both the ABC name and the XYZ name, then the notice could list each affiliate by name or indicate that the notice is being provided by “all of the ABC and XYZ companies” or by “the ABC bank and credit card companies and the XYZ insurance companies.”

Section _.23(a)(1)(ii) provides that an opt-out notice must contain a list of the affiliates or types of affiliates covered by the notice. The notice may apply to multiple affiliates and to companies that become affiliates after the notice is provided to the consumer. The rules for identifying the affiliates covered by the notice are substantially similar to the rules for identifying the affiliates providing the notice in § _.23(a)(1)(i), as described in the previous paragraph.

Sections _.23(a)(1)(iii)-(vii) respectively require the opt-out notice to include the following: A general description of the types of eligibility information that may be used to make solicitations to the consumer; a statement that the consumer may elect to limit the use of eligibility information to make solicitations to the consumer; a statement that the consumer's election will apply for the specified period of time stated in the notice and, if applicable, that the consumer will be allowed to renew the election once that period expires; if the notice is provided to consumers who may have previously opted out, such as if a notice is provided to consumers annually, a statement that the consumer who has chosen to limit marketing offers does not need to act again until the consumer receives a renewal notice; and a reasonable and simple method for the consumer to opt out. The statement described in § _.23(a)(1)(vi) regarding consumers who may have previously opted out does not apply to the model privacy form that the Agencies are developing in a separate rulemak

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