[Federal Register: June 1, 2000 (Volume 65, Number 106)]
[Rules and Regulations]
[Page 35161-35236]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jn00-30]
[[Page 35161]]
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Part II
Department of the Treasury
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Office of the Comptroller of the Currency
Office of Thrift Supervision
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Federal Reserve System
Federal Deposit Insurance Corporation
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12 CFR Parts 40, 216, 332, and 573
Privacy of Consumer Financial Information; Final Rule
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 40
[Docket No. 00-10]
RIN 1557-AB77
FEDERAL RESERVE SYSTEM
12 CFR Part 216
[Docket No. R-1058]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 332
RIN 3064-AC32
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 573
[Docket No. 2000-45]
RIN 1550-AB36
Privacy of Consumer Financial Information
AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC); and Office of Thrift Supervision
(OTS), Treasury.
ACTION: Joint final rule.
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SUMMARY: The Office of the Comptroller of the Currency, Board of
Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, and the Office of Thrift Supervision, (collectively, the
Agencies) are publishing final privacy rules pursuant to section 504 of
the Gramm-Leach-Bliley Act (the GLB Act or Act). Section 504 authorizes
the Agencies to issue regulations as may be necessary to implement
notice requirements and restrictions on a financial institution's
ability to disclose nonpublic personal information about consumers to
nonaffiliated third parties. Pursuant to section 503 of the GLB Act, a
financial institution must provide its customers with a notice of its
privacy policies and practices. Section 502 prohibits a financial
institution from disclosing nonpublic personal information about a
consumer to nonaffiliated third parties unless the institution
satisfies various notice and opt-out requirements and the consumer has
not elected to opt out of the disclosure. These final rules implement
the requirements outlined above.
EFFECTIVE DATE: This joint rule is effective November 13, 2000.
However, compliance will be optional until July 1, 2001.
FOR FURTHER INFORMATION CONTACT:
OCC: Amy Friend, Assistant Chief Counsel, (202) 874-5200; Jeffery
Abrahamson, Attorney, Legislative and Regulatory Activities Division,
(202) 874-5090, or Mark Tenhundfeld, Assistant Director, Legislative
and Regulatory Activities Division, (202) 874-5090; Michael Bylsma,
Director, Community and Consumer Law, (202) 874-5750; Steve Van Meter,
Senior Attorney, Community and Consumer Law, (202) 874-5750; Karen
Furst, Policy Analyst, Economic and Policy Analysis, (202) 874-4509;
Paul Utterback, National Bank Examiner, Bank Supervision Policy, (202)
874-5461, Office of the Comptroller of the Currency, 250 E Street, SW.,
Washington, DC 20219.
Board: Oliver I. Ireland, Associate General Counsel, (202) 452-
3625, Stephanie Martin, Managing Senior Counsel, (202) 452-3198, or
Thomas Scanlon, Attorney, (202) 452-3594, Legal Division; or Adrienne
D. Hurt, Assistant Director, (202) 452-2412, Jane J. Gell, Managing
Counsel, (202) 452-3667, James H. Mann, Attorney, (202) 452-2412, or
Minh-Duc T. Le, Attorney, (202) 452-3667, Division of Consumer and
Community Affairs. For the hearing impaired only, contact Janice Simms,
Telecommunications Device for the Deaf (TDD) (202) 872-4984, Board of
Governors of the Federal Reserve System, 20th and C Streets, NW.,
Washington, DC 20551.
FDIC: James K. Baebel, Senior Review Examiner, Division of
Compliance and Consumer Affairs, (202) 736-0229; Deanna Caldwell,
Community Affairs Officer, Division of Compliance and Consumer Affairs,
(202) 736-0141; Robert A. Patrick, Counsel, Regulations and Legislation
Section, (202) 898-3757; Marc J. Goldstrom, Counsel, Regulations and
Legislation Section, (202) 898-8807; Marilyn E. Anderson, Senior
Counsel, Regulations and Legislation Section, (202) 898-3522; Nancy
Schucker Recchia, Counsel, Regulations and Legislation Section, (202)
898-8885, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
OTS: Christine Harrington, Counsel (Banking and Finance), (202)
906-7957, or Paul Robin, Assistant Chief Counsel, (202) 906-6648,
Regulations and Legislation Division; or Cindy Baltierra, Program
Analyst, Compliance Policy, (202) 906-6540, Office of Thrift
Supervision, 1700 G Street, NW., Washington DC 20552.
SUPPLEMENTARY INFORMATION: The contents of this preamble are listed in
the following outline:
I. Background
II. Overview of Comments Received
III. Section-by-Section Analysis
IV. Guidance for Certain Institutions
V. Regulatory Analysis
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Executive Order 12866
D. Unfunded Mandates Act of 1995
I. Background
On November 12, 1999, President Clinton signed the GLB Act (Pub. L.
106-102) into law. Subtitle A of title V of the Act, captioned
Disclosure of Nonpublic Personal Information (codified at 15 U.S.C.
6801 et seq.), limits the instances in which a financial institution
may disclose nonpublic personal information about a consumer to
nonaffiliated third parties, and requires a financial institution to
disclose to all of its customers the institution's privacy policies and
practices with respect to information sharing with both affiliates and
nonaffiliated third parties. Title V also requires the Agencies, the
Secretary of the Treasury, the National Credit Union Administration
(NCUA), the Federal Trade Commission (FTC), and the Securities and
Exchange Commission (SEC), after consulting with representatives of
State insurance authorities designated by the National Association of
Insurance Commissioners, to prescribe such regulations as may be
necessary to carry out the purposes of the provisions in title V that
govern disclosure of nonpublic personal information.
The Agencies have prepared final rules to implement subtitle A that
are consistent and comparable to the extent possible, as is required by
the statute.\1\ The texts of the Agencies' proposed regulations are
substantively identical, and differ only with respect to the citations
of authority for each Agency's rulemaking and definitions appropriate
for institutions within each Agency's primary jurisdiction.
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\1\ The NCUA, FTC, SEC, and the Treasury Department also have
participated in the rulemaking process, and the NCUA, FTC, and SEC
will separately issue comparable final rules.
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II. Overview of Comments Received
On February 22, 2000, the Agencies published a joint notice of
proposed rulemaking (the proposal or proposed rule) in the Federal
Register (65 FR
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8770).\2\ The Agencies collectively received a total of 8,126 comments
in response to the proposal, although many commenters sent copies of
the same letter to each of the Agencies.\3\ Of these, several thousand
were received from individuals, virtually all of whom encouraged the
Agencies to provide greater protection of individuals' financial
privacy. Many individuals noted their concerns generally about the loss
of privacy and the receipt of unwanted solicitations by marketers. A
large number of individuals also requested the Agencies to support
legislation that the commenters believe would provide additional
protections.
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\2\ The NCUA, FTC, and SEC published separate proposed rules on
different dates. These proposed rules, which were consistent and
comparable with the proposals published by the Agencies, appeared in
the Federal Register at 65 FR 10988 (March 1, 2000) (NCUA), 65 FR
11174 (March 1, 2000) (FTC), and 65 FR 12354 (March 8, 2000) (SEC).
\3\ The NCUA, FTC, and SEC received 99, 640, and 112 comments,
respectively, in response to their proposed rules.
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Several letters were received from members of Congress. In two
letters signed by several members of the House of Representatives, the
Agencies were encouraged to exercise their rulemaking authority to
provide more protections than were proposed. Other Congressmen
requested, in separate letters, that the Agencies (a) create an
exception under limited circumstances to the prohibition against the
sharing of account numbers for marketing purposes, (b) ensure that
social security numbers are considered ``nonpublic personal
information,'' and (c) refrain from extending the effective date of the
rule.
The National Association of Insurance Commissioners (NAIC)
submitted a comment on behalf of the State insurance authorities that
generally supported the Agencies' proposed rule. The NAIC also proposed
various measures to provide certain protections for consumers, such as
specifying means to exercise the right to opt out of the disclosure of
information. The NAIC further advised the Agencies to clarify the
boundary of Federal and State jurisdiction over privacy regulations and
ensure that the financial privacy rules under the Act are compatible
with the privacy rules relating to medical information that are to be
issued by the Secretary of the Department of Health and Human Services
(HHS) under the Health Insurance Portability and Accountability Act
(HIPPA) of 1996.\4\
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\4\ These proposed regulations were published for comment at 64
FR 59918 (Nov. 3, 1999).
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Other comments were received from consumer groups and others
advocating that the Agencies extend privacy protections in a number of
ways, such as by requiring (a) financial institutions to provide
consumers with access to their information maintained by the
institutions and the opportunity to correct errors, (b) more detailed
disclosures of the information collected and disclosed, and (c)
disclosures of a financial institution's privacy policies and practices
earlier in the process of establishing a customer relationship. In a
letter signed by 33 State Attorneys General, the Agencies were
requested to add certain consumer protections to the disclosure
requirements and to the provision permitting financial institutions to
enter into joint marketing agreements.
The majority of the remainder of comments received by the Agencies
were from insured depository institutions or their representatives.
These commenters offered a large number of suggested changes, with the
most commonly advanced suggestions including: an extension of the
effective date of the rule; an amendment to the definition of
``nonpublic personal information'' to focus more clearly on
``financial'' information; a streamlining of information required in
the initial and annual disclosures; a clarification of how one or more
of the statutory exceptions operate; an exclusion from, or
clarification of, the definitions of ``consumer'' and ``customer'' in
various contexts; and the addition of flexibility to provide initial
notices at some point other than ``prior to'' the time a customer
relationship is established.
Representatives of a wide variety of other interests, including the
health care industry, retail merchants, insurance companies, securities
firms, private investigators, and higher education, also suggested
changes to the proposed rule.
The Agencies have modified the proposed rule in light of the
comments received. These comments, and the Agencies' responses thereto,
are discussed in the following section-by-section analysis. As was done
in the preamble discussion of the proposal, the citations are to
sections only, leaving citations to the part numbers used by each
Agency blank. Following the section-by-section analysis, the Agencies
have provided guidance for certain institutions that is intended to
provide additional guidance on how these institutions may comply with
the rule in a way that avoids unnecessary burden.
III. Section-by-Section Analysis
As an initial matter, the Agencies note that the final rule, unlike
the proposal, presents the various sections in subparts that consist of
related sections. This change was made to group related concepts
together and thereby make the rule easier to follow. A derivation table
is included following this preamble to assist readers in locating
provisions as set out in the proposal. The Agencies also have added an
Appendix A to the final rule, setting out sample disclosures for
financial institutions to consider.
Section __.1 Purpose and Scope
Proposed Sec. __.1 identified the purposes and scope of the rules.
As stated in the proposal, the rule is intended to require a financial
institution to provide notice to customers about its privacy policies
and practices; to describe the conditions under which a financial
institution may disclose nonpublic personal information about consumers
to nonaffiliated third parties; and to provide a method for consumers
to prevent a financial institution from disclosing that information to
certain nonaffiliated third parties by ``opting out'' of that
disclosure, subject to various exceptions as stated in the rule. The
Agencies invited comment on whether the rules should apply to foreign
financial institutions that solicit business in the United States but
that do not have an office in the United States.
Most of the comments received on this section focused on the scope
of the rules. Several commenters suggested that the Agencies clarify
how the rule applies to insurance companies. The Agencies note that
section 505 of GLB Act, which sets out the enforcement authority of the
Agencies, extends this authority to subsidiaries of entities within
each Agency's primary jurisdiction. That section then explicitly
excludes ``persons providing insurance'' from each Agency's enforcement
authority (and, by operation of section 504(a)(1) of GLB Act, from the
Agencies' rulemaking authority). The Agencies affected by this
provision have concluded that the exclusion of ``persons providing
insurance'' is not intended to remove insurance activities conducted
directly by an insured depository institution from the scope of the
rule. Consistent with this reading of the statute, each Agency's final
rule states that the exclusion of persons providing insurance applies
only to persons doing so in a subsidiary of an entity within the
primary jurisdiction of that Agency. See Sec. 40.1(b) (OCC rule);
Sec. 216.3(q) (Board rule); Sec. 332.3(q) (FDIC rule); and
Sec. 573.1(b) (OTS rule). The OTS notes that, while it regulates
savings and loan holding companies, a different Federal functional
regulator, a state insurance authority, or the FTC may enforce privacy
rules as to that holding company, under Sec. 505 of the
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Act, depending on the nature of a savings and loan holding company's
activities.
Several other commenters asked that the final rule state that
certain transactions that are exempt from the coverage of the Truth in
Lending Act (TILA; 15 U.S.C. 1601 et seq.) and Regulation Z (Reg. Z, 12
CFR part 226) also be treated as beyond the scope of the privacy rule.
TILA and Reg. Z, which impose disclosure requirements on credit
extended to consumers under certain circumstances, exempt several
transactions, including those involving business, commercial, or
agricultural credit. 15 U.S.C. 1603(1); 12 CFR 226.3(a). The Agencies
agree that transactions that fit within the exemptions from TILA and
Reg. Z for these types of credit also would fall outside the scope of
the privacy rule, and have amended Sec. __.1(b) accordingly. Thus,
financial institutions may look at how this exemption is applied under
Reg. Z for guidance on the scope of covered transactions under the
privacy rule. It should be noted, however, that TILA exempts several
other types of transactions that would be covered under the privacy
rule if they are for the purpose of an individual obtaining a financial
product or service as that term is defined in the privacy regulation.
See 15 U.S.C. 1603(2) and (3).
A few commenters stated that the rule should apply to foreign
entities who solicit business from people in the United States. The
OCC, FRB, and FDIC each have been given explicit authority to enforce
the privacy rule with respect to foreign institutions within their
respective jurisdictions that have offices in the U.S. Those commenters
who favored applying the regulation to foreign offices of financial
institutions that do not have offices within the U.S. suggested that an
expanded scope would provide additional protections to consumers and
would eliminate what they perceive to be a competitive disadvantage of
domestic institutions. While the Agencies support consistent
protections for consumers regardless of the entity from whom a
financial product or service is obtained, at this stage the Agencies do
not believe that it is appropriate to attempt to apply the rule to
offshore offices of financial institutions.
Several comments suggested that the rule should not apply to
entities that must comply with regulations issued by HHS that implement
HIPAA. Given the broad definition of ``financial institution'' under
the GLB Act, certain entities, such as health insurers, are subject to
these privacy rules as well as rules promulgated under HIPAA regarding
the appropriate handling of protected health information. Accordingly,
financial institutions may be covered both by this privacy rule and by
the regulations promulgated by HHS under the authority of sections 262
and 264 of HIPAA once those regulations are finalized. Based on the
proposed HIPAA rules, it appears likely that there will be areas of
overlap between the HIPAA and financial privacy rules. For instance,
under the proposed HIPAA regulations, consumers must provide
affirmative authorization before a covered institution may disclose
medical information in certain instances whereas under the financial
privacy rules, institutions need only provide consumers with the
opportunity to opt out of disclosures. In this case, the Agencies
anticipate that compliance with the affirmative authorization
requirement, consistent with the procedures required under HIPAA, would
satisfy the opt out requirement under the financial privacy rules.
After HHS publishes its final rules, the Agencies will consult with HHS
to avoid the imposition of duplicative or inconsistent requirements.
Section __.2 Rule of Construction
Proposed Sec. __.2 of the rules set out a rule of construction
intended to clarify the effect of the examples used in the rules. As
noted in the proposal, these examples are not intended to be
exhaustive; rather, they are intended to provide guidance about how the
rules would apply in specific situations.
Commenters generally agreed that examples are helpful in clarifying
how the rule will work in specific circumstances and suggested that the
Agencies should include more examples. Many commenters requested the
Agencies to provide examples of model disclosures. Commenters also
generally agreed that it is useful to state that the list of examples
is not intended to be exhaustive, and that compliance with one of the
examples would be deemed compliance with the regulation. A few
commenters suggested that the regulation state that a financial
institution is not obligated to comply with an example but has the
latitude to comply with the general rules in other ways. Others stated
that the examples ought to be identical in each privacy regulation
adopted by the Agencies, the FTC, NCUA, and SEC.
The Agencies believe that more examples would be helpful, and have
included additional examples in appropriate places throughout the rule.
The Agencies also have provided sample clauses in Appendix A to each
Agency's rule to aid financial institutions in their drafting of
privacy notices. The sample clauses are provided to illustrate the
level of detail the Agencies believe is appropriate. The Agencies
caution financial institutions against relying on the sample
disclosures without determining the relevance or appropriateness of the
disclosure for their operations. The Agencies have used statutory
terms, such as ``nonpublic personal information'' and ``nonaffiliated
third parties,'' in the sample clauses to convey generally the subject
of the clauses. However, a financial institution that uses these terms
must provide sufficient information to enable consumers to understand
what these terms mean in the context of the institution's notices.
Moreover, the Agencies note that, in providing the sample disclosures,
the Agencies are addressing solely the level of detail required and are
not attempting to provide guidance on issues such as type size, margin
width, and so on.
The Agencies have not added a statement in the final rule regarding
a financial institution's ability to comply with the rule in ways other
than as suggested in the examples, but instead retain the statement
that the examples are not exclusive. The rule also states that
compliance with the examples will constitute compliance with the rule.
The Agencies believe that, when read together, these provisions give
financial institutions sufficient flexibility to comply with the
regulation but also sufficient guidance about the use of examples.
The Agencies note that an example that mentions a particular
activity does not, by itself, authorize a financial institution to
engage in that activity. Any such authority must have a different
source.
Section __.3 Definitions
a. Affiliate
The proposal adopted the definition of ``affiliate'' that is used
in section 509(6) of the GLB Act. An affiliation exists when one
company ``controls'' (which is defined in Sec. __.3(g), below), is
controlled by, or is under common control with another company. The
definition includes both financial institutions and entities that are
not financial institutions.
The Agencies received comparatively few comments in response to
this definition. One commenter requested that the final rule state that
a bank service company will be deemed to be an affiliate of every bank
that has an interest in it. The Agencies have declined to adopt this
suggestion. If the
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relationship between a financial institution and a bank service company
satisfies the test for affiliation set out in the statute and
regulation, then an affiliation exists.
In light of the comparatively few comments received and the nature
of those comments, the Agencies adopt the definition of ``affiliate''
as proposed.
b. Clear and Conspicuous
Under the proposed rules, various notices must be ``clear and
conspicuous.'' The proposed rules defined this term to mean that the
notice must be reasonably understandable and designed to call attention
to the nature and significance of the information contained in the
notice. The proposal did not mandate the use of any particular
technique for making the notices clear and conspicuous, but provided
examples of how a notice may be made clear and conspicuous. As noted in
the preamble to the proposed rule, each financial institution retains
the flexibility to decide for itself how best to comply with this
requirement.
The Agencies received a large number of comments on this proposed
definition. Several commenters favored adopting the definition as
proposed, with some of these advocating that the final rule add a
requirement that disclosures be on a separate piece of paper in order
to ensure that they will be conspicuous. Others stated that the
definition was unnecessary, given the experience financial institutions
have in complying with requirements that disclosures mandated by other
laws be clear and conspicuous. Several commenters maintained that the
rule proposed is inconsistent with requirements in other consumer
protection regulations such as Reg. Z and the Truth in Savings
regulation (Regulation DD, 12 CFR part 230), which require only that a
disclosure be reasonably understandable. Many of these commenters
expressed concern that the examples would invite litigation because of
ambiguities inherent in terms used in the examples in the proposed rule
such as ``ample line spacing,'' ``wide margins,'' and ``explanations *
* * subject to different interpretations.'' A few commenters questioned
how the requirement would work in a document that contains several
disclosures that each must be clearly and conspicuously disclosed,
while others raised questions about how a disclosure may be clear and
conspicuous on a website. These comments are addressed below.
New standard for ``clear and conspicuous.'' The Agencies recognize
that the proposed definition develops the concept of ``clear and
conspicuous'' beyond what is currently understood by the term. However,
the Agencies added the phrase ``designed to call attention to the
nature and significance of the information contained'' to provide
meaning to the term ``conspicuous.'' The Agencies believe that this
standard, when coupled with the existing standard requiring that a
disclosure be readily understandable, likely will result in notices to
consumers that communicate effectively the information needed by
consumers to make an informed choice about the privacy of their
information, including whether to transact business with a financial
institution.
The standard for clear and conspicuous adopted by the Agencies in
this rulemaking applies solely to disclosures required under the
privacy rules. Disclosures governed by other rules requiring clear and
conspicuous disclosures (such as Reg. Z) are beyond the scope of this
rulemaking.
Examples of ``clear and conspicuous.'' The Agencies recognize that
many of the examples are imprecise. The Agencies believe, however, that
more prescriptive examples, while perhaps easier to conform to, likely
would result in requirements that would be inappropriate in a given
circumstance. To avoid this result, the examples provide generally
applicable guidance about ways in which a financial institution may
make a disclosure clear and conspicuous. The Agencies note that the
examples of how to make a disclosure clear and conspicuous are not
mandatory. A financial institution must decide for itself how best to
comply with the general rule, and may use techniques not listed in the
examples. To address concerns about the imprecision of the examples,
the Agencies have incorporated several of the commenters' suggestions
in the final rule for ways to make the guidance more helpful.
Combination of several ``clear and conspicuous'' notices. A
document may combine several disclosures that each must be clear and
conspicuous. The final rule provides an example, in
Sec. __.3(b)(2)(ii)(E), of how a financial institution may make
disclosures conspicuous, including disclosures on a combined notice. In
order to avoid the potential conflicts envisioned by several commenters
between two different rules requiring that different sets of
disclosures each be provided clearly and conspicuously, the final rule
does not mandate precise specifications for how various disclosures
must be presented.
Because the Agencies believe that privacy disclosures may be clear
and conspicuous when contained in a document containing other
disclosures, the rule does not mandate that disclosures be provided on
a separate piece of paper. Such a requirement is not necessary and
would significantly increase the burden on financial institutions.
Disclosures on web pages. Several commenters requested guidance on
how they may clearly and conspicuously disclose privacy-related
information on their Internet sites. The Agencies recognize that
disclosures over the Internet present some issues that will not arise
in paper-based disclosures. There may be web pages within a financial
institution's website that consumers may view in a different order each
time they access the site, aided by hypertext links. Depending on the
customer hardware and software used to access the Internet, some web
pages may require consumers to scroll down to view the entire page. To
address these issues, the Agencies have included a statement in the
example in Sec. __.3(b)(2)(iii) concerning Internet disclosures
informing financial institutions that they may comply with the rule if
they use text or visual cues to encourage scrolling down the page if
necessary to view the entire notice and ensure that other elements on
the web site (such as text, graphics, hyperlinks, or sound) do not
distract attention from the notice. In addition, a financial
institution is to place either a notice or a conspicuous link on a page
frequently accessed by consumers, such as a page on which transactions
are conducted.
Given current technology, there are a range of approaches a
financial institution could take to comply with the rule. For example,
a financial institution could use a dialog box that pops up to provide
the disclosure before a consumer provides information to the
institution. Another approach would be a simple, clearly labeled
graphic located near the top of the page or in close proximity to the
financial institution's logo, directing the customer, through a
hypertext link or hotlink, to the privacy disclosures on a separate web
page.
For the reasons advanced above, the Agencies have adopted the
definition of ``clear and conspicuous,'' with the changes previously
described and with certain other changes intended to make the
definition easier to read.
c. Collect
The statute requires a financial institution to include in its
initial and annual notices a disclosure of the categories of nonpublic
personal
[[Page 35166]]
information that the institution collects. The proposal defined
``collect'' to mean obtaining any information that is organized or
retrievable on a personally identifiable basis, irrespective of the
source of the underlying information. This definition was included to
provide guidance about the information that a financial institution
must include in its notices and to clarify that the obligations arise
regardless of whether the financial institution obtains the information
from a consumer or from some other source.
Commenters suggested that the final rule treat information that is
not organized and retrievable in an automated fashion as not
``collected.'' This approach would exclude separate documents not
included in a file. The Agencies disagree that information should not
be deemed to be collected simply because it is not retrievable in an
automated fashion. The Agencies believe that the method of retrieval is
irrelevant to whether information should be protected under the rule.
The Agencies agree, however, that the scope of the regulation should be
refined, and have changed the definition of ``collect'' by using
language taken from the Privacy Act of 1974 (5 U.S.C. 552a).
Other commenters requested that the rule clarify that information
that is received by a financial institution but then immediately passed
along without maintaining a copy of the information is not
``collected'' as this term is used in the final rule. The Agencies
believe that merely receiving information without maintaining it would
not be ``collecting'' the information. The final rule reflects this by
stating that the information must be organized or retrievable by the
financial institution. Otherwise, the definition of ``collect'' is
adopted as proposed.
d. Company
The proposal defined ``company,'' which is used in the definition
of ``affiliate,'' as any corporation, limited liability company,
business trust, general or limited partnership, association, or similar
organization.
The Agencies received no substantive comments on this proposed
definition. Accordingly, the Agencies adopt the definition of
``company'' as proposed.
e. Consumer
The GLB Act distinguishes ``consumers'' from ``customers'' for
purposes of the notice requirements imposed by the Act. A financial
institution is required to give a ``consumer'' the notices required
under Title V only if the institution intends to disclose nonpublic
personal information about the consumer to a nonaffiliated third party
for purposes other than as permitted by section 502(e) of the statute
(as implemented by Secs. __.14 and __.15 of the final rule). By
contrast, a financial institution must give all ``customers'' a notice
of the institution's privacy policy at the time of establishing a
customer relationship and annually thereafter during the continuation
of the customer relationship.
The proposal defined ``consumer'' to mean an individual (and his or
her legal representative) who obtains, from a financial institution,
financial products or services that are to be used primarily for
personal, family, or household purposes. Because ``financial product or
service'' is defined to include the evaluation by a financial
institution of an application to obtain a financial product or service
(see further discussion of this point, below) a person becomes a
consumer even if the application is denied or withdrawn. An individual
also would be deemed to be a consumer for purposes of a financial
institution if that institution purchases the individual's account from
some other institution.
The Agencies received a large number of comments on this proposed
definition, raising questions about how the definition would apply in a
variety of situations. These comments are addressed below.
Distinction between ``consumer'' and ``customer.'' While many
agreed with the distinction drawn in the proposal between ``consumer''
and ``customer,'' a few commenters suggested that no distinction
between ``consumer'' and ``customer'' should be made, given that, in
these commenters'' views, the statute appears to use the terms
interchangeably. The Agencies believe, however, that the distinction
was deliberate and that the rule should implement it accordingly. A
plain reading of the statute supports the conclusion that Congress
created one set of protections (i.e., a financial institution's privacy
policy and opt out notice, and the right to opt out if a financial
institution intends to disclose nonpublic personal information to
nonaffiliated third parties) for anyone who obtains a financial product
or service and an additional set of protections (i.e., the initial
notices at the time of establishing a customer relationship and annual
notices thereafter) for anyone who establishes a relationship of a more
lasting nature than an isolated transaction with a financial
institution. Thus, the statute tailors the notice requirements to the
type of relationship an individual has with a financial institution.
This distinction is preserved in the final rule.
Applicants as consumers. Many of the comments on the proposed
definition of ``consumer'' disagreed that someone should be deemed a
consumer of a financial institution by virtue of the institution
evaluating that individual's application for a financial product or
service. These commenters maintained that the individual has not
obtained a financial product or service, as is required by the GLB Act.
The Agencies remain of the view, however, that it is consistent with
both the spirit and the letter of the Act to consider an individual as
having obtained a financial product or service when a financial
institution evaluates information provided to it from the individual
for the purpose of obtaining some other financial product or service.
Financial institutions routinely provide several services that are
integral to the delivery of a financial product. Frequently among these
services is the evaluation by the financial institution of information
provided by an individual. In certain instances, such as when an
individual is shopping for the best rate on a mortgage loan or the
lowest premium for an insurance policy, that evaluation may be the sole
financial product or service delivered. In other instances, that
evaluation may be one of several services provided in connection with
establishing a customer relationship. In some cases financial
institutions impose separate charges for considering applications or
assessing an individual's credit worthiness, recognizing both the cost
to the institution and the value to the individual of this service.
In addition to being consistent with the language of the statute,
the proposed definition of ``consumer'' is consistent with one of the
primary purposes of Title V of GLB Act, namely, to enable an individual
to limit the sharing of nonpublic personal information by a financial
institution with a nonaffiliated third party. The information provided
by a person to a financial institution before a customer relationship
is established is likely to contain the types of information that the
statute is designed to protect. This information is no less deserving
of protection simply because an application is denied or withdrawn. For
these reasons, the Agencies have retained within the definition of
``consumer'' individuals whose applications are evaluated by a
financial institution. See Sec. __.3(e)(2)(i).
Loan sales. Several commenters requested clarification of whether
an individual becomes a consumer in various other scenarios involving
loans.
[[Page 35167]]
Commenters posited a wide variety of examples, which, if each were to
be addressed specifically in the rule, would require a final rule of
enormous complexity and detail. The Agencies believe that a rule
setting forth a general principle that is flexible enough to be applied
in the array of loan transactions posited by the commenters is more
appropriate.
Towards this end, the Agencies have stated in the final rule, at
Sec. __.3(e)(2)(iv), that a person will be a consumer of any entity
that holds ownership or servicing rights to an individual's loan. (The
Agencies note that such a person may not be a customer, however; see
explanation of how the definition ``customer'' will be applied in the
loan context, in the discussion of the definition of ``customer''
below. See also Secs. __.4(c)(2) and__.4(c)(3)(ii) for further
discussion concerning when a borrower establishes a customer
relationship in the context of a loan sale.) The Agencies believe that
financial institutions that own or service a loan are providing a
financial product or service to the individual borrower in question. In
some cases, the product or service is the funding of the loan, directly
or indirectly. In other cases, the product or service is the processing
of payments, sending account-related notices, responding to consumer
questions and complaints about the handling of the account, and so on.
The final rule defines ``consumer'' in a way that covers individuals
receiving financial products or services in each of these situations.
Agents of financial institutions. Several commenters agreed with
the principle set out in the proposed rule that an individual should
not be considered to be a consumer of an entity that is acting as agent
for a financial institution. These commenters noted that the financial
institution that hires the agent is responsible for that agent's
conduct in carrying out the agency responsibilities. The Agencies agree
and continue to believe that the financial institution is the entity
that has a consumer relationship, even if it uses agents to help it
deliver its products or services. Accordingly, the proposed rule
retains the rule governing agents, with modifications made to improve
its clarity. See Sec. __.3(e)(2)(v).
Legal representative. The Agencies also agree with the suggestion
made by several commenters that the definition of ``consumer'' should
clarify that the obligations stemming from a consumer relationship may
be satisfied by dealing either with the individual who obtains a
financial product or service from a financial institution or that
individual's representative. The Agencies do not intend for the rule to
require a financial institution to send opt out and initial notices to
both the individual and the individual's legal representatives, and
have amended the final rule accordingly in Sec. __.3(e)(1).
Trusts. The Agencies received several comments concerning whether
an individual who obtains financial services in connection with trusts
is a consumer or customer of a financial institution. Several
commenters urged the Agencies to generally exempt a financial
institution from the requirements of the rule when it acts as a
fiduciary, or, in the alternative, clarify the categories of
individuals that are considered to be customers. Commenters proposed,
for example, that individuals who are beneficiaries with current
interests should be identified as customers, whereas individuals who
are only contingent beneficiaries should not be customers. Other
commenters stated that when the financial institution serves as trustee
of a trust, neither the grantor nor beneficiary is a consumer or
customer under the rule. In these commenters' view, the trust itself is
the institution's ``customer,'' and, therefore, the rule should not
apply to a financial institution when it acts as trustee. These
commenters also stated that when a financial institution is a trustee,
it serves as a fiduciary and is subject to other obligations to protect
the confidentiality of the beneficiaries' information that are more
stringent than those under the provisions in the GLB Act. Similarly,
these and other commenters claimed that an individual who is a
participant in an employee benefit plan administered or advised by a
financial institution does not qualify as a consumer or customer. The
commenters opined that the plan sponsor, or the plan itself, is the
``customer'' for the purposes of the proposed rule. These commenters
contended that plan participants have no direct relationship with the
financial institution and, in any event, the financial institution is
authorized to use information that would be covered under the GLB Act
only in accordance with the directions of the plan sponsor. The
commenters concluded, therefore, that the regulations should
specifically exclude individuals who are participants in an employee
benefit plan from the definition of customer.
The Agencies believe that the definition of ``consumer'' in the GLB
Act does not squarely resolve whether the beneficiary of a trust is a
consumer of the financial institution that is the trustee. The Agencies
agree with the commenters who concluded that, when the financial
institution serves as trustee of a trust, neither the grantor nor
beneficiary is a consumer or customer under the rule. Instead, the
trust itself is the institution's ``customer,'' and therefore, the rule
does not apply because the trust is not an individual. The Agencies
note that a financial institution that is a trustee assumes obligations
as a fiduciary, including the duty to protect the confidentiality of
the beneficiaries' information, that are consistent with the purposes
of the GLB Act and enforceable under state law. Accordingly, the
Agencies have excluded an individual who is a beneficiary of a trust or
a plan participant of an employee benefit plan from the definitions of
``consumer'' and ``customer.'' Nevertheless, the Agencies believe that
an individual who selects a financial institution to be a custodian of
securities or assets in an IRA is a ``consumer'' under the GLB Act. The
Agencies have included examples in the rule that appropriately
illustrate this interpretation of the GLB Act in Secs. __.3(e)(2)(vi)-
(viii) and Sec. __.3(i)(2)(i)(D).
Requirements arising from consumer relationship. While the proposed
and final rules define ``consumer'' broadly, the Agencies note that
this will not result in any additional burden to a financial
institution in situations where (a) no customer relationship is
established and (b) the institution does not intend to disclose
nonpublic personal information about a consumer to nonaffiliated third
parties. Under the approach taken in the final rule, a financial
institution is under no obligation to provide a consumer with any
privacy disclosures unless it intends to disclose the consumer's
nonpublic personal information to nonaffiliated third parties outside
the exemptions in Secs. __.14 and __.15. A financial institution that
wants to disclose a consumer's nonpublic personal information to
nonaffiliated third parties is not prohibited under the final rule from
doing so, if the requisite notices are delivered and the consumer does
not opt out. Thus, as it applies to consumers who are not customers,
the rule allows a financial institution to avoid all of the rule's
requirements if it chooses to do so. Conversely, if a financial
institution determines that the benefits of disclosing consumers'
nonpublic personal information to nonaffiliated third parties outweighs
the attendant burdens, the financial institution is free to do so,
provided it notifies consumers about the disclosure and affords them a
reasonable opportunity to opt out. In this way, the
[[Page 35168]]
rule attempts to strike a balance between protecting an individual's
nonpublic personal information and minimizing the burden on a financial
institution.
f. Consumer Reporting Agency
The proposal adopted the definition of ``consumer reporting
agency'' that is used in section 603(f) of the Fair Credit Reporting
Act (15 U.S.C. 1681a(f)). This term was used in proposed Secs. __.11
and __.13.
The Agencies received no comments suggesting any changes to this
definition. Accordingly, the definition is adopted as proposed. It is
used in Secs. __.6(f), __.12(a), and __.15(a)(5) of the final rule.
g. Control
The proposal defined ``control'' using the tests applied in section
23A of the Federal Reserve Act (12 U.S.C. 371c). This definition is
used to determine when companies are affiliated (see discussion of
Sec. __.3(a), above), and would result in financial institutions being
considered as affiliates regardless of whether the control is by a
company or individual.
The Agencies received few comments in response to this definition.
The one substantive suggestion received was to adopt a test focused
solely on percent of stock owned in a company so as to avoid the
uncertainties arising from a ``control in fact'' test. The Agencies
believe, however, that any test based only on stock ownership is
unlikely to be flexible enough to address all situations in which
companies are appropriately deemed to be affiliated. Accordingly, the
Agencies adopt the definition of ``control'' as proposed.
h. Customer
The proposal defined ``customer'' as any consumer who has a
``customer relationship'' with a particular financial institution. As
is explained more fully in the discussion of Sec. __.4, below, a
consumer is a customer of a financial institution when the consumer has
a continuing relationship with the institution.
The Agencies received a large number of comments on the definition
of ``customer'' and ``customer relationship.'' Given the
interdependence of the two terms, the following analysis of the
comments received will address both under the heading ``customer
relationship.''
i. Customer Relationship
The proposed rules defined ``customer relationship'' as a
continuing relationship between a consumer and a financial institution
whereby the institution provides a financial product or service that is
to be used by the consumer primarily for personal, family, or household
purposes. \5\ As noted in the proposal, a one-time transaction may be
sufficient to establish a customer relationship, depending on the
nature of the transaction. A consumer would not become a customer
simply by repeatedly engaging in isolated transactions that by
themselves would be insufficient to establish a customer relationship,
such as withdrawing funds at regular intervals from an ATM owned by an
institution at which the consumer has no account. The proposal also
stated that a consumer would have a customer relationship with a
financial institution that makes a loan to the consumer and then sells
the loan but retains the servicing rights. The Agencies received a
large number of comments on this definition, as discussed below.
---------------------------------------------------------------------------
\5\ As noted in the preamble to the proposed rule, ``customer''
may be defined differently for purposes of other regulations. See,
e.g., 12 CFR 7.4002.
---------------------------------------------------------------------------
Point at which one becomes a customer. The Agencies received many
comments in response to the definitions of ``customer'' and ``customer
relationship.'' Commenters criticized what they considered to be the
ill-defined line distinguishing consumers from customers. These
commenters stated that the proposed distinction makes it difficult for
a financial institution to know when the obligations attendant to a
customer relationship arise. Several suggested that the distinction
should be based on when a consumer and financial institution enter into
a written contract for a financial product or service.
The Agencies recognize that the distinction between consumers and
customers will, in some instances, require a financial institution to
make a judgment about whether a customer relationship is established.
In those cases where an individual engages in a transaction for which
it is reasonable to expect no further communication about that
transaction from the financial institution (such as ATM transactions,
purchases of money orders, or cashing of checks), the individual will
not have established a customer relationship as a result of that
transaction. In other situations where a consumer typically would
receive some measure of continued service following, or in connection
with, a transaction (such as would be the case when a consumer opens a
deposit account, borrows money, or obtains investment advice), a
customer relationship will be established. The Agencies believe that
the distinction set out in the proposed rule, as further clarified by
the examples in the final rule of when a customer relationship is, and
is not, established, provides a sufficiently clear line while retaining
flexibility to address less clear-cut situations on a case-by-case
basis.
Customer relationship defined by written contract. The Agencies
agree with those commenters who consider the execution of a written
contract by a consumer and financial institution as clear evidence that
a customer relationship has been established. The proposed rule cited
the execution of a written contract as an example of when a customer
relationship is established, and the final rule retains that example in
Sec. __.4(c)(3)(i)(B). However, a test based solely on whether there is
a written contract could inappropriately exclude situations in which an
individual is a customer of a financial institution as a result of
obtaining, for instance, financial, economic, or investment advisory
services from a financial institution. Accordingly, the final rule does
not define a customer relationship solely by the execution of a written
contract.
Use of ``isolated transaction'' test. The final rule also does not
define the distinction between consumer and customer based solely on
whether the transaction is an isolated event. The Agencies used this
concept in several examples in the proposed rule to illustrate one of
the factors that may go into whether a relationship is of a continuing
nature. Several commenters suggested that this approach was
insufficiently precise to serve as a workable distinction between
consumers and customers. The Agencies agree that the test may not be
useful in all instances, but believe that it will help clarify the
status of relationships in certain situations. Accordingly, the final
rule retains examples in Secs. __.3(i)(2)(ii)(A) and (C) that cite the
isolated nature of a given transaction as an indication that the
transaction in question does not establish a customer relationship.
Purchase of insurance. Other commenters suggested that, in the
context of financial institutions that engage in the sale of insurance
and that are regulated by the Agencies, the customer should be the
policyholder and not the beneficiary. The Agencies agree, and note that
the final rule retains the example Sec. __.3(i)(2)(i)(D) of purchasing
an insurance product as one situation in which a customer relationship
is formed. In this case, the person obtaining a financial product or
service from the financial institution is the person purchasing the
policy.
Sales of loans. As previously noted, several commenters raised
questions in the context of loan sales. Many commenters stated that,
under the final
[[Page 35169]]
rule, a person should not be considered a customer of two financial
institutions when the originating bank sells the servicing rights. A
point consistently made by these commenters was that a borrower would
be equally well protected with less risk of confusion if the borrower
is deemed to be a customer of only one entity in connection with a
loan, with that entity perhaps being the party with whom the borrower
communicates about the loan. The Agencies believe that it is
appropriate to consider a loan transaction as giving rise to only one
customer relationship, with the recognition that this customer
relationship may be transferred in connection with a sale of part or
all of the loan. In this way, the borrower will not be inundated by
privacy notices, many of which might be from secondary market
purchasers that the borrower did not know had any connection to his or
her loan. The Agencies note, however, that a customer will remain a
consumer of the entity that transfers the servicing rights, as well as
a consumer of any other entity that holds an interest in the loan.
In order to satisfy the statutory requirement that a customer
receive an annual notice from a financial institution until that
relationship terminates, the final rule provides that the borrower must
be deemed to have a customer relationship with at least one of the
entities that hold an interest in the loan. In the case of a financial
institution that makes a loan, retains it in its portfolio, and
provides servicing for the loan, the borrower clearly would have a
customer relationship with that institution. Less clear, however, are
situations in which servicing is sold or investors purchase a partial
interest in a loan. The Agencies have adopted an approach designed to
ensure that a customer receives annual notices for the duration of the
customer relationship from the most appropriate financial institution.
Under the final rule as stated in Sec. __.3(i)(2)(i)(B), a customer
relationship will be established as a general rule with the financial
institution that makes a loan to an individual. This customer
relationship then will attach to the entity providing servicing. Thus,
if the originating lender retains the servicing, it will continue to
have a customer relationship with the borrower and will be obligated to
provide annual notices for the duration of the customer relationship.
If the servicing is sold, then the purchaser of the servicing rights
will establish a customer relationship (and the originating lender will
have a consumer relationship with the borrower). See
Sec. __.3(i)(2)(ii)(B). In this way, the borrower will be entitled to
receive an initial notice and annual notices from the loan servicer,
but will not receive initial and annual notices from entities that hold
interests in the loan but are unknown to the consumer.
Mortgage brokers. Several commenters suggested that the use of a
mortgage broker should not create a customer relationship. The Agencies
disagree. A relationship between a mortgage broker and a consumer is
more than an isolated transaction, given that the mortgage broker is
likely to provide many services for a consumer, such as analyzing
financial information, performing credit checks, negotiating with other
financial institutions on the consumer's behalf, and assisting with
loan closings. In light of the similarities between the services
provided by a mortgage broker and those provided by, for instance, an
insured depository institution that makes a mortgage loan, the Agencies
believe it is appropriate to consider a mortgage broker to be a
financial institution that establishes a customer relationship when the
broker enters into an agreement or understanding with a consumer
whereby the broker undertakes to arrange or broker a home mortgage loan
for the consumer. The final rule reflects this in
Sec. __.3(i)(2)(i)(F).
Trusts. The final rule adds an example in Sec. __.3(i)(2)(i)(E) to
clarify that an individual will be deemed to establish a customer
relationship when a bank acts as a custodian for securities or assets
in an IRA. This example is consistent with the explanation set out
above in the discussion of ``consumer'' concerning trusts.
j. Federal Functional Regulator
The proposal sought comment on a definition of ``government
regulator'' that included each of the Agencies participating in this
rulemaking, the Secretary of the Treasury, the NCUA, FTC, SEC, and
State insurance authorities under the circumstances identified in the
definition. This term was used in the exception set out in proposed
Sec. __.11(a)(4) for disclosures to law enforcement agencies,
``including government regulators.''
The few comments that were received on this definition suggested
that it be expanded to include additional governmental entities. The
Agencies note that, for purposes of the privacy rule, this term is
relevant only in the discussion of when a financial institution may
disclose information to a law enforcement agency. The exception as
stated in the statute uses the term ``federal functional regulator''
(see section 502(e)(5)), which term is defined in the statute at
section 509(2) and also includes the Secretary of the Treasury for
purposes of the exception permitting disclosures to law enforcement
agencies. The Agencies have decided that it is appropriate simply to
use the term that is used in the statute and adopt its definition.
k. Financial Institution
The proposal defined ``financial institution'' as any institution
the business of which is engaging in activities that are financial in
nature, or incidental to such financial activities, as described in
section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(k)). The proposal exempted from the definition of ``financial
institution'' those entities specifically excluded by the GLB Act.
Commenters suggested that the final rule contain several exclusions
to this definition, including those for securitization trusts, debt
buyers, and credit bureaus. The Agencies have not included these
exceptions in the final rule, in part because the Agencies believe that
it is inappropriate to exclude many of the activities suggested by
commenters and in part because the objective of the suggested
exclusions can be achieved in other ways. Even if an entity is a
financial institution as that term is used in the GLB Act, it will not
have any disclosure responsibilities under the Act or this rule if it
does not provide a financial product or service to a consumer. In most
of the situations posited by the commenters, the entity in question
will not meet that test and, therefore, will fall outside the scope of
the rule with respect to privacy disclosures. \6\
---------------------------------------------------------------------------
\6\ However, these entities will be subject to the limits on
redisclosures under Sec. _.11 with respect to any nonpublic personal
information they receive from a nonaffiliated financial institution
that has disclosure obligations under this rule.
---------------------------------------------------------------------------
For the reasons discussed above, the Agencies adopt the definition
of ``financial institution'' as proposed.
l. Financial Product or Service
The proposal defined ``financial product or service'' as a product
or service that a financial institution could offer as an activity that
is financial in nature, or incidental to such a financial activity,
under section 4(k) of the Bank Holding Company Act of 1956, as amended.
An activity that is complementary to a financial activity, as described
in section 4(k), was not included in the proposed definition of
``financial product or service.'' The proposal's definition included
the financial institution's evaluation of information collected in
connection
[[Page 35170]]
with an application by a consumer for a financial product or service
even if the application ultimately is rejected or withdrawn. It also
included the distribution of information about a consumer for the
purpose of assisting the consumer in obtaining a financial product or
service.
Several commenters in response to this proposed definition
criticized the Agencies' interpretation of the Act and suggested that
the evaluation of application information should not be considered a
financial product or service. For the reasons advanced above in the
discussion of the definition of ``consumer,'' the Agencies continue to
believe that it is appropriate to retain evaluation or brokerage of
information as within the scope of financial products or services
covered by the rule. Accordingly, the final rule adopts the definition
of ``financial product or service'' as proposed.
m. Nonaffiliated Third Party
The proposal defined ``nonaffiliated third party'' as any person
(which includes natural persons as well as corporate entities) except
(1) an affiliate of a financial institution and (2) a joint employee of
a financial institution and a third party. The proposal clarified the
circumstances under which a company that is controlled by a financial
institution pursuant to that institution's merchant banking activities
or insurance company activities would be a ``nonaffiliated third
party'' of that financial institution.
The Agencies received very few comments in response to this
proposed definition. One commenter requested that the final rule state
that a disclosure of information to someone who is serving as a joint
employee of two financial institutions should be deemed to have been
disclosed to both financial institutions. The Agencies disagree with
this result. Instead, the Agencies believe it is appropriate to deem
the information to have been given to the financial institution that is
providing the financial product or service in question. Thus, for
instance, if an employee of an insured depository institution is a dual
employee with a securities firm, information received by that person in
connection with a securities transaction conducted with the securities
firm would be deemed to have been received by the securities firm.
In light of the comments received, the Agencies adopt the
definition of ``nonaffiliated third party'' as proposed.
n. Nonpublic Personal Information
Section 509(4) of the GLB Act defines ``nonpublic personal
information'' to mean ``personally identifiable financial information''
that is provided by a consumer to a financial institution, results from
any transaction with the consumer or any service performed for the
consumer, or is otherwise obtained by the financial institution. It
also includes any ``list, description, or other grouping of consumers
(and publicly available information pertaining to them) that is derived
using any nonpublic personal information other than publicly available
information.'' The statute excludes publicly available information
(unless provided as part of the list, description or other grouping
described above), as well as a list, description, or other grouping of
consumers (and publicly available information pertaining to them) that
is derived without using nonpublic personal information. The statute
does not define either ``personally identifiable financial
information'' or ``publicly available information.''
The proposed rules implemented this provision of the GLB Act by
restating the categories of information described above. The proposed
rules presented two alternative approaches to identifying what
information would be regarded as publicly available (and therefore, as
a general rule, outside the definition of ``nonpublic personal
information''). Alternative A deemed information as publicly available
only if a financial institution actually obtained the information from
a public source while Alternative B treated information as publicly
available if a financial institution could obtain it from such a
source. Both Alternatives A and B included within the definition of
``nonpublic personal information'' publicly available information that
is provided as part of a list, description, or other grouping of
consumers.
Commenters favoring Alternative A noted that it provided the
greatest protection for consumers by treating anything the consumer
gives to a financial institution to obtain a financial product or
service as nonpublic personal information. Under Alternative A, this
protection would be lost only if a financial institution actually
obtained the information from a public source. These commenters also
preferred the bright-line distinction drawn by treating as nonpublic
personal information any information given by a consumer to obtain a
financial product or service or information that results from
transactions between a financial institution and a consumer. However,
the majority of those commenting on this issue favored Alternative B,
noting that this alternative was consistent with the statute and would
be far less burdensome on financial institutions. These commenters
suggested that a requirement that the information actually be obtained
from a public source would impose needless burden on financial
institutions (by requiring, for instance, that a financial institution
``tag'' information they obtained from public records) and is not
required by the statute.
The final rule adopts an approach that the Agencies believe
incorporates the benefits of both alternatives. Under the final rule,
information will be deemed to be ``publicly available'' and therefore
excluded from the definition of ``nonpublic personal information'' if a
financial institution has a reasonable basis to believe that the
information is lawfully made available to the general public from one
of the three categories of sources listed in the rule. See
Sec. __.3(p)(1). The final rule states that a financial institution
will have a ``reasonable basis'' for believing that information is
lawfully made available if it has taken steps to determine that the
information is of the type that is available to the general public and,
if an individual could direct that the information not be made
available to the general public, whether the individual has done so. In
this way, a financial institution will be able to avoid the burden of
having to actually obtain information from a public source, but will
not be free simply to assume that information is publicly available
without some reasonable basis for that belief. The final rule cites, as
an example of information a financial institution might reasonably
believe to be publicly available, the fact that someone has a loan that
is secured by a mortgage in jurisdictions where mortgages are recorded.
See Sec. __.3(p)(3)(iii)(A). The rule also states that a financial
institution will have a reasonable basis to believe that a telephone
number is publicly available if the institution either located the
number in a telephone book or was informed by the consumer that the
number is not unlisted. See Sec. __.3(p)(3)(iii)(B).
This approach is based on the underlying principle that, if a
consumer has some measure of control over the public availability of
his or her information, a financial institution should not
automatically assume that the information is in fact publicly
available. In the case of a mortgage in most jurisdictions, the
borrower has no choice about whether the lender will
[[Page 35171]]
make the mortgage a matter of public record; a lender must do so in
order to protect its security interest. In the case of a telephone
number, a person may request that his or her number be unlisted. Thus,
in evaluating whether it is reasonable to believe that information is
publicly available, a financial institution should consider whether the
information is of a type that a consumer could keep from being a matter
of public record.
To implement the complex definition of ``nonpublic personal
information'' that is provided in the statute, the final rule adopts a
definition that consists, generally speaking, of (1) personally
identifiable financial information, plus (2) a consumer list (and
publicly available information pertaining to the consumers) that is
derived using any personally identifiable financial information that is
not publicly available. From that body of information, the final rule
excludes publicly available information (except as noted above) and any
consumer list that is derived without using personally identifiable
financial information that is not publicly available. See
Secs. __.3(n)(1) and (2). Examples are provided in Sec. __.3(n)(3) to
illustrate how this definition applies in the context of consumer
lists.
o. Personally Identifiable Financial Information
The proposed rules defined ``personally identifiable financial
information'' to include information that a consumer provides a
financial institution in order to obtain a financial product or
service, information resulting from any transaction between the
consumer and the financial institution involving a financial product or
service, and information about a consumer a financial institution
otherwise obtains in connection with providing a financial product or
service to the consumer. The proposed rule also treated the fact that
someone is a customer of a financial institution as personally
identifiable financial information. In essence, the proposed rules
treated any personally identifiable information as financial if it was
obtained by a financial institution in connection with providing a
financial product or service to a consumer. The Agencies noted in the
preamble to the proposed rule that this interpretation may result in
certain information being covered by the rules that may not be
considered intrinsically financial, such as health status.
The Agencies received a large number of comments in response to
this definition, most of which maintained that the definition
inappropriately included certain identifying information that is not
financial, such as name, address, and telephone number. Many others
maintained that ``personally identifiable financial information''
should not include the fact that someone is a customer of a financial
institution. These commenters typically noted that many customer
relationships are matters of public record (such as would be the case,
for instance, anytime a transaction results in the recordation of a
security interest) while other customer relationships are matters of
public knowledge (because consumers frequently disclose the
relationships by writing checks, using credit cards, and so on). Many
commenters stated that aggregate data about a financial institution's
customers that lack personal identifiers should not be considered
personally identifiable financial information.
Treatment of identifying information as financial. The Agencies
continue to believe that it is appropriate to treat any information as
financial information if it is requested by a financial institution for
the purpose of providing a financial product or service. The Agencies
also believe this approach is consistent with the express language of
the statute. Although the statute does not define the term
``financial,'' it does include a broad definition of ``financial
institution'' which encompasses a large number of entities (such as
travel agencies, insurance companies, and data processors) that engage
in activities not traditionally considered financial. As a consequence
of that definition, the range of information that has a bearing on the
terms and availability of a financial product or service or that is
used by a financial institution in connection with providing a
financial product or service is extremely broad and may include, for
instance, medical information and other sorts of information that might
not be thought of as financial. Further, the information that the
agencies have defined as financial is the information that the
institution itself has determined is relevant to providing a financial
product or service, as evidenced by the fact that the institution
requests the information from the consumer, obtains it from a
transaction involving a financial product or service with the consumer,
or otherwise obtains it in connection with providing a financial
product or service to a consumer.
The Agencies are sensitive to the concern expressed by many
commenters, including several hundred private investigators, about the
need for ready access to identifying information to locate people
attempting to evade their financial obligations. These commenters
consistently suggested that names, addresses, and telephone numbers
should not be treated as financial information. However, financial
institutions rely on a broad range of information, including
information such as addresses and telephone numbers, when providing
financial products or services. Location information is used by
financial institutions to provide a wide variety of financial services,
from the sending of checking account statements to the disbursing of
funds to a consumer. Other information, such as the maiden name of a
consumer's mother often will be used by a financial institution to
verify the consumer's identity. The Agencies concluded that it would be
inappropriate to exclude certain items of information from the
definition of personally identifiable financial information simply
because a particular financial institution might not rely on those
items when providing a particular financial product or service.
The Agencies note that names, addresses, and telephone numbers, if
publicly available, will not be subject to the opt out provisions of
the statute unless that information is ``derivative information''
(i.e., information that is part of a list, description, or other
grouping of consumers that is derived from personally identifiable
financial information that is not publicly available). Thus, in
instances involving specific requests about individuals, a financial
institution still may disclose information about the individual that
the institution reasonably believes to be publicly available, provided
that in so doing the institution does not disclose the existence of a
customer relationship that is not a matter of public record. Moreover,
in instances when a consumer does not opt out, a financial institution
may disclose any nonpublic personal information to a nonaffiliated
third party provided that the disclosure is consistent with the
institution's opt out and privacy notices.
Customer relationship as ``personally identifiable financial
information.'' The Agencies disagree with those commenters who maintain
that customer relationships should not be considered to be personally
identifiable financial information. Clearly, information that a
particular person has a customer relationship identifies that person,
and thus is personally identifiable. The Agencies believe that this
information also is financial under the express terms of the statute,
because it communicates that the person in question has a transaction
involving a financial product or service with a
[[Page 35172]]
financial institution. While this information could in certain cases be
a matter of public record, that does not change the analysis of whether
the information is personally identifiable financial information.
Changes made to the definition. The final rule makes various
stylistic changes to the definition that are intended to make it easier
to read and understand. In addition, the final rule adds to the
examples of information covered by the rule any information that the
institution collects through an information collecting device from a
web server, often referred to as a ``cookie.'' See Sec. __.3(o)(2)(F).
This illustrates one of the various means by which a financial
institution may ``otherwise obtain'' information about a consumer in
connection with providing a financial product or service to that
consumer.
The final rule also includes, as a negative example in
Sec. __.3(o)(2)(ii)(B), a statement that aggregate information or blind
data lacking personal identifiers is not covered by the definition of
``personally identifiable financial information.'' The Agencies agree
with those commenters who opined that such data, by definition, do not
identify any individual.
p. Publicly Available Information
The proposal defined ``publicly available information'' to include
information that is lawfully available to the general public from
official public records (such as real estate recordations or security
interest filings), information from widely distributed media (such as a
telephone book, television or radio program, or newspaper), and
information that is required to be disclosed to the general public by
Federal, State, or local law (such as securities disclosure documents).
The proposed rules stated that publicly available information from
widely distributed media would include information from an Internet
site that is available to the general public without requiring a
password or similar restriction.
As previously explained in the discussion of ``nonpublic personal
information,'' the proposed rules invited comment on two versions of
the definition of ``publicly available information.'' The Agencies have
adopted an approach in the final rule that they believe closely tracks
the statute while providing much of the benefit provided under
Alternative A.
Several commenters questioned the appropriateness of excluding
information from the definition of ``publicly available information''
if a person who seeks to obtain the information over the Internet must
have a password or comply with a similar restriction. These commenters
made the point that many Internet sites are available to a large number
of people, each of whom need a user name and identification number to
access the sites. Several of these commenters suggested that it is more
appropriate to focus on whether the information was lawfully placed on
the Internet.
The Agencies agree with these comments, and have amended the final
rule to remove the reference to passwords or similar restrictions from
the example of the Internet as a ``widely distributed'' medium of
communication. In its place, the Agencies have substituted a standard
that requires the information, whether from the Internet or otherwise,
to be available on an unrestricted basis. Information that an
individual specifically requests be compiled, such as information that
a locator or ``look up'' service provides with respect to a particular
individual that may combine confidential information in addition to
publicly available information, will not be considered available to the
general public on an unrestricted basis, regardless of whether the
information is provided over the Internet or otherwise.
On the other hand, the rule states that an Internet site is not
restricted merely because an Internet service provider or a site
operator requires a fee or password as long as access is otherwise
available to the general public. The traditional use of passwords is to
confine the access of individual customers to specific, individual
information. However, website operators, in particular, may require
user identifications and passwords as a method of tracking access
rather than restricting access to the information available through the
website. Fees may be levied to obtain access to the Internet or to
particular sites rather than restrict access to particular information.
For example, Internet service providers may charge a fee for accessing
the Internet. Other sites available to the general public, such as
daily newspapers, also may charge a fee to access archived information.
Therefore, the Agencies believe that the definition of ``widely
distributed media'' should properly focus on whether the information is
lawfully available to the general public, rather than on the type of
medium from which information is obtained.
The Agencies note that the concept of information being lawfully
obtained was included in the proposal, and is retained in the final
rule. Thus, information unlawfully obtained will not be deemed to be
publicly available notwithstanding that it may be available to the
general public through widely distributed media.
To help understand how ``nonpublic personal information,''
``personally identifiable financial information,'' and ``publicly
available information'' will work under the final rule, the following
example is offered. Assume that Mary provides her bank with various
information in order to obtain a mortgage loan and to open a deposit
account. Under the final rule, all of this information would be
personally identifiable financial information. Once Mary establishes
the customer relationships she seeks, the fact that Mary is a mortgage
loan customer and a deposit accountholder at the bank also would be
personally identifiable financial information.
It may be that certain information provided by Mary, such as her
name and address, is publicly available. If the bank has a reasonable
basis to believe that this information is publicly available, and if
the information was included on a list of the bank's mortgage loan
customers that was derived using only publicly available information,
then her name and address would fall outside the definition of
``nonpublic personal information'' in those jurisdictions where
mortgages are a matter of public record. However, Mary's name and
address would be protected as nonpublic personal information if the
bank wanted to include those items on a list of its deposit
accountholders. The difference in treatment stems from the distinction
drawn in the statute between lists prepared using publicly available
information (as would be the case in the mortgage loan hypothetical)
and lists prepared using information that is not publicly available (as
would be the case in the deposit account hypothetical).
The Agencies recognize the complexity of this approach, but believe
that it is mandated by the way the statute defines ``nonpublic personal
information.'' It also is consistent with the fact that certain
relationships are matters of public record, and, therefore, arguably
deserving of less protection from disclosure.
q. You
Several Agencies used the pronoun ``you'' to refer to entities
within their primary jurisdiction in the proposal and defined ``you''
to mean those entities. \7\
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\7\ The OCC used the term ``bank'' instead of ``you'' in its
regulation.
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The Agencies received very few comments in response to this
definition.
[[Page 35173]]
While one commenter preferred the term ``bank'' to ``you,'' those
Agencies using the term ``you'' believe that it makes the rule easier
to read and have, therefore, adopted the definition substantially as
proposed. The Board has revised its definition of ``you'' to clarify
that insurance, broker dealer, investment adviser, and investment
company subsidiaries of the financial institutions within its primary
jurisdiction are not covered.
Section __.4 Initial Privacy Notice to Consumers Required
The GLB Act requires a financial institution to provide an initial
notice of its privacy policies and practices in two circumstances. For
customers, the notice must be provided at the time of establishing a
customer relationship. For consumers who are not customers, the notice
must be provided prior to disclosing nonpublic personal information
about the consumer to a nonaffiliated third party.
The proposed rule implemented these requirements by mandating that
a financial institution provide the initial notice to an individual
prior to the time a customer relationship is established and the opt
out notice prior to disclosing nonpublic personal information to
nonaffiliated third parties. These disclosures were required under the
rule to be clear and conspicuous and to accurately reflect the
institution's privacy policies and practices. The proposal also set out
rules governing when a customer relationship is established and how a
financial institution is to provide notice.
The Agencies received many comments raising concerns about a large
number of issues arising under proposed Sec. __.4. Most of the comments
raised questions about the time by which initial notices must be
provided, whether new notices are required for each new financial
product or service obtained by a customer, the point at which a
customer relationship is established, and how initial notices may be
provided.
Providing Initial Notices ``Prior To'' Time Customer Relationship Is
Established
Many commenters stated that, because the statute requires only that
the initial notice be provided ``at the time of establishing a customer
relationship,'' the regulation should not require that the notice be
provided ``prior to'' the point at which a customer relationship is
established. These commenters were concerned that the rule could be
interpreted as requiring a financial institution to provide disclosures
at a point different from when they must provide other federally
mandated consumer disclosures during the process of establishing a
customer relationship.
In response to these comments, the Agencies have clarified the
timing for providing initial notices. The final rule states that, as a
general rule, the initial notice must be given not later than the time
when a financial institution establishes a customer relationship. See
Sec. __.4(a)(1). As stated in the preamble to the proposed rule, the
initial notices may be provided at the same time a financial
institution is required to give other notices, such as those required
by the Board's regulations implementing the TILA. This approach, like
the approach taken in the proposed rule, strikes a balance between (1)
ensuring that consumers will receive privacy notices at a meaningful
point along the continuum of ``establishing a customer relationship''
and (2) minimizing unnecessary burden on financial institutions that
may otherwise result if the final rule were to require financial
institutions to provide consumers with a series of notices at different
times in a transaction.
Providing Notices After Customer Relationship Is Established
Several commenters stated that the rule should provide financial
institutions with the flexibility to deliver the initial notice after
the customer relationship is established under certain circumstances.
These commenters posited several situations in which a customer
relationship is established without face-to-face contact between the
consumer and financial institution. The commenters stated that delivery
of the initial notice before the customer relationship is established
in these situations would be impractical, and a requirement along those
lines would have a significant adverse effect on the ability to provide
a financial product or service to a consumer as quickly as the consumer
desires.
The Agencies believe that it is appropriate for financial
institutions to have flexibility in certain circumstances to provide
the initial notice at a point after the customer relationship is
established. To accommodate the wider range of situations presented by
the commenters, the Agencies have modified the examples set out in the
proposal of when a subsequent delivery of the initial notice is
appropriate so that they now are more broadly applicable. As stated in
the final rule in Sec. __.4(e), a financial institution may provide the
initial notice within a reasonable time after establishing a customer
relationship in two instances. First, notice may be provided after the
fact if the establishment of the customer relationship is not at the
customer's election. See Sec. __.4(e)(1)(i). This might occur, for
instance, when a deposit account is sold. Second, a notice may be sent
after establishing a customer relationship when to do otherwise would
substantially delay the consumer's transaction and the consumer agrees
to receive the notice at a later time. See Sec. __.4(e)(1)(ii). An
example of this would be when a transaction is conducted over the
telephone and the customer desires prompt delivery of the item
purchased. Another example of when this might occur is when a bank
establishes a customer relationship with an individual under a student
loan program as described in the final rule where loan proceeds are
disbursed promptly without prior communication between the bank and the
customer.
The Agencies note that in most situations, and particularly in
situations involving the establishment of a customer relationship in
person, a financial institution should give the initial notice at a
point when the consumer still has a meaningful choice about whether to
enter into the customer relationship. The exceptions listed in the
examples, while not exhaustive, are intended to illustrate the less
frequent situations when delivery either would pose a significant
impediment to the conduct of a routine business practice or the
consumer agrees to receive the notice later in order to obtain a
financial product or service immediately.
In circumstances when it is appropriate to deliver an initial
notice after the customer relationship is established, a financial
institution should deliver the notice within a reasonable time
thereafter. Several commenters requested that the final rule specify
precisely how many days a financial institution has in which to deliver
the notice under these circumstances. However, the Agencies believe
that a rule prescribing the maximum number of days would be
inappropriate because (a) the circumstances of when an after-the-fact
notice is appropriate are likely to vary significantly, and (b) a rule
that attempts to accommodate every circumstance is likely to provide
more time than is appropriate in many instances. Thus, rather than
establish a rule that the Agencies believe may be viewed as applicable
in all circumstances, the Agencies have elected to retain the more
general rule as set out in the proposal in Sec. __.4(e)(1).
[[Page 35174]]
As the Agencies noted in the preamble to the proposed rule, nothing
in the rule is intended to discourage a financial institution from
providing an individual with a privacy notice at an earlier point in
the relationship if the institution wishes to do so in order to make it
easier for the individual to compare its privacy policies and practices
with those of other institutions in advance of conducting transactions.
New Notices Not Required for Each New Financial Product or Service
Several commenters asked whether a new initial notice is required
every time a consumer obtains a financial product or service from that
financial institution. These commenters suggested that a consumer would
not materially benefit from repeated disclosures of the same
information, and that requiring additional initial notices to be
provided to the same consumer would be burdensome on financial
institutions.
The Agencies agree that it would be burdensome with little
corresponding benefit to the consumer to require a financial
institution to provide the same consumer with additional copies of its
initial notice every time the consumer obtains a financial product or
service. Accordingly, the final rule states, in Sec. __.4(d), that a
financial institution will satisfy the notice requirements when an
existing customer obtains a new financial product or service if the
institution's initial, revised, or annual notice (as appropriate) is
accurate with respect to the new financial product or service.
Joint Accountholders
The majority of comments on how to provide notice suggested that
the final rule state that a financial institution is not obligated to
provide more than one notice to joint accountholders. Several of these
commenters noted that disclosure obligations arising from joint
accounts are well settled under other rules, such as the regulations
implementing the Equal Credit Opportunity Act (Regulation B, 12 CFR
part 202, ) and TILA. Commenters noted that under both Reg. B and Reg.
Z, a financial institution is permitted to give only one notice. The
authorities cited include requirements that the financial institution
give disclosures, as appropriate, to the ``primary applicant'' if this
is readily apparent (in the case of Reg. B; see 12 CFR 202.9(f)) or to
a person ``primarily liable on the account'' (in the case of Reg. Z;
see 12 CFR 226.5(b)).
The Agencies agree that a financial institution should be allowed
to provide initial notices in a manner consistent with other disclosure
obligations. Accordingly, the final rule clarifies, in Sec. __.9(g),
that only one notice is required to be sent in connection with a joint
account. A financial institution may, in its discretion, provide
notices to each party to the account. This situation might arise, for
instance, when a financial institution does not want one opt out
election to apply automatically to all joint accountholders (see
discussion of how to provide opt out notices, below).
Mergers
A few commenters requested guidance on what notices are required in
the event of a merger of two financial institutions or an acquisition
of one financial institution by another. In such a situation, the need
to provide new initial (and opt out) notices to the customers of the
entity that ceases to exist will depend on whether the notices
previously given to those customers accurately reflect the policies and
practices of the surviving entity. If they do, the surviving entity
will not be required under the rule to provide new notices.
As was stated in the preamble to the proposed rule, a financial
institution may not fail to maintain the protections that it represents
in the notice that it will provide. The Agencies expect that financial
institutions will take appropriate measures to adhere to their stated
policies and practices.
Section __.5 Annual Privacy Notice to Customers Required
Section 503 of the GLB Act requires a financial institution to
provide notices of its privacy policies and practices at least annually
to its customers ``during the continuation'' of a customer
relationship. The proposed rules implemented this requirement by
requiring a clear and conspicuous notice that accurately reflects the
privacy policies and practices then in effect to be provided at least
once during any period of twelve consecutive months. The proposed rules
noted that rules governing how to provide an initial notice also would
apply to annual notices, and stated that a financial institution would
not be required to provide annual notices to a customer with whom it no
longer has a continuing relationship.
Several commenters requested that the final rule permit annual
notices to be given each calendar year, instead of every twelve months.
A variation suggested by a few commenters was to state that notices
must be provided during each calendar year, with no more than 15 months
elapsing between mailings. To clarify the extent of financial
institutions' flexibility, the final rule retains the general rule
requiring annual notices but then provides an example, in
Sec. __.5(a)(2)(ii), stating that a financial institution may select a
calendar year as the 12-month period within which notices will be
provided and provide the first annual notice at any point in the
calendar year following the year in which the customer relationship was
established. The final rule also requires that a financial institution
apply the 12-month cycle to its consumers on a consistent basis.
Several commenters suggested that a financial institution be
permitted to make the annual notice available upon request only,
particularly if there have been no material changes to the notice since
it was last delivered. These commenters maintained that little value is
added by providing customers with additional copies each year of the
same information. Some suggested that financial institutions be
permitted to provide a ``short-form'' annual notice, in which the
institution informs its customers that there has been no change to its
privacy policies and practices and that the customers may obtain a copy
upon request.
The Agencies have not amended the final rule to permit this
approach, for two reasons. First, the Agencies view the statute as
contemplating complete disclosures annually to all customers during the
duration of the customer relationship. Section 503 of the GLB Act
states that ``not less than annually during the continuation of [a
customer] relationship, a financial institution shall provide a clear
and conspicuous disclosure to such consumer [i.e., one with whom a
customer relationship has been formed], * * * of such financial
institution's policies and practices with respect to'' the information
enumerated in the statute. The Agencies believe that this provision
contemplates a full set of disclosures to each customer once a year.
Second, the clarifications made in the final rule to the disclosure
provisions make it clear that a financial institution is not required
to provide a lengthy and detailed privacy notice to comply with the
rule. Small institutions that do not share information with third
parties beyond the statutory exceptions should be able to provide a
short, streamlined notice. The rule also permits a financial
institution to provide annual notices to customers over the
institution's web site if the customer conducts transactions
electronically and agrees to such disclosures (see additional
discussion of this flexibility, below, in Sec. __.9). As a
[[Page 35175]]
result, the final rule achieves much of the burden reduction sought by
those requesting a short-form annual notice option.
Most of the remaining comments received in response to proposed
Sec. __.5 addressed the rules governing when a customer relationship is
terminated. Several focused on whether ``dormancy'' of a deposit
account, which was presented as an example in the proposed rule of when
a customer relationship is terminated, should be determined according
to state law or a financial institution's internal policies. These
commenters were unanimous in their view that ``dormancy'' should be
determined according to an institution's own policies, without reliance
on state laws that may produce conflicting results and unnecessary
burden for institutions operating in more than one state. A few
commenters suggested that the final rule use ``inactive'' instead of
``dormant'' in order to avoid unintended consequences of classifying an
account as dormant. In light of these comments, the final rule retains
in the examples of when a customer relationship will be terminated the
situation where there is no activity in a deposit account according to
a financial institution's policies. The Agencies also have used the
term ``inactive'' rather than ``dormant'' in Sec. __.5(b)(2)(i) to
avoid the unintended consequences posited by the comments.
A few commenters stated that the example of no communication with a
customer for twelve months should be amended to clarify that
promotional materials would not be considered a communication about the
relationship sufficient to extend the duration of the customer
relationship. These commenters generally suggested that the rule be
tied to communications initiated by the customer. The Agencies agree
that a communication that merely informs a person about, or seeks to
encourage use of, a financial institution's products or services is not
the type of communication that signifies an ongoing relationship. The
final rule has been amended in Sec. __.5(b)(2)(iv) to reflect that the
distribution of promotional materials will not prolong a customer
relationship under the rule. The Agencies disagree, however, that the
test should focus on whether there has been any customer-initiated
contact, because there will be instances in which the customer will not
initiate a contact with a financial institution within the relevant
time period but nonetheless has an ongoing relationship.
Section __.6 Information To Be Included in Initial and Annual Privacy
Notices
Section 503 of the GLB Act identifies the items of information that
must be included in a financial institution's initial and annual
notices. Section 503(a) of the GLB Act sets out the general requirement
that a financial institution must provide customers with a notice
describing the institution's policies and practices with respect to,
among other things, disclosing nonpublic personal information to
affiliates and nonaffiliated third parties. Section 503(b) of the Act
identifies certain elements that must be addressed in that notice.
The proposed rule implemented section 503 by requiring a financial
institution to provide information concerning:
The categories of nonpublic personal information that a
financial institution may collect;
The categories of nonpublic personal information that a
financial institution may disclose;
The categories of affiliates and nonaffiliated third
parties to whom a financial institution discloses nonpublic personal
information, other than those to whom information is disclosed pursuant
to an exception in section 502(e) of the GLB Act;
The financial institution's policies with respect to
sharing information about former customers;
The categories of information that are disclosed pursuant
to agreements with third party service providers and joint marketers
and the categories of third parties providing the services;
A consumer's right to opt out of the disclosure of
nonpublic personal information to nonaffiliated third parties;
Any disclosures regarding affiliate information sharing
opt outs a financial institution is providing under the FCRA; and
The bank's policies and practices with respect to
protecting the confidentiality, security, and integrity of nonpublic
personal information.
The Agencies received a large number of comments concerning these
requirements, with the majority of comments making the points
summarized below.
Level of Detail Required
Many commenters offered the general observation that the level of
detail that would be required under the proposed rule would result in
lengthy, complicated, and ultimately confusing disclosures. These
comments have led the Agencies to conclude that additional
clarification is required concerning the level of detail that the
Agencies expect a financial institution's initial and annual
disclosures to contain.
The Agencies do not believe that the statute requires--nor do the
Agencies intend to require--a financial institution to publish lengthy
disclosures that identify with precision every type of information
collected or disclosed, the name of every entity with whom the
financial institution shares information, and a complete description of
the technical specifications of how the institution protects its
customers' records or the identity of each employee who has access to
such records. Instead, the Agencies have concluded that the statute, by
focusing on ``categories'' of information and recipients of
information, is intended to require notices that provide consumers with
a general description of the third parties to whom a financial
institution discloses nonpublic personal information, the types of
information it discloses, and the other information about the
institution's privacy policies and practices listed above. The final
rule, like the proposal, permits a financial institution to comply with
these notice requirements by providing a description that is
representative of its privacy policies and practices. The Agencies
believe that in most cases the initial and annual disclosure
requirements can be satisfied by disclosures contained in a tri-fold
brochure.
To address commenters' concerns about the likelihood that consumers
will not read long, detailed disclosures, the Agencies have revised the
examples of the disclosures set out in proposed Sec. __.6(c) to clarify
the level of detail that the Agencies think is appropriate under the
statute. Sample clauses have been provided in Appendix A to the rules,
and guidance for certain institutions has been set out later in this
preamble. Because the examples are not exclusive, the final rule
permits a financial institution to use different categories than those
provided in the examples, thereby providing additional flexibility for
financial institutions in complying with the disclosure requirements.
In addition, the language in Sec. __.6(a) that precedes the items of
information to be addressed in the initial notice has been amended to
clarify that a financial institution is required only to address those
items that apply to the institution. Thus, for instance, if a financial
institution does not disclose nonpublic personal information to third
parties, it may simply omit any reference to the categories of
affiliates and nonaffiliated third parties to whom the institution
[[Page 35176]]
discloses nonpublic personal information.
As was noted in the preamble to the proposed rule, the required
content is the same for both the initial and annual notices of privacy
policies and practices. While the information contained in the notices
must be accurate as of the time the notices are provided, a financial
institution may prepare its notices based on current and anticipated
policies and practices.
Short-Form Initial Notice
The Agencies have reconsidered the need to give consumers a copy of
a financial institution's complete initial notice when there is no
customer relationship. In these circumstances, the Agencies believe
that the objectives of the statute can be accomplished in a less
burdensome way than was proposed. Accordingly, the Agencies have
exercised their exemptive authority as provided in section 504(b) to
create an exception to the general rule that otherwise requires a
financial institution to provide both the initial and opt out notices
to a consumer before disclosing nonpublic personal information about
that consumer to nonaffiliated third parties.
This exception is set out in Sec. __.6(d) of the final rule, which
states that a financial institution may provide a ``short-form''
initial privacy policy notice along with the opt out notice to a
consumer with whom the institution does not have a customer
relationship. The short-form notice must clearly and conspicuously
state that the disclosure containing information about the
institution's privacy policies and practices is available upon request
and provide one or more reasonable means by which the consumer may
obtain a copy of the notice. This approach reflects the Agencies'
belief that a consumer who does not become a customer of a financial
institution generally may have less interest in certain elements of the
institution's privacy policies. Relative to other aspects of the
transaction, the consumer may receive greater benefit from obtaining a
concise, but meaningful, opt out notice that informs the consumer about
the categories of his or her information the institution may disclose
and the categories of nonaffiliated third parties that may receive the
information. The rule also requires a financial institution to provide
a consumer who is interested in the more complete privacy disclosures
with a reasonable means to obtain them.
Information About Affiliate Sharing
Another point made by several commenters in response to proposed
Sec. __.6 was that the rule should not include a requirement that
categories of affiliates with whom a financial institution shares
information be included in the initial and annual notices. These
commenters pointed out that the statute specifically requires
disclosures of categories of nonaffiliated third parties only, and that
the only statutorily mandated disclosures concerning affiliate sharing
are disclosures required, if any, concerning affiliate sharing pursuant
to section 603(d)(2)(A)(iii) of the Fair Credit Reporting Act (FCRA)
(15 U.S.C. 1681a(d)(2)(A)(iii)). \8\ These commenters concluded that
the Agencies, by expanding the disclosure requirements in the manner
prescribed in the proposed rule, would be exceeding their rulemaking
authority and imposing unnecessary burden on financial institutions.
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\8\ Section 603(d)(2)(A)(iii) excludes from the definition of
``consumer report'' the communication of certain consumer
information among affiliated entities if the consumer is notified
about the disclosure of such information and given an opportunity to
opt out of the disclosure of that information. The information that
can be disclosed to affiliates under this provision includes, for
instance, information from consumer reports and applications for
financial products or services. In general, this information
represents personal information provided directly by the consumer to
the institution, such as income and assets, in addition to
information contained within consumer reports.
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The Agencies believe that the language and legislative history of
section 503 support requiring disclosures of affiliate sharing beyond
what may be required by the FCRA. First, section 503(b) does not state
that the items listed therein are to be the only items set out in a
financial institution's initial and annual disclosures. Instead, it
uses the nonrestrictive phrase ``shall include'' when discussing the
contents of the disclosures, thereby preserving flexibility for the
Agencies (which were expressly granted authority under section 503(a)
to prescribe rules governing these notices) to require that additional
items be addressed in the disclosures consistent with those
specifically enumerated.
Second, section 503(a) states that the financial institution shall
provide in its initial and annual notices ``a clear and conspicuous
disclosure * * * of such financial institution's policies and practices
with respect to--(1) disclosing nonpublic personal information to
affiliates and nonaffiliated third parties, consistent with section
502, including the categories of information that may be disclosed; * *
*'' While the FCRA disclosures would be a subset of the disclosures
required by section 503(a)(1), they may not be sufficient to fully
satisfy that requirement.
Third, the legislative history of the GLB Act suggests that
Congress intended for the disclosures to provide more information about
affiliate sharing than what may be required under the FCRA.\9\ That
history underscores the Congressional intent of ensuring that
individuals are given the opportunity to make informed decisions about
the privacy policies and practices of financial institutions. The
Agencies believe that limiting the disclosures about affiliate sharing
just to those disclosures that may be required under the FCRA would
frustrate that purpose.
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\9\ See, e.g., remarks of Sen. Gramm (noting that the privacy
bill contains ``for the first time a full disclosure requirement. It
requires every bank in America, when you open your account to tell
you precisely what their policy is: Do they share personal financial
information within the bank? Do they share it outside the bank?''),
145 Cong. Rec. S13786 (daily ed. Nov. 3, 1999); remarks of Sen.
Hagel, id. at S13876 (``Financial institutions would be required to
disclose their privacy policies to their customers on a timely
basis. If customers do not believe adequate protections exist at
their institution, they can take their business elsewhere.'').
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Disclosures of the FCRA Opt Out Right
Another commonly advanced argument was that a financial institution
should not be required to include FCRA disclosures in its annual
notices. As previously discussed, section 503(b)(4) of the GLB Act
requires a financial institution's initial and annual notice to include
the disclosures required, if any, under section 603(d)(2)(A)(iii) of
the FCRA. The proposed rules implemented section 503(b)(4) of the GLB
Act by including the requirement that a financial institution's initial
and annual notice include any disclosures a financial institution makes
under section 603(d)(2)(A)(iii) of the FCRA. Several commenters pointed
out that the FCRA requires disclosures of a consumer's right to opt out
of affiliate sharing only once. They noted that the GLB Act states, in
section 506(c), that nothing in the GLB Act is to be construed to
modify, limit, or supersede the operation of the FCRA. These commenters
maintain that the ``if any'' language of section 503(b)(4), read in the
context of section 506, suggests that, since at most only one notice
must be provided under the FCRA, section 503 should require only one
FCRA disclosure under the privacy rule. The commenters concluded that,
by requiring more notices than are required
[[Page 35177]]
under the FCRA, the Agencies would be violating this express
preservation of the FCRA.
As discussed above, the Agencies believe that a financial
institution, in order to comply with the requirement that it disclose
its policies and practices with respect to sharing information with
affiliated and nonaffiliated third parties, must describe the
circumstances under which it will be sharing information with
affiliates. Clearly, the ability of consumers to opt out of affiliate
information sharing under the FCRA affects a financial institution's
policies and practices with respect to disclosing information to its
affiliates. Failing to include this information and an explanation of
how the opt out right may be exercised would, in the view of the
Agencies, make the disclosures incomplete. Thus, a financial
institution will need to include this information in its initial and
annual notices.
The Agencies note, moreover, that they disagree with the
commenters' reading of sections 503 and 506. Section 503 does not
distinguish between the disclosures to be provided in the initial
notice from those to be provided in the annual notice. Thus, a plain
reading of section 503 suggests that any disclosures that are required
under the FCRA must be included in both the initial and annual notices.
The Agencies interpret the ``if any'' language as a recognition
that not all institutions provide FCRA notices because not all
institutions engage in the type of affiliate sharing covered by the
FCRA. By requiring the FCRA notice to appear as part of the annual
notice under the privacy rule, the Agencies believe that they are not
modifying, limiting, or superseding the operation of the FCRA;
financial institutions will have exactly the same FCRA obligations
following the effective date of the privacy rule as they had before.
The only difference will be that, as is required by the GLB Act, a
financial institution's initial and annual disclosures about its
privacy policy and practices will need to reflect how the financial
institution complies with the affiliate sharing provisions of the FCRA.
Disclosures of the Right to Opt Out
Other commenters suggested that the final rule eliminate the
requirement that the initial and annual notices contain disclosures
about a consumer's right to opt out. These commenters pointed out that
the statute does not specifically require these disclosures.
As previously discussed, section 503(a) of the statute requires a
financial institution to disclose its policies and practices with
respect to sharing information, both with affiliated and nonaffiliated
third parties. Given that a financial institution's practices with
respect to sharing nonpublic personal information with nonaffiliated
third parties will be affected by the opt out rights created by the
statute, an institution will need to describe these opt out rights in
order to provide a complete disclosure that satisfies the statute.
Other Comments
The Agencies received many comments expressing support for a number
of the provisions in proposed Sec. __.6. For instance, several
commenters noted their agreement with the approach of permitting a
financial institution to state generally that it makes disclosures to
nonaffiliated third parties ``as permitted by law'' to describe
disclosures made pursuant to one of the exceptions. Others agreed with
the proposed flexibility to allow a disclosure to be based on current
and contemplated information sharing. In light of these comments, the
Agencies have adopted proposed Sec. __.6 with changes as discussed
above. The final rule makes several other stylistic changes to the
material in Sec. __.6 that are intended to make the rule easier to
read. \10\
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\10\ The Agencies expect to publish proposed standards in the
near future relating to administrative, technical, and physical
safeguards as required by section 501(b) of the GLB Act.
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Section __.7 Form of Opt Out Notice to Consumers; Opt Out Methods
Paragraph (a) of proposed Sec. __.8 required that any opt out
notice provided by a financial institution be clear and conspicuous and
accurately explain the right to opt out. The proposed rule also
required a financial institution to provide the consumer with a
reasonable means by which to opt out, required a financial institution
to honor an opt out election as soon as reasonably practicable, and
stated that an opt out election survived until revoked by the consumer.
The Agencies received a large number of comments in response to each of
these provisions, addressing the application of these rules to joint
accounts, the means by which an opt out right may be exercised,
duration of an opt out, the level of detail required in the opt out
notice, and the time by which an opt out election must be honored.
These points are addressed below.
Joint Accounts
Most of the commenters on this issue stated that a financial
institution should have the option of providing one notice per account,
regardless of the number of persons on the account. The Agencies agree
that this is appropriate, and have added a new Sec. __.7(d) to address
this issue. Under the final rule, a financial institution has the
option of providing only one initial, annual, and opt out notice per
account. However, any of the accountholders must have the right to opt
out. The final rule requires a financial institution to state in the
opt out notice provided to a joint accountholder whether the
institution will consider an opt out by a joint accountholder as an opt
out by all of the associated accountholders or whether each
accountholder is permitted to opt out separately.
Means of Opting Out
Another issue addressed by many commenters concerned the means by
which consumers may opt out. Several suggested that a financial
institution, after having provided reasonable means of opting out,
should be able to require consumers to use those means exclusively. The
Agencies agree with this suggestion, recognizing that a financial
institution may not have trained personnel or systems in place to
handle opt out elections at each point of contact between a consumer
and financial institution. Assuming a financial institution offers one
or more of the opt out means provided in the examples in the final rule
or a means of opting out that is comparably convenient for a consumer,
the institution may require consumers to opt out in accordance with
those means and choose not to honor opt out elections communicated to
the institution through alternative means. A new paragraph (iv) has
been added to Sec. __.7(a)(2)(iv) to reflect this.
The final rule adds an example of a toll-free telephone number in
Sec. __.7(a)(2)(ii)(D) as another way by which financial institutions
may allow consumers to opt out. As stated in Sec. __.7(a)(2)(iii)(A), a
financial institution may not require a consumer to write his or her
own letter in order to opt out.
Duration of Opt Out
Several commenters requested that the rule concerning duration of
an opt out, as provided in Sec. __.8(e) of the proposal, be changed to
require a more workable approach. These commenters noted that, under
the proposal, a financial institution would be required to keep track
of opt out elections forever. To illustrate their point, the commenters
posited the example of a person who opts out during the course of
establishing a customer relationship with a financial institution,
terminates that relationship, and then establishes
[[Page 35178]]
another customer relationship several years later, perhaps under a
different name or with someone on a joint account. The commenters
suggested that it would be more appropriate in these circumstances to
treat the opt out election made in connection with the first
relationship as applying solely to that relationship.
The Agencies agree with the commenters' suggestions. Thus, under
the final rule, a financial institution is to treat an opt out election
made by a customer in connection with a prior customer relationship as
applying solely to the nonpublic personal information that the
financial institution collected during, or related to, that
relationship. That opt out will continue until the customer revokes it.
However, if the customer relationship terminates and a new one is
established at a later point, the financial institution must then
provide a new opt out notice to the customer in connection with the new
relationship and any prior opt out election does not apply to the new
relationship.
Level of Detail Required in Opt Out Notice
A few commenters expressed concern about the level of detail they
perceived the proposed rule to require in an opt out notice. These
commenters interpreted the statement in proposed Sec. __.8(a)(2) that a
financial institution ``provides adequate notice * * * if [the
institution] identifies all of the categories of nonpublic personal
information that [the institution] discloses or reserves the right to
disclose to nonaffiliated third parties as described in [Sec. __.6]''
as requiring a more detailed disclosure of categories of nonpublic
personal information and nonaffiliated third parties than is required
in the initial and annual notices.
The Agencies did not intend this result, and specifically referred
to Sec. __.6 in the proposed opt out provision to address precisely the
concern raised by these commenters. The disclosures in the initial and
annual notices of the categories of nonpublic personal information
being disclosed and the categories of nonaffiliated third parties to
whom the information is disclosed will suffice for purposes of the opt
out notices as well. If the opt out notice is a part of the same
document that contains the disclosures that must be included in the
initial notice, then the financial institution is not required to
restate the same information in the opt out notice. In this instance,
the rule requires only that the categories of nonpublic personal
information the institution intends to share and the categories of
nonaffiliated third parties with whom it will share are clearly
disclosed to the consumer when the opt out and privacy notices are read
together.
One commenter suggested that, while a financial institution should
have the option of providing an opt out notice that is sufficiently
broad to cover anticipated disclosures, the financial institution also
should be permitted to provide a customer who already has opted out
with a new opt out notice in connection with a new financial product or
service and, if the consumer does not opt out a second time, be free to
disclose nonpublic personal information obtained in connection with
that financial product or service to nonaffiliated third parties. The
Agencies believe that a financial institution should be permitted the
flexibility to provide opt out notices that are either narrowly
tailored to specific types of nonpublic personal information and types
of nonaffiliated third parties or that are more broadly worded to
anticipate future disclosure plans. However, if a consumer opts out
after receiving an opt out notice from a financial institution that is
broad enough to cover the new type of information sharing desired by
that institution, the failure of the consumer to opt out again does not
revoke the earlier opt out election.
Time by Which Opt Out Must Be Honored
Under the proposal, a financial institution is directed to comply
with an opt out election ``as soon as reasonably practicable.'' A large
number of comments asked the Agencies to clarify in the final rule how
long a financial institution has after receiving an opt out election to
cease disclosing nonpublic personal information to nonaffiliated third
parties. Suggestions for a more precise standard ranged from mandating
that a financial institution stop disclosing information immediately to
a mandatory cessation within several months of receiving the opt out.
As was the case with other suggestions for bright-line standards in
different contexts, the Agencies believe that it is appropriate to
retain a more general rule in light of the wide range of practices
throughout the financial institutions industry. A potential drawback of
a more prescriptive rule is that an institution might use the standard
as a safe harbor in all instances and thus fail to honor an opt out
election as early as it is otherwise capable of doing. Another drawback
is that a standard that is set in light of current industry practices
and capabilities is likely to become outmoded quickly as advances in
technology increase efficiency. The Agencies therefore decline to adopt
a more rigid standard, and instead retain the rule as set out in
Sec. __.7(e) of the final rule.
For the reasons stated above, the Agencies adopt, in Sec. __.7, the
rule governing the form of opt out notices and methods of opting out as
discussed above. This section contains other stylistic changes to what
was proposed in order to make the final rule easier to read.
Section __.8 Revised Privacy Notices
The proposed rule, in Sec. __.8(c), prohibited a financial
institution, directly or through its affiliates, from disclosing
nonpublic personal information about its consumers to nonaffiliated
third parties unless the institution first provided a copy of its
privacy notice and opt out notice. The proposal also required that
these notices be accurate when given. Thus, if an institution wants to
disclose nonpublic personal information in a way that is not accurately
described in its notices, the institution would be required under the
proposed rule to provide new notices before making the disclosure in
question.
The Agencies received no comments raising questions about these
requirements. Accordingly, the final rule adopts them, but sets them
out in a separate section (Sec. __.8) in the final rule for emphasis.
The final rule sets out examples in Sec. __.8(b) of when a new notice
would, and would not, be required.
Section __.9 Delivering Privacy and Opt Out Notices
The proposed rules governing delivery of initial, annual, and opt
out notices were set out in proposed Secs. __.4(d), __.5(b), and
__.8(b), respectively. Given the substantial similarities between the
three sets of rules, the Agencies have decided to combine the rules in
one section in order to make it easier for the reader. Accordingly, the
final rule states these rules in Sec. __.9.
The general rule requires that notices be provided in a manner so
that each consumer can reasonably be expected to receive actual notice
in writing, or, if the consumer agrees, electronically. The Agencies
received a number of comments on the various provisions governing
delivery, as discussed below.
Posting Initial Notices on a Web Site
A few commenters suggested that a financial institution be allowed
to
[[Page 35179]]
deliver initial notices simply by posting its notice on the
institution's web site. The Agencies recognize that there will be
instances when a notice on a web site may be delivered in a way that
will enable the financial institution to reasonably expect that the
consumer will receive it. The final rule retains, as an example of one
way to comply with the rule, the posting of a notice on a web site and
requiring a consumer to acknowledge receipt of the notice as a step in
the process of obtaining a financial product or service. See
Sec. __.9(b)(1)(iii). However, the Agencies believe that the mere
posting of a notice on a web site would not be sufficient in all cases
for the financial institution to reasonably expect its consumers to
receive the notice. Accordingly, the Agencies have declined to expand
the rule beyond the circumstance described in the example provided.
Posting Annual Notices on a Web Site
Several commenters requested that a privacy notice posted by a
financial institution on its web site be deemed to satisfy the annual
notice requirement, at least for customers who agree to receive notices
on the institution's web site. The Agencies believe that it is
appropriate to provide annual notices in this way for customers who
conduct transactions electronically and agree to accept notices on a
web site. Accordingly, the Agencies have amended the rule by adding a
new Sec. __.9(c)(1) to clarify that a financial institution may
reasonably expect a customer who uses the institution's web site to
access financial products or services will receive actual notice if the
customer has agreed to accept notices at the institution's web site and
the financial institution posts a current notice of its privacy
policies and practices continuously and in a clear and conspicuous
manner on the web site. The Agencies believe that this will reduce
burden on financial institutions while ensuring that customers who
transact business electronically will have continuous access to
institutions' privacy policies and practices.
Disclosures to Customers Requesting No Communication
Several commenters suggested the Agencies clarify in the final rule
how the disclosure obligations may be met in the case of a customer who
requests that the institution refrain from sending information about
the customer's relationship. These commenters stated that, in this
case, the customer's request should be honored.
The Agencies agree. When a customer provides explicit instructions
for a financial institution not to communicate with that customer, the
Agencies believe that the request should be honored. The final rule
clarifies, in Sec. __.9(c), that financial institutions need not send
notices to a customer who requests no communication, provided that a
notice is available upon request.
Reaccessing a Notice
A few commenters stated that the requirement that a privacy policy
be provided in a way that enables a customer to either retain or
reaccess the notice should clarify that the rule obligates a financial
institution to make available only the privacy policy currently in
effect. These commenters were concerned about the potential for
confusion and the burden stemming from a rule that would require a
financial institution to make available every version of its privacy
policies. The Agencies agree that it is appropriate to require only
that the current privacy policy be made available to someone seeking to
obtain it after having received the initial notice, and have amended
the rule accordingly in Sec. __.9(e)(2)(iii).
Joint Notices
Other commenters requested that the rule clarify that the privacy
policies and practices of several different affiliated financial
institutions may be described on a single notice. Related to this
point, commenters requested that the final rule address whether
affiliated financial institutions, each of whom has a customer
relationship with the same consumer, may elect to send only one notice
to the consumer on behalf of all of the affiliates covered by the
notice and have that one notice satisfy the disclosure obligations
under Sec. __.4 of each affiliate. The Agencies believe that financial
institutions should be able to combine initial disclosures in one
document. The Agencies also believe that it is appropriate to permit
financial institutions that prepare a combined initial, annual, or
revised notice to give, on a collective basis, a consumer only one copy
of the notice. The final rule reflects this flexibility, in
Sec. __.9(f). The Agencies emphasize that the notice must be accurate
for all financial institutions using the notice and must identify by
name each of the institutions.
Section __.10 Limits on Disclosure of Nonpublic Personal Information
to Nonaffiliated Third Parties
Section 502(a) of the GLB Act generally prohibits a financial
institution, directly or through its affiliates, from sharing nonpublic
personal information about a consumer with a nonaffiliated third party
unless the institution provides the consumer with a notice of the
institution's privacy policies and practices. Section 502(b) further
requires that the financial institution provide the consumer with a
clear and conspicuous notice that the consumer's nonpublic personal
information may be disclosed to nonaffiliated third parties, that the
consumer be given an opportunity to opt out of that disclosure, and
that the consumer be informed of how to opt out. Section __.7 of the
proposed rules implemented these provisions by requiring a financial
institution to give the consumer the initial notice required by
Sec. __.4, the opt out notice required by Sec. __.8, and a reasonable
opportunity to opt out.
Most of the comments on this section focused on the question of
what is a reasonable opportunity to opt out. Suggestions ranged from a
financial institution having the right to begin sharing information
immediately (when the opt out and initial notices are provided as part
of a transaction being conducted electronically, such as might be the
case in an ATM transaction) up to a mandatory delay of 120 days from
the time the notices are provided.
The Agencies believe that the wide variety of suggestions
underscores the appropriateness of a more general test that avoids
setting a mandatory waiting period applicable in all cases. For
isolated transactions where a financial institution intends to disclose
nonpublic personal information that it obtains through an electronic
transaction and the consumer is provided a convenient means of opting
out as part of the transaction, it would be reasonable not to force the
financial institution to wait a set period of time before sharing the
information. An example of this is provided at Sec. __.10(a)(3)(iii).
For notices that are provided by mail, the Agencies believe it is
appropriate to allow the consumer additional time. In these latter
instances, the Agencies consider it reasonable to permit the consumer
to opt out by mailing back a form, by calling a toll-free number, or by
any other reasonable means within 30 days from the date the opt out
notice was mailed. See Sec. __.10(a)(3)(i). The final rule also
provides an example of a reasonable opportunity for opting out in
connection with accounts opened on-line. See Sec. __.10(a)(3)(ii).
However, rather than try to anticipate every scenario and establish a
time frame that would accommodate each, the Agencies think it is
appropriate simply to state that the consumer must be given a
reasonable opportunity to opt out and then provide a few illustrative
examples
[[Page 35180]]
of what would be reasonable in different contexts.
Other comments pointed out that proposed Sec. __.7(a)(3)(i)
(Sec. __.10(a)(3)(i) of the final rule) inappropriately implied that
the opportunity to opt out by mail is available only when a consumer
has a customer relationship with the financial institution. The final
rule deletes the reference to a customer relationship in that section
to avoid creating that implication.
Section __.11 Limits on Redisclosure and Reuse of Information
Section 502(c) of the GLB Act provides that a nonaffiliated third
party that receives nonpublic personal information from a financial
institution shall not, directly or indirectly through an affiliate,
disclose the information to any person that is not affiliated with both
the financial institution and the third party, unless the disclosure
would be lawful if made directly by the financial institution. A
financial institution may generally disclose nonpublic personal
information to a nonaffiliated third party for any purpose subject to
notice and opt out, for certain service and joint marketing
arrangements under section 502(b), and in accordance with specific
enumerated exceptions under section 502(e).
The limits on redisclosure and reuse that were set out in the
proposal reflected the Agencies' belief that implicit in the joint
marketing and the enumerated exceptions is the idea that information
may only be used for the purposes for which the third party received
it.\11\ The proposed rule implemented section 502(c) by imposing limits
on redisclosure that apply both to a financial institution that
receives information from a nonaffiliated financial institution and to
any nonaffiliated third party that receives nonpublic personal
information from a financial institution. The proposed rule implemented
the implicit limitations on use by imposing limits on the ability of
financial institutions and nonaffiliated third parties to reuse
nonpublic personal information they receive. The Agencies sought
comment on whether the final rule should limit the ability of an entity
that receives nonpublic personal information pursuant to an exception
to use that information only for the purpose of that exception. The
Agencies also sought comment on what the term ``lawful'' means in the
context of section 502(c), and whether a recipient of nonpublic
personal information could ``lawfully'' disclose information if the
disclosure complied with a notice provided by the institution that made
the disclosure initially. Finally, the Agencies invited comment on
whether the rules should require a financial institution that discloses
nonpublic personal information to a nonaffiliated third party to
develop policies and procedures to ensure that the third party complies
with the limits on redisclosure of that information.
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\11\ For example, as discussed further below, permitted use for
an enumerated exception would not include use for marketing
purposes.
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The Agencies received a large number of comments in response to
this proposed section. A few maintained that the Agencies would exceed
their rulemaking authority if the final rule were to retain the limits
on reuse of information, given that section 502(c) expressly addresses
only redisclosures and not reuse. Most comments concerning proposed
Sec. __.12 stated that financial institutions should not have to
monitor compliance with the redisclosure and reuse provisions of the
rule, although these commenters said that financial institutions
typically will contractually limit the recipient's ability to reuse
information for purposes other than those for which the information was
disclosed. These issues are addressed below.
Limits on Reuse and Redisclosure
The position advanced by those critical of imposing limits on reuse
is premised on the conclusion that Congress, by addressing limits on
redisclosures in section 502(c), provided the only limits that may be
imposed on what a recipient of nonpublic personal information can do
with that information. The Agencies disagree with this premise.
Although section 502(c) does not expressly address reuse, reuse
limitations are, as indicated, implicit in the provisions authorizing
or permitting disclosures. For example, it would be inconsistent with
the purposes of the Act to permit information disclosed in accordance
with section 502(e)(1) (which permits disclosures as necessary to
effect, administer, or enforce a transaction with a consumer or in
connection with certain routine activities related to such a
transaction) to be used for the third party recipient's marketing
purposes. Moreover, permitting reuse without limits would undermine the
protections afforded to a consumer who does not establish a customer
relationship. Such a person is not put on notice that the disclosures
under section 502(e) are even made because these disclosures do not
entitle the consumer to any privacy or opt out notice. Thus, the limits
on reuse are the only protection the individual has arising under the
statute. Accordingly, the Agencies have concluded that it is
appropriate to exercise their rulemaking authority under section
504(a)(1) (which authorizes the Agencies to write regulations necessary
to carry out the purposes of Subtitle A of Title V) to impose limits on
reuse when information is received under an exception in section 502(e)
of the GLB Act.
By contrast, when a consumer decides not to opt out after being
given adequate notices and the opportunity to do so, that consumer has
made a decision to permit the sharing of his or her nonpublic personal
information with the categories of entities identified in the financial
institution's notices. The consumer's primary protection in the case of
a disclosure falling outside the section 502(e) exceptions comes from
receiving the mandatory disclosures and the right to opt out. The
statute provides only the additional protection in section 502(c),
restricting a recipient's ability to redisclose information to entities
that are not affiliated with either the recipient or the financial
institution making the disclosure initially. Thus, if a consumer
permits a financial institution to disclose nonpublic personal
information to the categories of nonaffiliated third parties that are
described in the institution's notices, recipients of that nonpublic
personal information appear authorized under the statute to make
disclosures that comply with those notices.
To implement this statutory scheme, the Agencies have imposed the
following limits on redisclosure and reuse, which will vary depending
on whether the information was provided pursuant to one of the 502(e)
exceptions or otherwise.
Limits on redisclosure and reuse when information is received
pursuant to section 502(e). For nonpublic personal information provided
pursuant to section 502(e), a financial institution receiving the
information may disclose the information to its affiliates or to
affiliates of the financial institution from which the information was
received. It may also disclose and use the information pursuant to an
exception in Secs. __.14 or __.15 in the ordinary course of business to
carry out the activity covered by the exception under which the
institution received the information. The financial institution's
affiliates may disclose and use the information, but only to the extent
permissible for the financial institution.
These same general rules apply to a non-financial institution third
party that receives nonpublic personal information from a financial
institution under
[[Page 35181]]
section 502(e). Thus, the third party receiving the information
pursuant to one of the section 502(e) exceptions may disclose the
information to its affiliates or to the affiliates of the financial
institution that made the disclosure. The third party also may disclose
and use the information pursuant to one of the section 502(e)
exceptions as noted in the rule. The affiliates of the third party may
disclose and use the information only to the extent permissible for the
third party.
Limits on redisclosure when information is not received pursuant to
section 502(e). For nonpublic personal information provided outside one
of the section 502(e) exceptions, the financial institution receiving
the information may disclose the information to its affiliates or to
the affiliates of the financial institution that made the initial
disclosure. It may also disclose the information to any other person,
if the disclosure would be lawful if made directly by the financial
institution from which the information was received. This would enable
the receiving institution to disclose pursuant to one of the section
502(e) exceptions. It also would permit the receiving institution to
redisclose information in accordance with the opt out and privacy
notices given by the institution making the initial disclosures, as
limited by any opt out elections received by that institution. The
affiliates of a financial institution that receives nonpublic personal
information may disclose only to the extent that the financial
institution may disclose the information.
If a third party receives information from a financial institution
outside one of the section 502(e) exceptions, the third party may
disclose to its affiliates or to the affiliates of the financial
institution. It may also disclose to any other person if the disclosure
would be lawful if made by the financial institution. The third party's
affiliates may disclose and use the information to the same extent
permissible for the third party.
In cases where an entity receives information outside of one of the
section 502(e) exceptions, that entity will in essence ``step into the
shoes'' of the financial institution that made the initial disclosures.
Thus, if the financial institution made the initial disclosures after
representing to its consumers that it had carefully screened the
entities to whom it intended to disclose the information, the receiving
entity must comply with those representations. Otherwise, the
subsequent disclosure by the receiving entity would not be in
accordance with the notices given to consumers and would not,
therefore, be lawful. Even if such representations do not prevent the
recipient from redisclosing the information, the recipient's ability to
redisclose will be limited by whatever opt out instructions were given
to the institution making the initial disclosures and by whatever new
opt out instructions that are given after the initial disclosure. The
receiving entity, therefore, must have procedures in place to
continually monitor the status of who opts out and to what extent.
Given these practical limitations on the ability of a recipient to
disclose pursuant to another institution's privacy and opt out notices,
redisclosure of information is most likely to arise under one of the
section 502(e) exceptions (as implemented by Secs. __.14 and __.15 of
the final rule).
Monitoring Third Parties
The Agencies have decided not to amend their respective rules to
impose a specific duty on financial institutions to monitor third
parties' use of nonpublic personal information provided by the
institutions. This does not address whether obligations to do so may
arise in other contexts. The Agencies note, for instance, that most of
the commenters who requested that the Agencies not impose such a duty
stated that they have contracts in place that limit what the recipient
may do with the information. The Agencies also note that the limits on
reuse as stated in the final rule provide a basis for an action to be
brought against an entity that violates those limits.
Section __.12 Limits on Sharing Account Number Information for
Marketing Purposes
Section 502(d) of the GLB Act prohibits a financial institution
from disclosing, ``other than to a consumer reporting agency, an
account number or similar form of access number or access code for a
credit card account, deposit account, or transaction account of a
consumer to any nonaffiliated third party for use in telemarketing,
direct mail marketing, or other marketing through electronic mail to
the consumer.'' Proposed Sec. __.13 applied this statutory prohibition
to disclosures made directly or indirectly by a financial institution,
and sought comment on whether one or more exceptions to the flat
prohibition should be created.
The Agencies received comments from people who suggested that
various exceptions be created as well as from people who believe that a
flat prohibition is necessary to protect consumers from unscrupulous
practices. After considering the suggestions from all of the commenters
addressing this issue, the Agencies have decided to amend proposed
Sec. __.13 by (a) adding two exceptions that the Agencies believe are
necessary for financial institutions to engage in legitimate, routine
business practices and that are unlikely to pose a significant
potential for abuse and (b) clarifying that the prohibition does not
apply in two circumstances frequently mentioned in the comments. These
exceptions and clarifications are discussed below.
Disclosures to a Financial Institution's Agent or Service Provider
Many financial institutions noted that they use agents or service
providers to conduct marketing on the institution's behalf. This might
occur, for instance, when an insured depository institution instructs a
service provider that assists in the delivery of monthly statements to
include a ``statement stuffer'' with the statement informing consumers
about a financial product or service offered by the institution. The
Agencies recognize the need to disclose account numbers in this
instance, and believe that there is little risk to the consumer
presented by such disclosure.
Similarly, the Agencies recognize that a financial institution may
use agents to market the institution's own financial products and
services. Commenters advocating that the final rule exclude disclosures
to agents stated that the agents effectively act as the financial
institution in the marketing of the institution's financial products
and services. These commenters suggested that there was no more reason
to preclude sharing the account numbers with an agent hired to market
the institution's financial products and services than there would be
to preclude sharing between two departments of the same institution.
The Agencies are concerned, however, about the possibility of
transactions being consummated by a financial institution's agent who
may be engaging in practices contrary to the institution's
instructions. While the Agencies recognize that a financial institution
frequently will use agents to assist it in marketing its products, the
Agencies believe that a consumer's protections are potentially eroded
by allowing agents to have access to a consumer's account. Accordingly,
the Agencies have added an exception in Sec. __.12(b)(1) that would
permit disclosures of account numbers by a financial institution to an
agent for the purpose of marketing the financial institution's
financial product or services, but have qualified that exception by
requiring
[[Page 35182]]
that the agent have no authority to initiate charges to the account.
Private Label Credit Cards and Affinity Programs
Many commenters stated that the final rule should not prevent the
disclosure of account numbers in the situation where a consumer chooses
to participate in a private label credit card program or other affinity
program. Under these programs, a consumer typically will be offered
certain benefits, often by a retail merchant, in return for using a
credit card that is issued by a particular financial institution. The
commenters suggested that, in the example of an affinity program, the
consumer understands the need for the merchant and financial
institution to share the consumer's account number. The Agencies agree
that this type of disclosure is appropriate and does not create a
significant risk to the consumer. Accordingly, Sec. __.12(b)(2) has
been added to the final rule to exclude the sharing of account numbers
where the participants are identified to the consumer at the time the
consumer enters into the program.
Encrypted Numbers
Many commenters urged the Agencies to exercise their exemptive
authority to permit the transmission of account numbers in encrypted
form. Several commenters noted that encrypted account numbers and other
internal identifiers of an account are frequently used to ensure that a
consumer's instructions are properly executed, and that the inability
to continue using these internal identifiers would increase the
likelihood of errors in processing a consumer's instructions. These
commenters also point out that if internal identifiers may not be used,
a consumer would need to provide an account number in order to ensure
proper handling of a request, which would expose the consumer to a
greater risk than would the use of an internal tracking system that
preserves the confidentiality of a number that may be used to access
the account.
The Agencies believe an encrypted account number without the key is
something different from the number itself and thus falls outside the
prohibition in section 502(d). In essence, it operates as an identifier
attached to an account for internal tracking purposes only. The
statute, by contrast, focuses on numbers that provide access to an
account. Without the key to decrypt an account number, an encrypted
number does not permit someone to access an account.
In light of the statutory focus on access numbers, and given the
demonstrated need to be able to identify which account a financial
institution should debit or credit in connection with a transaction,
the Agencies have included a clarification in Sec. __.12(c)(1) of the
final rule stating that an account number, or similar form of access
number or access code, does not include a number or code in an
encrypted number form, as long as the financial institution does not
provide the recipient with the means to decrypt the number. The
Agencies believe that consumers will be adequately protected by
disclosures of encrypted account numbers that do not enable the
recipient to access the consumer's account.
Definition of ``Transaction Account''
Several commenters suggested that the final rule clarify that
accounts to which no charge may be posted are not covered by the
prohibition against disclosing account numbers. These commenters
frequently cited mortgage loan accounts as typical of those that should
fall outside the scope of the prohibition. The Agencies agree with the
principle behind these suggestions. However, the Agencies note that
there have been instances in which a borrower's monthly payments on a
mortgage loan have been increased in connection with the marketing of a
financial product or service without the borrower's knowledge or
permission. Accordingly, the final rule clarifies, in Sec. __.12(c)(2),
that a transaction account is an account other than a deposit account
or a credit card account, and does not include an account to which
third parties cannot initiate charges. If it would be possible, for
instance, for a third party marketer to initiate a charge to a mortgage
loan account, then the final rule would prohibit the disclosure of that
account number to the marketer.
Section __.13 Exception to Opt Out Requirements for Service Providers
and Joint Marketing
Section 502(b) of the GLB Act creates an exception to the opt out
rules for the disclosure of information to a nonaffiliated third party
for use by the third party to perform services for, or functions on
behalf of, the financial institution, including the marketing of the
financial institution's own products or services or financial products
or services offered pursuant to a joint agreement between two or more
financial institutions. A consumer will not have the right to opt out
of disclosing nonpublic personal information about the consumer to
nonaffiliated third parties under these circumstances, if the financial
institution ``fully discloses'' to the consumer that it will provide
this information to the nonaffiliated third party before the
information is shared and enters into a contract with the third party
that requires the third party to maintain the confidentiality of the
information. As noted in the proposed rule, this contract should be
designed to ensure that the third party (a) will maintain the
confidentiality of the information at least to the same extent as is
required for the financial institution that discloses it, and (b) will
use the information solely for the purposes for which the information
is disclosed or as otherwise permitted by Secs. __.10 and __.11 of the
proposed rules.
The majority of the comments on this exception expressed concern
that routine servicing agreements between a financial institution and,
for instance, a loan servicer would be subject to the requirements of
proposed Sec. __.9 (Sec. __.13 in the final rule). These commenters
consistently pointed out that section 502(e) of the GLB Act contains
several exceptions for the sharing of information by a financial
institution that is necessary to permit a third party to perform
services for a financial institution. The commenters requested
clarification that disclosures made pursuant to one of the section
502(e) exceptions are not subject to the requirements imposed on
disclosures made pursuant to section 502(b)(2) of the GLB Act. The
Agencies agree that when a disclosure may be made under section 502(e),
the statute permits that disclosure without the financial institution
first complying with the requirements imposed by section 502(b)(2).
A related issue is whether a financial institution must satisfy the
disclosure obligations of section 502(b)(2) and have a confidentiality
agreement in the case of a service provider that is performing an
activity governed by section 502(b)(2) (i.e., those that are not
covered by one of the section 502(e) exceptions). Several commenters
maintained that it is illogical to impose a set of requirements on
disclosures to the section 502(b)(2) service providers when no such
requirements are imposed on the section 502(e) service providers. The
Agencies believe, however, that a plain reading of section 502(b)(2)
leads to that result.\12\ The Agencies read the phrase
[[Page 35183]]
``if the financial institution fully discloses * * *'' as used in
section 502(b)(2) as modifying the phrase ``This subsection shall not
prevent a financial institution from providing nonpublic personal
information to a nonaffiliated third party to perform services for or
functions on behalf of the financial institution, * * *'' The Agencies
thus have concluded that any disclosure to a service provider not
covered by section 502(e) must satisfy the disclosure and written
contract requirements of section 502(b)(2).
---------------------------------------------------------------------------
\12\ The statute states, in relevant part, that section 502(b)
``* * shall not prevent a financial institution from providing
nonpublic personal information to a nonaffiliated third party to
perform services for or functions on behalf of the financial
institution, including the marketing of the financial institution's
own products or services, or financial products or services offered
pursuant to joint agreements between two or more financial
institutions that comply with the requirements imposed by the
regulations prescribed under section 504, if the financial
institution fully discloses the providing of such information and
enters into a contractual agreement with the third party that
requires the third party to maintain the confidentiality of such
information.''
---------------------------------------------------------------------------
Several other commenters addressed the question of whether the rule
should include safeguards beyond those provided by the statute to
protect a financial institution from the risks that can arise from
agreements with third parties. Most suggested that safety and soundness
concerns were more appropriately addressed in a forum other than a rule
designed to protect consumers' financial privacy. Others opined that
financial institutions did not need the rule to mandate certain
protections on their behalf. The Agencies have concluded that the
protections set out in the statute, as implemented by Sec. __.13(a)(1),
are adequate for purposes of the privacy rule. Those protections
require a financial institution to provide the initial notice required
by Sec. __.4 of the final rule as well as enter into a contractual
agreement with a third party that prohibits the third party from
disclosing or using the information other than to carry out the
purposes for which the bank disclosed the information, including use
under an exception in Secs. __.14 or __.15 in the ordinary course of
business to carry out those purposes. These limitations will preclude
recipients from sharing a consumer's nonpublic personal information
pursuant to a chain of third party joint marketing agreements.
Several commenters asked whether a financial institution would have
to modify existing contracts with third parties to comply with the
rule. The Agencies believe that a balance must be struck that minimizes
interference with existing contracts while preventing evasions of the
regulation. To achieve these goals, the final rule states, in
Sec. __.18(c), that contracts entered into on or before July 1, 2000
must be brought into compliance with the provisions of Sec. __.13 by
July 1, 2002.
For the reasons expressed above, the Agencies have adopted, in
Sec. __.13 of the final rule, the provisions that were set out in
Sec. __.9 of the proposal with the changes noted above. The Agencies
note that financial institutions should remain vigilant in their
efforts to ensure that agreements they enter into with third parties do
not expose the institutions to undue risks. These risks are
particularly prevalent in arrangements whereby a financial institution
endorses or sponsors a financial product or service offered by the
third party.
Section __.14 Exceptions to Notice and Opt Out Requirements for
Processing and Servicing Transactions
As previously discussed, section 502(e) of the GLB Act creates
exceptions to the requirements that apply to the disclosure of
nonpublic personal information to nonaffiliated third parties.
Paragraph (1) of that section sets out certain exceptions for
disclosures made, generally speaking, in connection with the
administration, processing, servicing, and sale of a consumer's
account. Proposed Sec. __.10 implemented those exceptions by restating
them with only stylistic changes that were intended to make the
exceptions easier to read. The preamble to that proposed section noted
that the exceptions set out in proposed Sec. __.10 (as well as the
exceptions set out in Sec. __.11 of the proposal) do not affect a
financial institution's obligation to provide initial notices of its
privacy policies and practices prior to the time it establishes a
customer relationship and annual notices thereafter.
The Agencies received several comments from institutions pointing
out that, by deleting the statutory phrase ``in connection with'' from
the exceptions for information shared (a) to service or process a
financial product or service requested by the consumer or (b) to
maintain or service a customer account, the Agencies narrowed the
application of the exception. The Agencies did not intend this result,
and have changed the final rule accordingly. See Sec. __.14(a).
Several other commenters requested that the final rule specifically
state that certain services, such as those provided by attorneys,
appraisers, and debt collectors (as appropriate), are ``necessary'' to
effect, administer, or enforce a transaction, as that term is used in
paragraph (a) and defined in paragraph (b) of proposed Sec. __.10.
Others cited examples of entities seeking to verify funds availability
or obtain loan payoff information as instances where a disclosure would
fall within the exceptions described in proposed Sec. __.10. The
Agencies believe that disclosures to these types of professionals and
under the circumstances posited by the commenters may be necessary to
effect, administer, or enforce a transaction in a given situation.
However, the Agencies have not listed specific types of disclosures in
the regulation as necessarily falling within the scope of the exception
because they are concerned that a general statement could be applied
inappropriately to shelter disclosures that, in fact, are not necessary
to effect, administer, or enforce a transaction.
Other commenters suggested that the final rule clarify, in
situations where a financial institution uses an agent to provide
services to a consumer, that the consumer need not have directly
requested or authorized the service provider to provide the financial
product or service but may request it from the principal instead. The
Agencies agree that the communication may be between the consumer and
the service provider, and note that the rule governing agents as set
out in the definition of ``consumer,'' above, provides the flexibility
sought by the commenters. Briefly stated, an individual will not be a
consumer of an entity that is acting as agent for another financial
institution in connection with that financial institution's providing a
financial product or service to the consumer.
Section __.15 Other Exceptions to Notice and Opt Out Requirements
As noted above, section 502(e) contains several exceptions to the
requirements that otherwise would apply to the disclosures of nonpublic
personal information to nonaffiliated third parties. Proposed
Sec. __.11 set out those exceptions for disclosures that are not made
in connection with the administration, processing, servicing, and sale
of a consumer's account, and made stylistic changes to the statutory
language intended to clarify the exceptions. The proposal also provided
an example of the consent exception in the context of a financial
institution that has received an application from a consumer for a
mortgage loan informing a nonaffiliated insurance company that the
consumer has applied for a loan. The Agencies invited comment on
whether safeguards should be added to the exception for consent in
order to minimize the potential for consumer confusion.
Several commenters responded to the request for comment on whether
the consent exception should include
[[Page 35184]]
safeguards, such as a requirement that the consent be written, be
indicated by a signature on a separate line, or automatically terminate
after a certain period of time. Of these, some favored the additional
safeguards discussed in the proposal, while others maintained that
safeguards are unnecessary. Several suggested that the consent
exception include a provision noting that participation in a program
where a consumer receives ``bundled'' products and services (such as
would be the case, for instance, in an affinity program) necessarily
implies consent to the disclosure of information between the entities
that provide the bundled products or services. Others suggested that
certain terms and conditions be imposed on any consent agreement, such
as a time by which the financial institution must stop disclosing
nonpublic personal information once a consent is revoked.
The Agencies have declined to elaborate on the requirements for
obtaining consent or the consumer safeguards that should be in place
when a consumer consents. The Agencies believe that the resolution of
this issue is appropriately left to the particular circumstances of a
given transaction. The Agencies note that any financial institution
that obtains the consent of a consumer to disclose nonpublic personal
information should take steps to ensure that the limits of the consent
are well understood by both the financial institution and the consumer.
If misunderstandings arise, consumers may have means of redress, such
as in situations when a financial institution obtains consent through a
deceptive or fraudulent practice. Moreover, a consumer may always
revoke his or her consent. In light of the safeguards already in place,
the Agencies have decided not to add safeguards to the consent
exception.
Many commenters offered specific suggestions for additional
exceptions or amendments to the proposed exceptions. In many cases, the
suggestions are accommodated elsewhere in the regulation (such as is
the case, for instance, for exceptions to permit (a) verification of
available funds or (b) disclosures to or by appraisers, flood insurers,
attorneys, insurance agents, or mortgage brokers to effect a
transaction). In other cases, the suggestions are inconsistent with the
statute (as is the case, for instance, with one commenter's suggestion
that the Agencies completely exempt a financial institution from all of
the statute's requirements if the institution makes no disclosures
other than what is permitted by section 502(e)). While the Agencies
recognize the merits of many of the remaining suggestions, they believe
that the volume and complexity of these suggestions exceed what is
appropriate in a regulation. Accordingly, the Agencies have retained,
in Sec. __.15, the statement of the exceptions as proposed and invite
interested parties to pursue with the Agencies clarifications as
necessary in their particular circumstance.
Section __.16 Protection of Fair Credit Reporting Act
Section 506 of the GLB Act makes several amendments to the FCRA to
vest rulemaking authority in various agencies and to restore the
Agencies' regular examination authority. Paragraph (c) of section 506
states that, except for the amendments noted regarding rulemaking
authority, nothing in Title V of the GLB Act is to be construed to
modify, limit, or supersede the operation of the FCRA, and no inference
is to be drawn on the basis of the provisions of Title V whether
information is transaction or experience information under section 603
of the FCRA. Proposed Sec. __.14 implemented section 506(c) of the GLB
Act by restating the statute, making only minor stylistic changes
intended to make the rule clearer.
Comments about this provision focused on whether the Agencies, by
requiring annual notice of a consumer's right to opt out under the
FCRA, were modifying, limiting, or superseding the operation of the
FCRA. For the reasons explained in the discussion of Sec. __.6, above,
the Agencies do not believe that the annual disclosure mandated by the
GLB Act affects in any way the obligations imposed by the FCRA.
The Agencies received no other comment on this section, and,
therefore, adopt the text set out in Sec. __.14 of the proposal. See
Sec. __.16.
Section __.17 Relation to State Laws
Section 507 of the GLB Act states, in essence, that Title V does
not preempt any State law that provides greater protections than are
provided by Title V. Determinations of whether a State law or Title V
provides greater protections are to be made by the Federal Trade
Commission (FTC) after consultation with the agency that regulates
either the party filing a complaint or the financial institution about
whom the complaint was filed, and may be initiated by any interested
party or on the FTC's own motion. Proposed Sec. __.15 essentially
restated section 507, noting that the proposed rules (as opposed to the
statute) do not preempt State laws that provide greater protection for
consumers than do the rules.
Comments on this section ranged from those who suggested that
federal law should preempt state law in every case where there is a
conflict to those who encouraged the Agencies to support the rights of
states to enact greater protections. Some requested clarification of
whether a particular state law would be considered more restrictive,
while others suggested that the Agencies establish in the final rule a
choice of law principle for financial institutions operating in more
than one state. The Agencies believe that these and other suggestions
made by the commenters exceed the scope of this rulemaking and are
better addressed, to the extent the Agencies have authority to address
them, in other forums. Accordingly, the Agencies have adopted the text
set out in proposed Sec. __.15. See Sec. __.17 of the final rule.
Section __.18 Effective Date; Transition Rule
Section 510 of the GLB Act states that, as a general rule, the
relevant provisions of Title V take effect 6 months after the date on
which rules are required to be prescribed, i.e., November 12, 2000.
However, section 510(1) authorizes the Agencies to prescribe a later
date in the rules enacted pursuant to section 504. The proposed rule
sought comment on the effective date prescribed by the statute. It also
would have required that financial institutions provide initial
notices, within 30 days of the effective date of the final rule, to
people who were customers as of the effective date. The preamble to the
proposed rule noted that a financial institution would have to provide
opt out notices before the rule's effective date if the institution
wanted to continue sharing nonpublic personal information with
nonaffiliated third parties without interruption.
The overwhelming majority of commenters addressing this provision
requested additional time to comply with the final rule. Commenters
stated that six months would not be sufficient to take the steps needed
to comply with the regulation, including preparing new disclosure
forms, developing software needed to track opt outs, training
employees, creating management oversight systems, and undergoing
internal examination and auditing to ensure compliance. Several
commenters suggested that it would be less effective and potentially
more confusing for consumers to receive several notices all around the
end of the year 2000 than it would be for the notices to be delivered
during a rolling phase-in. Others noted that the proposed effective
date would
[[Page 35185]]
place a severe strain on financial institutions at a time when other
year-end notices need to be prepared and delivered. Several commenters
noted that financial institutions have not budgeted for the expenses in
the current year that likely will be incurred. They also noted that the
disclosures regarding the standards to be followed to protect
customers' records have not been proposed for comment, thereby making
it impossible for financial institutions to know how to prepare at
least that part of the initial privacy notices. Requests for extensions
of the effective date typically ranged from 12 months to 24 months from
the date the final rules are published.
Many commenters also stated that a 30-day phase-in for initial
notices to existing customers is not feasible, given the large number
of notices, the short period of time allowed, and the competing demands
on financial institutions at the time when the initial notices must be
sent. A few suggested that the rule require initial notices to be sent
only to people who establish customer relationships after the effective
date of the rule, and allow a financial institution to send annual
notices to existing customers at some point during the next 12 months
and annually thereafter.
The Agencies agree that six months may be insufficient in certain
instances for a financial institution to have ensured that its forms,
systems, and procedures comply with the rule. In order to accommodate
situations requiring additional time, the Agencies have retained the
effective date of November 13, but, consistent with their authority
under section 510(1) of the GLB Act to extend the effective date, the
Agencies will give financial institutions until July 1, 2001 to be in
full compliance with the regulation. Financial institutions are
expected, however, to begin compliance efforts promptly, to use the
period prior to June 30, 2001, to implement and test their systems, and
to be in full compliance by July 1, 2001. Given that this provides
financial institutions with slightly over 13 months in which to comply
with the rule, the Agencies have determined that there no longer is any
need for a separate phase-in for providing initial notices. Thus, a
financial institution will need to deliver all required opt out notices
and initial notices before July 1, 2001.
Financial institutions are encouraged to provide disclosures as
soon as practicable. Institutions that do not disclose nonpublic
personal information to third parties have fewer burdens under the
regulation (both in terms of the notice requirements and opt out
mechanism) and should therefore be able to provide privacy notices to
their consumers more expeditiously. Depending on the readiness of an
institution to process opt out elections, institutions might wish to
consider including the privacy and opt out notices in the same mailing
as is used to provide tax information to consumers in the first quarter
of 2001 to increase the likelihood that a consumer will not mistake the
notices for an unwanted solicitation. The Agencies believe that this
extension represents a fair balance between those seeking prompt
implementation of the protections afforded by the statute and those
concerned about the reliability of the systems that are put in place.
The Agencies have concluded that the extension of the date by which
financial institutions must be in full compliance provides much of the
relief sought by those who suggested that initial notices should not be
required for existing customers. By allowing financial institutions to
deliver notices over a significantly longer period of time than was
proposed, the concentrated burden that would have been imposed by the
proposed rule is avoided. Accordingly, the Agencies have decided not to
adopt the suggestion that initial notices be required only for new
customers after the effective date of the rule.
Initial notices need not be given to customers whose relationships
have terminated prior to the date by which institutions must be in
compliance with the rule. Thus, if an account is inactive according to
a financial institution's policies before July 1, 2001, then no initial
notice would be required in connection with that account. However,
because these former customers would remain consumers, a financial
institution would have to provide a privacy and opt out notice to them
if the financial institution intended to disclose their nonpublic
personal information to nonaffiliated third parties beyond the
exceptions in Secs. __.14 and __.15.
The Agencies note that full compliance with the rule's restrictions
on disclosures is required on July 1, 2001. To be in full compliance,
institutions must have provided their existing customers with a privacy
notice, an opt out notice, and a reasonable amount of time to opt out
prior to that date. If these have not been provided, the disclosure
restrictions will apply. This means that an institution would have to
cease sharing customers' nonpublic personal information with
nonaffiliated third parties on that date, unless it may share the
information pursuant to an exception under Secs. __.14 or __.15.
Financial institutions that both provide the required notices and allow
a reasonable period of time to opt out before July 1, 2001, may
continue to share nonpublic personal information after that date for
customers who do not opt out.
Appendix A--Sample Clauses
In order to provide additional guidance to financial institutions
concerning the level of detail the Agencies believe is appropriate
under the statute, the Agencies have prepared a variety of sample
clauses for financial institutions to consider. The Agencies urge
financial institutions to carefully review whether these clauses
accurately reflect a given institution's policies and practices before
using the clauses. Financial institutions are free to use different
language and to include additional detail as they think is appropriate
in their notices.
Derivation Chart
Below is a chart showing the derivation of the sections in the
final privacy rule from the proposal. Only changes are noted.
----------------------------------------------------------------------------------------------------------------
Proposal Content of provision Final rule
----------------------------------------------------------------------------------------------------------------
4(d).............................................. How to provide initial notice 9(a)
N/A............................................... New product for existing 4(d)
customer.
4(d)(3)........................................... Oral delivery................ 9(d)
4(d)(4)........................................... Retainable notice............ 9(e)
N/A............................................... Joint relationships (privacy 9(g)
notice).
5(b).............................................. How to provide annual notice. 9(a)
5(b).............................................. Actual notice of annual 9(c)
notice.
5(c).............................................. Terminated customer 5(b)
relationships.
N/A............................................... Delivering short-form initial 6(d)
notices.
7................................................. Main operative provision..... 10
[[Page 35186]]
8(a).............................................. Opt out methods and opt out 7(a)
notice content.
8(b)(1)........................................... How to deliver opt out 9(a)
notices.
8(b)(2)........................................... Oral delivery................ 9(d)
8(b)(3)........................................... Same form as initial notice.. 7(b)
8(b)(4)........................................... Initial notice must accompany 7(c)
opt out notice.
N/A............................................... Joint relationships (opt out 7(d)
notice).
8(d).............................................. Time to comply with opt out; 7(e) & (f)
continuing right to opt out.
8(e).............................................. Duration of opt out.......... 7(g)
8(c)(1)........................................... Revised notices.............. 8(a)
8(c)(2)........................................... How to deliver revised notice 8(c)
8(c)(3)........................................... Examples of when revised 8(b)
notice is required.
9................................................. Exception for service 13
providers and joint
marketers.
10................................................ Exceptions for processing and 14
servicing transactions.
11................................................ Other exceptions............. 15
12................................................ Redisclosure and reuse....... 11
13................................................ Sharing account number 12
information.
14................................................ FCRA......................... 16
15................................................ State law.................... 17
16................................................ Effective date............... 18
----------------------------------------------------------------------------------------------------------------
IV. Guidance for Certain Institutions
To minimize the burden and costs to a financial institution
(``you'') and generally clarify the operation of the final rule, the
Agencies have included this guidance that you may use in conjunction
with the sample clauses in Appendix A. This guidance specifically
applies to you if you:
(1) Do not have any affiliates;
(2) Only disclose nonpublic personal information to nonaffiliated
third parties in accordance with an exception under Secs. __.14 or
__.15, such as in connection with servicing or processing a financial
product or service that a consumer requests or authorizes; and
(3) Do not reserve the right to disclose nonpublic personal
information to nonaffiliated third parties, except under Secs. __.14
and __.15.\13\
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\13\ If you disclose or reserve the right to disclose nonpublic
personal information to a nonaffiliated third party under other
circumstances, you must comply with other provisions in the rule,
notably Secs. __.7, __.8, and __.13, if applicable. If you disclose
or reserve the right to disclose nonpublic personal information to
an affiliate you must comply with other provisions in the rule,
notably Sec. __.6(a)(7), as applicable.
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In addition, if you disclose nonpublic personal information in
accordance with the exception in Sec. __.13, for service providers and
joint marketers, you also must include an accurate description of that
information, as illustrated by the sample clause in section (K) below.
In general, if you disclose nonpublic personal information to
nonaffiliated third parties only as authorized under an exception, then
your only responsibilities under the regulation are to provide initial
and annual notices to each of your customers. You do not need to
provide an opt out notice or opt out rights to your customers.
A. Initial Notice to Customers
You must provide an initial notice to each of your customers. A
customer is a natural person who has a continuing relationship with
you, as described in Sec. __.4(c). For instance, an individual who
opens a credit card or checking account with you is your customer. By
contrast, an individual who uses your ATM to withdraw funds from a
checking account at another financial institution is not your customer.
Even if an individual repeatedly uses your ATM that individual is not
your customer. In other words, you must provide initial and annual
notices to each of your customers, but not to others.
B. Time to Provide Initial Notice
You must provide an initial privacy notice to each of your
customers not later than when you establish a customer relationship
(Sec. __.4(a)(1)). For instance, you must provide a privacy notice to
an individual not later than when that individual executes the contract
to open a checking account. Thus, you can provide the notice to a
checking account customer together with the account agreement and
signature card.
Similarly, in the case of a loan, you must provide a privacy notice
to an individual not later than when that individual executes the loan
contract. For example, you can provide the notice to an individual
together with the documents (or other forms) that constitute the loan
contract. You may always deliver your privacy notices earlier than
required.
If one of your existing customers obtains a new financial product
or service from you, then you need not provide another initial notice
to that customer (Sec. __.4(d)) if that earlier notice covered the
subsequent product.
For instance, if Alison Individual walks into Bank for the first
time on July 2, 2001, to open a checking account, then Bank complies
with Sec. __.4(a)(1) of the rule if it provides an initial notice to
Alison together with the deposit contract. When Alison opens her
checking account, she becomes a customer of Bank. Alison maintains her
checking account and, six months later, returns to Bank to obtain a
loan. If the initial notice that Bank provided to Alison was accurate
with respect to that loan, then Bank need not provide another initial
notice to her when she obtains the loan because it has provided a
notice to Alison that covered the loan when she opened her checking
account.
C. Method of Providing the Initial Notice
You must provide your initial notice so that each customer can
reasonably be expected to receive actual notice of it, in writing
(Sec. __.9(a)). For example, you may provide the initial notice by
mailing a printed copy of it together with a loan contract. Similarly,
you may provide the initial notice by hand-delivering a printed copy of
it to the customer together with a deposit account agreement.
D. Compliance With Initial Notice Requirement for Existing Customers by
Effective Date
You must provide an initial notice to each of your current
customers not later than July 1, 2001 (Sec. __.18(b)). You may do so by
mailing a printed copy of the notice to the customer's last known
address.
E. Annual Notice
During the continuation of the customer relationship, you must
provide an annual notice to the customer, as described in Sec. __.5(a).
You
[[Page 35187]]
must provide an annual notice to each customer at least once in any
period of 12 consecutive months during which the customer relationship
exists. You may define the 12-consecutive-month period, but must
consistently apply that period to the customer. You may define the 12-
consecutive-month period as a calendar year and provide the annual
notice to the customer once in each calendar year following the
calendar year in which you provided the initial notice.
For example, assume that Bank defines the 12-consecutive-month
period as a calendar year and provides annual notices to all of its
customers on October 1 of each year. If Alison Individual opens a
checking account with a Bank on July 2, 2001, thereby becoming a
customer, then Bank must provide an initial notice to Alison together
with the deposit agreement or earlier. Bank must provide an annual
notice to Alison by December 31, 2002. If Bank provides an annual
notice to Alison on October 1, 2002, as it does for other customers,
then it must provide the next annual notice to Alison not later than
October 1, 2003.
F. Method of Providing the Annual Notice
Like the initial notice, you must provide the annual notice so that
each customer can reasonably be expected to receive actual notice of
it, in writing (Sec. __.9(a)). You may do so by mailing a printed copy
of the notice to the customer's last known address.
G. Joint Accounts
If two or more customers jointly obtain a financial product or
service, then you may provide one initial notice to those customers
jointly. Similarly, you may provide one annual notice to those
customers jointly (Sec. __.9(g)).
H. Information Described in the Initial and Annual Notices
The initial and annual notices must include an accurate description
of the following four items of information:
1. The categories of nonpublic personal information that you
collect (Sec. __.6(a)(1));
2. The fact that you do not disclose nonpublic personal information
about your current and former customers to affiliates or nonaffiliated
third parties, except as authorized by Secs. __.14 and __.15
(Sec. __.6(a)(2)-(4)). When describing the categories with respect to
those parties, you are required to state only that you make disclosures
to other nonaffiliated third parties as permitted by law
(Sec. __.6(c));
3. Your policies and practices with respect to protecting the
confidentiality and security of nonpublic personal information
(Sec. __.6(a)(8)).
For each of these items of information above, you may use a sample
clause from Appendix A. The Agencies emphasize that you may use a
sample clause only if that clause accurately describes your actual
policies and practices.
I. Example of Notice
A financial institution (``Bank'') that (i) does not have any
affiliates and (ii) only discloses nonpublic personal information to
nonaffiliated third parties as authorized under Secs. __.14 and __.15,
may comply with the requirements of Sec. __.6 of the rule by using the
following notice, if applicable.
Bank collects nonpublic personal information about you from the
following sources:
Information we receive from you on applications or other
forms;
Information about your transactions with us or others; and
Information we receive from a consumer reporting
agency.\14\
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\14\ You need to describe only those general categories that
apply to your policies and practices. Accordingly, if you do not
collect information from ``a consumer reporting agency,'' for
instance, then you need not describe that category in your notices.
---------------------------------------------------------------------------
We do not disclose any nonpublic personal information about you to
anyone, except as permitted by law.
If you decide to close your account(s) or become an inactive
customer, we will adhere to the privacy policies and practices as
described in this notice.
Bank restricts access to your personal and account information to
those employees who need to know that information to provide products
or services to you. Bank maintains physical, electronic, and procedural
safeguards that comply with federal standards to guard your nonpublic
personal information.
J. Initial and Annual Notices Must Be Clear and Conspicuous
The Agencies emphasize that you must ensure that both the initial
and annual notices are clear and conspicuous, as defined in
Sec. __.3(b).
K. Example of Notice for Disclosure to Service Providers and Joint
Marketers
If you disclose nonpublic personal information in accordance with
the exception in Sec. __.13, for service providers and joint marketers,
you also must include an accurate description of that information. You
may comply with the requirements of __.13 of the rule by including the
following sample clause, if applicable, in the example of notice
described in section (I) above:
We may disclose all of the information we collect, as described
[describe location in the notice, such as ``above'' or ``below''] to
companies that perform marketing services on our behalf or to other
financial institutions with whom we have joint marketing agreements.
V. Regulatory Analysis
A. Paperwork Reduction Act
The Agencies may not conduct or sponsor, and an organization is not
required to respond to, an information collection unless it displays a
currently valid Office of Management and Budget (OMB) control number.
The OMB control numbers are listed below.
OCC: 1557-0216.
Board: 7100-0294.
FDIC: 3064-0136.
OTS: 1550-0103.
The Agencies sought comment on the burden estimates for the
information collections listed below. Many commenters suggested, in
response to specific proposed sections, that the rule would impose
significant burden on them. Most of those suggestions concerned
requirements that are imposed by the statute (such as the need to
provide annual notices if an institution's previous notice remains
accurate or the need to provide any notices at all in situations where
an institution does not disclose nonpublic personal information to
nonaffiliated third parties). The Agencies have attempted to address
other concerns by amending several provisions as discussed above and by
clarifying the Agencies' expectations as far as disclosures are
concerned. Below is a brief summary of the remaining paperwork burdens
implemented by this final rule.
The final rule contains several disclosure requirements. The
respondents must prepare and provide the initial notice to all current
customers and all new customers not later than when a respondent
establishes a customer relationship (Sec. __.4(a)). Subsequently, an
annual notice must be provided to all customers at least once during a
twelve-month period during the continuation of the customer
relationship (Sec. __.5(a)). The opt out notice (and partial opt out
notice, if applicable; see Sec. __.10(c)) must be provided prior to
disclosing nonpublic personal information to certain nonaffiliated
third parties. If a financial institution wishes to disclose
information in a way that is inconsistent with the notices previously
given to a
[[Page 35188]]
consumer, the institution must provide consumers with revised notices
(Sec. __.8(a)).
The final regulation also contains affirmative actions that
consumers must take to exercise their rights. In order for consumers to
prevent financial institutions from sharing their information with
nonaffiliated third parties, they must opt out (Secs. __.7(a)(2)(ii)),
__.10(a)(2) and __.10(c)). At any time during their continued
relationship with the institution, consumers have the right to change
or update their opt out status with the institution (Secs. __.7(f) and
(g)).
OCC: The rule requires the collection of certain information from
national banks, District of Columbia banks, and Federal branches and
agencies of foreign banks. OMB has reviewed and approved the
collections of information contained in the final rule under control
number 1557-0216, in accordance with the Paperwork Reduction Act of
1995 (PRA) (44 U.S.C. 3501 et seq.). OMB clearance will expire on March
31, 2003. There are 2,400 respondents with a total annual burden of
108,000 hours.
Board: The rule requires the collection of certain information from
state member banks, bank holding companies, affiliates and certain non-
bank subsidiaries of bank holding companies, uninsured state agencies
and branches of foreign banks, commercial lending companies owned or
controlled by foreign banks, and Edge and agreement corporations. In
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3506; 5
CFR 1320 Appendix A.1), the Board approved the rule under the authority
delegated to the Board by OMB. The OMB control number is 7100-0294.
There are 9,500 respondents with a total annual burden of 427,500
hours.
FDIC: The rule requires the collection of certain information from
insured nonmember banks, insured state branches of foreign banks, and
certain subsidiaries of these entities. The Office of Management and
Budget (OMB) has reviewed and approved the collections of information
contained in the final rule under control number 3064-0136, in
accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C.
3501 et seq.). OMB clearance will expire on April 30, 2003. There are
5,764 respondents with a total annual burden of 259,380 hours.
OTS: The rule requires the collection of certain information from
savings associations and certain of their subsidiaries. OMB has
reviewed and approved the collections of information contained in the
final rule under control number 1550-0103, in accordance with the
Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.). OMB
clearance will expire on April 30, 2003. There are 1,104 respondents
with a total annual burden of 49,680 hours.
The Agencies have a continuing interest in the public's opinion
regarding collections of information. Members of the public may submit
comments, at any time, regarding any aspect of these collections of
information. Comments may be sent to:
OCC: Communications Division, Attention: 1557-0216, Office of the
Comptroller of the Currency, 250 E Street, SW, Third Floor, Washington,
DC 20219.
Board: Mary M. West, Federal Reserve Board Clearance Officer, Mail
Stop 97, Division of Research and Statistics, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551.
FDIC: Steven F. Hanft, Assistant Executive Secretary (Regulatory
Analysis), Federal Deposit Insurance Corporation, Room F-4080, 550 17th
Street NW., Washington, DC 20429.
OTS: Dissemination Branch (1550-0103), Office of Thrift
Supervision, 1700 G Street, NW., Washington, DC 20552.
A copy of all comments should also be sent to Office of Management
and Budget, Paperwork Reduction Project (include OMB control number),
Washington, D.C. 20503.
B. Regulatory Flexibility Act
OCC: Under the Regulatory Flexibility Act (RFA), the OCC must
either provide a Final Regulatory Flexibility Analysis (FRFA) with a
final rule or certify that the final rule ``will not, if promulgated,''
have a significant economic impact on a substantial number of small
entities.\15\ Given that the burden imposed on small institutions stems
in large part from the statute, and in light of the significant number
of changes described previously that reduce the rule's burden on
financial institutions of all sizes, the OCC does not expect that the
rule will have a significant economic impact on a substantial number of
small entities. However, because the statute creates a set of
requirements that are new both to the OCC and to financial institutions
in general, the OCC has prepared the following FRFA and intends to
publish a compliance guide for small entities.
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\15\ The RFA defines the term ``small entity'' in 5 U.S.C. 601
by reference to definitions published by the Small Business
Administration (SBA). The SBA has defined a ``small entity'' for
banking purposes as a national or commercial bank, savings
institution or credit union with less than $100 million in assets.
See 13 CFR 121.201.
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Need for and Objectives of the Final Rule; Legal Basis for the Rule
The final rule implements the provisions of Title V, Subtitle A of
the GLB Act addressing consumer privacy. In general, these statutory
provisions require banks to provide notice to consumers about a bank's
privacy policies and practices, restricts institutions from sharing
nonpublic personal information about consumers to nonaffiliated third
parties, and permits consumers to prevent institutions from disclosing
nonpublic personal information about them to certain non-affiliated
third parties by ``opting out'' of that disclosure.
Section 504 of the GLB Act authorizes the OCC to prescribe ``such
regulations as may be necessary'' to carry out the purposes of Title V,
Subtitle A. If no regulations were promulgated, substantive burdens
imposed by the Act (e.g., the notice, information sharing restrictions,
and opt out requirements) would have become effective and binding on
banks one year from the date the Act was signed into law. The OCC
believes that a regulatory promulgation gives the private sector
greater certainty about how to comply with the statute and clearer
guidance regarding how it will be enforced.
Small Entities to Which the Rule Will Apply
The proposed rule would apply to all banks, regardless of size,
including those with assets of under $100 million. As of December 1999,
1203 (of 2365 total) national banks had assets of under $100 million.
As explained below, Title V, Subtitle A of the GLB Act did not provide
a general exception for small banks, nor did it appear that such an
exception would be consistent with the purposes of the Act.
Compliance Requirements and Effects of the Final Rule on Small Entities
A detailed description of the final rule's requirements is set
forth above in the section-by-section analysis (Supplementary
Information, part III). Among other things, a bank will generally be
required to prepare a notice of its privacy policies and practices and
provide that notice to consumers under conditions as specified in the
rule (e.g., a privacy notice must be provided no later than the time
that a customer relationship is established and then once annually for
the duration of that customer relationship). Banks that disclose
nonpublic personal information about consumers to nonaffiliated third
parties will be subject to additional mandates, including a requirement
to
[[Page 35189]]
provide an opt out notice to consumers along with a reasonable
opportunity to opt out of certain disclosures.
There are a host of exceptions to the general rules stated above.
For example, a bank may share a consumer's nonpublic personal
information with nonaffiliated third parties without having to give an
opt out notice if such sharing is necessary to effect, administer, or
enforce a transaction requested or authorized by the consumer. These
exceptions have the effect of minimizing the burden on institutions of
all sizes.
To comply with the final rule, banks will need to, among other
things, prepare disclosure forms, make various operational changes, and
train staff. Professional skills needed to comply with the final rule
may include clerical, computer systems, personnel training, as well as
legal drafting and advice.
The compliance requirements and costs are likely to vary
considerably among institutions, depending upon a number of factors,
such as:
--Whether a bank intends to disclose covered information. A bank that
does not disclose nonpublic personal information about consumers to
third parties (or shares only to the extent permitted under the
exceptions) (i) could have a streamlined privacy notice, (ii) will not
need to provide an opt out notice to consumers, and (iii) will not need
to implement procedures to honor the wishes of consumers that choose to
opt out of certain information sharing.
--Whether the bank already has a notice describing its privacy policy.
Various surveys suggest that a majority of banks already have privacy
policies in place as part of usual and customary business practices.
For these institutions, the costs for revising that policy to comply
with the regulation are likely to be significantly less than would be
the costs for those institutions having to develop a new policy.
--Whether the bank already has an opt-out mechanism in place pursuant
to the Fair Credit Reporting Act (FCRA). Under the FCRA, a bank must
provide opt out notices and have an opt out mechanism in place if the
bank (i) shares certain consumer information (i.e., application or
credit report information) with its affiliates, and (ii) does not want
to be treated as a consumer reporting agency under the Act. A bank that
already gives FCRA notices and wants to share nonpublic personal
information with nonaffiliated third parties should be able to adapt
its existing opt out mechanism to accommodate the requirements of the
final rule.
Summary of Significant Issues Raised by the Public Comments;
Description of Steps the Agency Has Taken To Minimize Burden
One approach to minimizing the burden on small entities would be to
provide a specific exemption for such institutions. The OCC has no
authority under the statute to grant an exception that would remove
small institutions from the entire scope of the rule. The OCC does have
exemptive authority under section 504(b) to grant such exceptions to
the opt out provisions ``as are deemed consistent with the purposes
of'' the statute. The OCC believes that a wholesale exemption for small
banks from the opt out provisions would be inconsistent with the
purposes of the Act. As stated in section 501(a) of the Act, ``It is
the policy of the Congress that each financial institution has an
affirmative and continuing obligation to respect the privacy of its
customers and to protect the security and confidentiality of those
customers' nonpublic personal information.'' (Emphasis added.) The OCC
believes the privacy of someone's nonpublic personal information is no
less deserving of protection simply because the information is obtained
by a small bank.
The final rule does, however, provide substantial flexibility so
that any bank, regardless of size, may tailor its practices to its
individual needs. For example, to minimize the burden and costs of
distributing privacy policies, the final rule (i) allows each bank to
choose the method by which it will distribute required notices (e.g.,
banks may include an annual privacy notice with periodic account
statements that the bank already sends to the customer) and (ii) allows
for the initial privacy notice to be provided with other Federally
mandated consumer disclosures, such as those required under the Truth-
in-Lending Act.
In addition, the OCC carefully considered comments that suggested a
variety of other alternatives to reduce burden. In response to these
comments, the agency attempted to minimize the burden on all
businesses, including small entities, in a manner consistent with
providing the privacy protections mandated by the Act. The discussion
below reviews some of the changes adopted in the final rule to
accomplish this purpose. For a more complete discussion of significant
issues raised by public comments and the changes adopted in the final
rule, see the section-by-section analysis above, which is incorporated
herein by reference (Supplementary Information, part III).
Content of disclosures. Many commenters interpreted the rule as
requiring long, detailed privacy disclosures that, in these commenters'
view, would be of little benefit to consumers. To address these
comments, the final rule clarifies the level of detail that the OCC
believes is appropriate under the statute. In particular, the final
rule substantially revises the examples of disclosures that would
satisfy the rule; Appendix A includes sample clauses that might be
used; and the preamble states that the Agencies believe disclosures
required by the rule could fit on a typical tri-fold brochure. Also,
the Agencies have provided additional guidance under the caption
Guidance for Certain Financial Institutions (Guidance) (Supplementary
Information, Part IV). This Guidance, as well as the sample clauses in
Appendix A, are intended to minimize the burden and costs for all
banks, particularly small banks that will not generally be sharing
nonpublic personal information with nonaffiliated third parties (except
pursuant to the exceptions). In addition, the final rule permits a bank
to provide a short-form privacy notice to a consumer that does not
become a customer, provided the bank gives the consumer an opt out
notice and notifies the consumer of a reasonably convenient method by
which to obtain a copy of the full privacy notice.
Definition of nonpublic personal information. A bank that wants to
share nonpublic personal information about a consumer with a
nonaffiliated third party generally must comply with the opt out
restrictions in the rule. However, information that is considered
``publicly available information'' is excluded from the definition of
nonpublic personal information. The proposed rule offered two
alternatives. Under Alternative A, information that is generally
available from a public source would not be considered ``publicly
available information'' unless a bank actually obtains the information
from a public source. Under Alternative B, the fact that the
information could be obtained from a public source is sufficient for
the information to be considered publicly available. For the reasons
stated earlier in the preamble, the OCC adopted a slightly revised
version of Alternative B, the less burdensome option.
Effective date. By operation of section 510 of the statute, the
relevant provisions of Title V take effective November 12, 2000.
However, the statute authorizes the agencies to
[[Page 35190]]
prescribe a later date if implementing regulations are adopted. The
proposed rule used the effective date prescribed by the statute. The
OCC received a large number of comments from banks, including many from
small entities, that requested more time to comply. Many such comments
suggested that overall compliance costs could be reduced by delaying
the effective date. For the reasons stated earlier in the preamble, the
OCC believes it would be appropriate to give banks until July 1, 2001,
to comply with the rule.
New notices not required for each new financial product or service.
Some banks, including small entities, expressed concern that the
proposed rule may require a new initial notice each time a consumer
obtains a new financial product or service. This would be especially
burdensome for banks that adopt a universal privacy policy that covers
multiple products and services. To address these concerns and minimize
economic burden, the final rule clarifies that a new initial notice is
not required if the bank has given the customer the bank's initial
notice, and that the bank's initial notice remains accurate with
respect to the new product or service.
Annual notice requirement. Many banks, including small entities,
suggested alternative, less burdensome methods for complying with the
requirement that banks provide their customers with an annual privacy
notice. As discussed earlier in the preamble, the OCC responded to
these comments with a provision in the final rule that permits a bank
to comply with the annual privacy notice requirements for customers
under certain circumstances by continually posting the notice on the
bank's web site in a clear and conspicuous manner.
Notice to joint account holders. As noted earlier in the preamble,
the final rule allows banks to provide one notice to joint account
holders, with the understanding being that a decision to opt out made
by one of the account holders will, absent a provision in the opt out
notice to the contrary, prevent the bank from disclosing any nonpublic
personal information about any of the account holders. This is
particularly advantageous for banks, including small entities, that do
not intend to share nonpublic personal information with nonaffiliated
third parties (except as permitted under the exceptions).
The OCC, along with the other Agencies, intends to publish a small
entity compliance guide--separate from and in addition to the guidance
for certain financial institutions included as part of this Federal
Register notice--that will clarify the operation of and compliance with
the rule.
Board: The Regulatory Flexibility Act (5 U.S.C. 604) requires an
agency to publish a final regulatory flexibility analysis when
promulgating a final rule that was subject to notice and comment.
Need for and Objectives of Rule
As discussed above, this rule implements the privacy provisions in
sections 502-510 of the GLB Act. The rule's objectives are to protect
nonpublic personal information about consumers collected by financial
institutions by:
(1) Requiring a financial institution to provide notice to
customers about its privacy policies and practices;
(2) Describing the conditions under which a financial institution
may disclose nonpublic personal information about consumers to
nonaffiliated third parties; and
(3) Providing a method for consumers to prevent a financial
institution from disclosing that information to most nonaffiliated
third parties by ``opting out'' of that disclosure, subject to certain
exceptions.
Comments on the Initial Regulatory Flexibility Analysis
Although few commenters addressed the initial regulatory
flexibility analysis specifically, many commenters addressed the
regulatory burdens that were discussed in that analysis. Commenters
provided a wide range of estimates of the costs of compliance,
demonstrating the difficulty of precisely measuring the implementation
costs for GLB Act privacy provisions. For example, one commenter
representing a $4 billion dollar multi-bank holding company with ten
financial institutions, estimated compliance costs at $160,000/year (an
average of $16,000 per institution), contrasted with a $500 million
institution that estimated compliance costs at $40,000/year. Another
commenter representing an $18 billion dollar bank holding company
estimated compliance costs at $2.1 million, while one of the nation's
largest financial institutions estimated compliance costs between $2.5-
$18 million. In another comment, a public policy group estimated that
the costs of the rule ``may likely exceed $223 million annually'' based
on a sample of deposit accounts and estimated loan accounts at 54
``major institutions'' around the United States.
Many commenters principally discussed the burdens that would be
imposed by the proposed rule due to the effective date and the amount
of detail that financial institutions would have to describe in their
initial and annual notices.
Many commenters urged the Board to extend the proposed November 13,
2000, effective date, for periods ranging from six months to two years.
Most of these commenters argued that complying with the rule by
November 13, 2000, would place an extraordinary burden on their
businesses, particularly because the notices required by the rule would
mandate changes to computer software, employee training, and compliance
systems. To address these concerns, compliance with the final rule will
be deferred until July 1, 2001.
Many commenters urged the Board to reduce the level of detail that
they perceived would be required in the notices under the proposed
rule. Commenters argued, for instance, that requiring a detailed
description of all of the sources of information that they use to
collect information about their customers would make the notices too
lengthy and complicated. In a similar vein, many commenters proposed
that the Board should issue model forms to demonstrate the kinds of
notices that would be permitted by the rule.
The Board believes that the intent of the original proposal on the
level of detail expected under the proposed rule was widely
misinterpreted. The notices section has been redrafted in an effort to
clarify the requirements. This should lead to modular provisions based
on examples in the regulations that could be used by most institutions.
The Board and the other Agencies have included, in an appendix to the
final rule, sample clauses illustrating elements of the notice
requirements for a small institution that does not sell information for
marketing purposes and a large holding company with multiple affiliates
that distributes information broadly. To further assist institutions in
complying with the rule, the Board and the other Agencies have included
in this Federal Register notice guidance for certain institutions that
do not disclose nonpublic personal information to nonaffiliated third
parties outside of the statutory exceptions.
Nevertheless, some institutions may have to craft notice provisions
to cover unique aspects of their privacy practices. This is necessary
because it is impossible for the Board to anticipate all disclosure
practices. In the absence of knowledge of these practices, any attempt
to craft ``model notices'' that could be used by all institutions runs
a substantial risk of being misleading.
The Board also modified the final rule to clarify that a financial
institution need not provide another initial notice to an existing
customer who obtains a
[[Page 35191]]
new financial product or service so long as the previous notice
provided to that customer was accurate with respect to the new
financial product or service. The Board believes that this provision
will enable a financial institution to adopt a single, comprehensive
privacy policy for its financial products and services, and at the same
time, reduce the costs to ensure that it delivers an accurate copy of
its policy to each customer.
The Board also clarified the final rule to permit a financial
institution to provide one copy of the initial, annual, and revised
notices, respectively, to consumers who jointly obtain a financial
product or service. Correspondingly, the Board clarified that a
financial institution may provide one opt out notice, if applicable, to
consumers who jointly obtain a financial product or service.
Institutions Covered
The Board's final rule will apply to approximately 9,500
institutions, including state member banks, bank holding companies and
certain of their nonbank subsidiaries or affiliates, state uninsured
branches and agencies of foreign banks, commercial lending companies
owned or controlled by foreign banks, and Edge and Agreement
corporations. The Board estimates that over 4,500 of the institutions
are small institutions with assets less than $100 million.
New Compliance Requirements
The final rule contains new compliance requirements for all covered
institutions, most of which are required by the GLB Act. The
institutions will be required to prepare notices of their privacy
policies and practices and provide those notices to consumers as
specified in the rule. Institutions that disclose nonpublic personal
information about consumers to nonaffiliated third parties will be
required to provide opt out notices to consumers as well as a
reasonable opportunity to opt out of certain disclosures. These
institutions will have to develop systems for keeping track of
consumers' opt out directions. Some institutions, particularly those
that disclose nonpublic information about consumers to nonaffiliated
third parties, will likely need the advice of legal counsel to ensure
that they comply with the rule, and may also require computer
programming changes and additional staff training.
Minimizing Impact on Small Institutions
The Board believes the requirements of the Act and this rule will
create additional burden for covered institutions, particularly those
that disclose nonpublic personal information about consumers to
nonaffiliated third parties. The rule applies to all covered
institutions, regardless of size. The Act does not provide the Board
with the authority to exempt a small institution from the requirement
to provide a notice of its privacy policies and practices to its
customers. Although the Board could exempt small institutions from
providing a notice and opportunity for consumers to opt out of certain
information disclosures, the Board does not believe that such an
exemption would be appropriate, given that one of the purposes of the
Act is to provide notice to consumers about the disclosure of nonpublic
personal information.
The Board believes that the burden is significantly lower for
institutions that do not disclose nonpublic personal information about
consumers to nonaffiliated third parties. These institutions may
provide relatively simple initial and annual notices to consumers with
whom they establish customer relationships. Also, the Board intends to
publish a small entity compliance guide--separate from and in addition
to the guidance for certain financial institutions included as part of
this Federal Register notice--aimed to generally clarify the operation
of and compliance with the rule.
FDIC: The Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA)
requires, subject to certain exceptions, that federal agencies prepare
an initial regulatory flexibility analysis (IRFA) with a proposed rule
and a final regulatory flexibility analysis (FRFA) with a final rule,
unless the agency certifies that the rule will not have a significant
economic impact on a substantial number of small entities. \16\ At the
time of issuance of the proposed rule, the FDIC could not make such a
determination for certification, therefore the FDIC issued an IRFA
pursuant to section 603 of the RFA. After considering the comments
submitted in response to the proposed rule, the FDIC believes that it
does not have sufficient information to determine whether the final
rule would have a significant economic impact on a substantial number
of small entities. Therefore, pursuant to section 604 of the RFA, the
FDIC provides the following FRFA.
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\16\ The RFA defines the term ``small entity'' in 5 U.S.C. 601
by reference to definitions published by the Small Business
Administration (SBA). The SBA has defined a ``small entity for
banking purposes as a national or commercial bank, savings
institution or credit union with less than $100 million in assets.
See 13 CFR 121.201.
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This FRFA incorporates the FDIC's initial findings, as set forth in
the IRFA; addressees the comments submitted in response to the IRFA;
and describes the steps the FDIC has taken in the final rule to
minimize the impact on small entities, consistent with the objectives
of the GLB Act. Also, in accordance with Section 212 of the Small
Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-
121), the FDIC will in the near future issue a Small Entity Compliance
Guide to assist small entities in complying with this rule.
Statement of the Need/Objectives of the Rule
The final rule implements the provisions of Title V, Subtitle A of
the GLB Act addressing consumer privacy. In general, these statutory
provisions require banks to provide notice to consumers about an
institution's privacy policies and practices, restrict institutions
from sharing nonpublic personal information about consumers with
nonaffiliated third parties, and permit consumers to prevent
institutions from disclosing nonpublic personal information about them
to certain non-affiliated third parties by ``opting out'' of that
disclosure. Section 504 of the GLB Act requires the FDIC, in
consultation with representatives of State insurance authorities, to
prescribe ``such regulations as may be necessary'' to carry out the
purposes of Title V, Subtitle A. If no regulations were promulgated,
substantive burdens imposed by the Act (e.g., the notice, information
sharing restrictions, and opt out requirements) would have become
effective and binding on banks one year from the date the Act was
signed into law. The FDIC believes that the final rule gives the
private sector greater certainty on how to comply with the statute and
clearer guidance regarding how it will be enforced.
Summary of Significant Issues Raised in Public Comments
In the IRFA, the FDIC specifically requested information on the
costs of creating privacy policy disclosures, distributing privacy
policy disclosures, implementing ``opt out'' disclosure and processing
requirements, and complying with the proposed rule in its entirety. The
FDIC received few comments responsive to the issue of implementation
costs. While the majority of commenters representing the financial
services industry indicated that compliance with the regulation
[[Page 35192]]
would require significant effort, these comments most often requested
additional time to comply with the final rule, and did not address
estimated costs to comply with the regulation.
The few comments that the FDIC did receive quantifying the economic
costs of compliance reflected a wide range of estimates, demonstrating
the difficulty of precisely measuring the implementation costs for GLB
Act privacy provisions. For example, one commenter representing a $4
billion dollar multi-bank holding company with ten financial
institutions, estimated compliance costs at $160,000/year (an average
of $16,000 per institution), contrasted with a $500 million dollar
institution that estimated compliance costs at $40,000/year. Another
commenter representing an $18 billion dollar bank holding company
estimated compliance costs at $2.1 million, while one of the nation's
largest financial institutions estimated compliance costs between $2.5-
$18 million. In another comment, a public policy group estimated that
the costs of the rule ``may likely exceed $223 million annually'' based
on a sample of deposit accounts and estimated loan accounts at 54
``major institutions'' around the United States \17\.
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\17\ This estimate was not limited to FDIC-supervised
institutions, but rather was based on all financial institutions
subject to the GLB Act.
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Summary of the Agency Assessment of Issues Raised in Public Comments
Both the limited numbers of comments received that discussed
compliance costs and the wide range of estimates provided, reflect the
uncertainty of estimating the costs of implementing the GLB Act
requirements. The new compliance requirements will indeed create
additional economic costs for institutions, especially those that
disclose information to nonaffiliated third parties. These costs
include, but are not limited to (1) reviewing current information
sharing practices; (2) determining operational changes necessary; (3)
identifying sources/uses of customer information; (4) preparing
disclosure forms; and (5) training staff. Most, if not, all of these
costs result from requirements expressly mandated by the GLB Act.
After a careful review of the comments received, the FDIC does not
have a practicable or reliable basis for quantifying the costs of
implementing the requirements of the GLB Act. We expect that compliance
costs will vary significantly between institutions depending on
information sharing practices. The FDIC continues to believe that the
costs of implementing the opt out provisions of the final rule will be
insubstantial for financial institutions that do not disclose nonpublic
personal information to nonaffiliated third parties or only do so
pursuant to the exceptions provided under sections 332.14 and 332.15.
FDIC's determination is based on the observations of FDIC examiners,
which were discussed in the IRFA, and the analysis of comments received
in response to the proposed rule. These institutions may provide
relatively simple initial and annual notices to consumers with whom
they establish customer relationships. However, the FDIC cannot
determine either the number or identity of institutions that will not
disclose nonpublic personal information about consumers to
nonaffiliated third parties or that only do so pursuant to the
exceptions provided under sections 332.14 and 332.15.
Description/Estimate of Small Entities To Which the Rule Will Apply
The final rule will apply to approximately 3,700 FDIC-insured State
nonmember banks that are small entities (assets less than $100 million)
as defined by the RFA.
Description of Projected Reporting, Recordkeeping, and Other Compliance
Requirements
The final rule contains new compliance requirements for all covered
institutions, most of which are required by the GLB Act. The
institutions will be required to prepare notices of their privacy
policies and practices, and provide those notices to consumers as
specified in the rule. Institutions that disclose nonpublic personal
information about consumers to nonaffiliated third parties will be
required to provide opt out notices to consumers, as well as a
reasonable opportunity to opt out of certain disclosures. These
institutions will have to develop systems for keeping track of
consumers' opt out directions. Some institutions, particularly those
that disclose nonpublic information about consumers to nonaffiliated
third parties, will likely need the advice of legal counsel to ensure
that they comply with the rule, and may also require computer
programming changes and additional staff training. As discussed
earlier, the FDIC does not have a practicable or reliable basis for
quantifying the compliance costs of the final rule. Nor can the FDIC
determine the number of small entities that will disclose nonpublic
personal information about consumers to nonaffiliated third parties.
Steps Agency Has Taken To Minimize the Significant Economic Impact on
Small Entities
The final rule incorporates new compliance requirements, which are
expressly mandated by the GLB Act. The GLB Act mandates (1) providing
notice of privacy policies/practices; (2) restricting the conditions
under which a financial institution may disclose nonpublic personal
information to nonaffiliated third parties; and (3) providing a method
for consumers to prevent their nonpublic personal information from
being shared with nonaffiliated third parties. The FDIC has sought to
minimize the burden on all businesses, including small entities, in
promulgating this final rule. Nonetheless, the statute does not
authorize the FDIC to create exemptions from the GLB Act based on an
institution's size. While the final rule attempts to clarify,
consolidate, and simplify the statutory requirements for all entities,
the FDIC has little discretion, if any, to mandate different compliance
standards for small entities. Moreover, different compliance standards
would be inconsistent with the purposes of GLB Act.
Throughout this rulemaking proceeding, the FDIC sought to gather
information regarding the economic impact of the GLB Act's requirements
for all financial institutions, including small entities. The proposed
rule and the IRFA included a number of questions for public comment
regarding the costs associated with complying with the rule and the
impact on small entities. In addition, the FDIC held a public forum on
privacy \18\ during the comment period, which included representatives
of small insured depository institutions and topics designed to elicit
information about the rule's economic impact. The FDIC carefully
considered comments that suggested a variety of alternatives that could
minimize the economic and overall burden of complying with the final
rule. The discussion below reviews some of the significant changes
adopted in the final rule to accomplish this purpose. For a more
complete discussion of the changes adopted in the final rule, see the
``Section-by-section analysis'' under Supplementary Information, Part
III.
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\18\ FDIC Forum, ``Is it Any of Your Business? Consumer
Information, Privacy, and the Financial Services Industry'' (March
23, 2000).
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1. Sample disclosure clauses (Appendix A to Part 332) and guidance
[[Page 35193]]
for certain institutions (supplementary information, part IV). Many
commenters expressed concern over the amount of detail that appears to
be required in both initial and annual Notices. In addition many of the
commenters requested model forms for guidance as to the level of detail
required. The FDIC did not intend for the disclosures to be overly
detailed and thus, burdensome for institutions and potentially
overwhelming for consumers. In response to these comments, Appendix A
to Part 332 contains sample clauses to clarify the level of detail that
the FDIC believes is necessary and appropriate to be consistent with
the statute. The FDIC has also provided additional assistance under the
caption Guidance for Certain Institutions (Guidance) (Supplementary
Information, Part IV). The Guidance generally clarifies the operation
of the final rule. It also provides an example of a notice for
institutions that only share nonpublic personal information with
nonaffiliated third parties pursuant to the exceptions provided in
Sections 332.14 and 332.15. The Guidance may be used in conjunction
with the sample clauses contained in Appendix A.
The sample clauses under Appendix A and the Guidance are intended
to minimize the burden and costs to financial institutions, including
small entities. This is especially true for small institutions that do
not share nonpublic personal information with nonaffiliated third
parties or only do so pursuant to the exceptions provided in sections
332.14 and 332.15. These institutions may provide relatively simple
initial and annual notices to consumers with whom they establish
customer relationships.
2. Definition of nonpublic personal information. In the proposed
rule, the FDIC provided two alternatives for defining nonpublic
personal information. The first, (Alternative A) deemed information as
publicly available only if a financial institution actually obtained
the information from a public source, whereas the second (Alternative
B) treated information as publicly available if a financial institution
could obtain it from such a source. A significant majority of
commenters who commented on Alternatives A and B favored Alternative B.
Many commenters suggested that implementing Alternative A would be
overly burdensome. Institutions would have to develop some sort of
methodology to distinguish between information obtained from consumers,
versus information obtained through public sources. In response to
these comments, the final rule adopts a modified version of Alternative
B (refer to Section-by-section analysis for additional information)
that treats information as publicly available if a financial
institution could obtain the information from a public source. The
final rule addresses the concerns of financial institutions--including
small institutions--by adopting the less economically burdensome
definition of nonpublic personal information.
3. Effective date. Section 510 of the GLB Act states that, as a
general rule, the relevant provisions of Title V take effect 6 months
after the date on which rules are required to be prescribed, i.e.,
November 12, 2000. However, section 510(1) authorizes the Agencies to
prescribe a later date in the rules enacted pursuant to section 504.
The proposed rule sought comment on the effective date prescribed by
the statute. The overwhelming majority of financial institution
commenters requested additional time to comply with the final rule.
Several commenters noted that financial institutions may encounter
difficulty managing the expenses and resources required to comply with
the final rule as the institution's budget for the current year was
established prior to the issuance of the proposed regulation. This may
be especially true for small institutions that face already tight
budgetary constraints due to heightened competition. For the reasons
stated in the preamble, the FDIC has retained the effective date of
November 13, 2000, but, in order to provide sufficient time for
institutions to establish policies and systems to comply with the
requirements of this part, the FDIC has extended the time for
compliance with this part until July 1, 2001. This additional time will
allow financial institutions to properly budget for any necessary
expenses and staff resources required to comply with this rule and to
make all necessary operational changes.
4. New notices not required for each new financial product or
service. Some commenters expressed concern that the proposed rule may
require a new initial notice each time a consumer obtains a new
financial product or service. This would be especially burdensome for
institutions that adopt a universal privacy policy that covers multiple
products and services. To address these concerns and minimize economic
burden, the final rule was clarified to instruct institutions that a
new initial notice is not required if the institution has given the
customer the institution's initial notice, and that the institution's
initial notice remains accurate with respect to the new product or
service.
5. Short form initial notice for consumers. In the proposed rule,
financial institutions were required to provide consumers a copy of
their complete initial notice when there is no customer relationship.
In response to comments that suggested that the objectives of the
initial notice requirements of the statute could be accomplished in a
less burdensome way, the FDIC has exercised its exemptive authority as
provided in section 504(b) to create an exception to the general rule
that otherwise requires a financial institution to provide both the
initial and opt out notices to a consumer before disclosing nonpublic
personal information about that consumer to nonaffiliated third
parties. A financial institution may provide a ``short-form'' initial
notice along with the opt out notice to a consumer with whom the
institution does not have a customer relationship. This short-form
notice must state that the disclosure containing information about the
institution's privacy policies and practices is available upon request
and provide one or more reasonable means by which the consumer may
obtain a copy of the notice. This provision in the final rule will
lessen the burden on financial institutions, including small entities.
6. Notice to joint account holders. As noted earlier in the
preamble, the final rule allows financial institutions to provide one
notice to joint account holders, with the understanding that a decision
to opt out made by one of the account holders will, absent a provision
in the opt out notice to the contrary, prevent the institution from
disclosing any nonpublic personal information about any of the account
holders. This is particularly advantageous for institutions, including
small entities, that do not intend to share nonpublic personal
information with nonaffiliated third parties (except as permitted under
the exceptions).
OTS: The Regulatory Flexibility Act (5 U.S.C. 601-612) requires OTS
to prepare a final regulatory flexibility analysis with a final rule,
unless the agency certifies that the rule will not have a significant
economic impact on a substantial number of small entities.\19\ OTS does
not believe this rule will have a significant economic impact on a
significant number of thrifts or thrift subsidiaries because the burden
imposed on small thrifts stems in large part from the GLB Act rather
than from the final rule. The rule restates and clarifies the statutory
requirements. These clarifications should reduce the burden of
complying with the GLB Act
[[Page 35194]]
provisions. OTS has revised the proposed rule to reduce the regulatory
burden on financial institutions of all sizes, as discussed below. In
addition, OTS intends to publish a compliance guide to assist
institutions in complying with this rule. However, because the GLB Act
creates requirements that are new to both the OTS and to the thrift
industry, and because OTS is uncertain what the economic impact will be
of compliance with the new requirements, OTS has prepared the following
final regulatory flexibility analysis.
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\19\ For purposes of the Regulatory Flexibility Act, a small
savings association is one with less than $100 million in assets. 13
CFR 121.201 (Division H).
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Need for and Objectives of the Rule; Compliance Requirements;
Institutions Covered
The final rule is needed to implement the provisions of Title V,
Subtitle A of the GLB Act addressing consumer privacy. The objectives
of the rule are to protect nonpublic personal information that
financial institutions collect by:
(1) Requiring each financial institution to provide notice to
customers about its privacy policies and practices;
(2) Describing the conditions under which a financial institution
may disclose nonpublic personal information to nonaffiliated third
parties;
(3) Providing a method for consumers to prevent a financial
institution from disclosing that information to most nonaffiliated
third parties by opting out of that disclosure, subject to certain
exceptions.
The compliance requirements of the rule are detailed earlier in
this preamble.
Financial institutions will need professional skills to comply with
this rule. To prepare the required privacy disclosures and opt out
disclosures, institutions may need legal or other professional advice
and drafting. This is true for the initial disclosures and notices, as
well as for any subsequent changes to those documents. For institutions
that publish privacy notices electronically or accept electronic opt
outs, computer expertise will be necessary to convert the documents to
the appropriate electronic form. Financial institutions that contract
with nonaffiliates to perform services for the institution may require
legal advice and drafting to ensure that such contracts contain the
required restrictions on the nonaffiliates' use of information it
receives. Financial institutions that make disclosures from which
consumers may opt out may require professional skills to process opt
out directions. Some institutions may use clerical or computer
programmer skills to perform these tasks. Some degree of personnel
training will be necessary, such as to train staff on the procedures
for entering opt out data into a computer database.
This rule will apply to approximately 486 small thrifts,
approximately 97 of which have subsidiaries.
Effects of the Final Rule
Commenters provided a wide range of estimates of the costs of
compliance, demonstrating the difficulty of measuring the costs of
implementing the GLB Act privacy provisions.
Complying with consumers' opt out directions will account for a
significant portion of the implementation costs. Measuring the costs of
complying with opt outs is especially difficult because of two
uncertainties. First, OTS does not know how many financial institutions
now make the type of information disclosures that will give rise to
consumer opt out rights. Some institutions that currently make such
disclosures may cease doing so. OTS cannot predict how many
institutions will make such disclosures in the future. A second
uncertainty is the number of consumers who will opt out of information
disclosures. Because such opt out rights are new, OTS has no basis upon
which to predict future consumer elections. Thus, OTS does not know how
many institutions will need to comply with opt out directions, and does
not know how many opt out directions those institutions will receive.
For these reasons, OTS cannot provide a practicable or reliable
quantification of the effects of the rule or of any of the significant
alternatives OTS considered.
OTS expects that compliance costs will vary significantly between
thrifts depending on their information sharing practices. OTS expects
that the costs of implementing the opt out provisions will be
insubstantial for thrifts that do not disclose nonpublic personal
information to nonaffiliated third parties. These institutions need
only provide relatively simple initial and annual privacy notices to
their customers.
OTS, consistent with the other Agencies, has revised some
requirements in this rule so that they are less burdensome. The
discussion below reviews the significant changes to reduce regulatory
burden.
Summary of Significant Issues Raised in Public Comments; Significant
Alternatives
Although few commenters addressed the initial regulatory
flexibility analysis, many commenters addressed the regulatory burdens.
These commenters included both large and small institutions. In
response, OTS considered different alternatives, and made certain
changes to the rule to reduce undue regulatory burden, consistent with
the purposes of GLB. These efforts to reduce regulatory burden will
affect both large and small institutions. The significant alternatives
that commenters discussed and that OTS considered are as follows.
Effective date. One of the most significant comments on burden
discussed the rule's effective date. Many industry commenters urged OTS
to extend the rule's proposed November 13, 2000 effective date. As
discussed above, many of these commenters argued that complying with
the rule by November 13, 2000 would place an extraordinary burden on
their businesses, particularly because the required privacy and opt out
notices would necessitate changes to computer software and would
require employee training. After considering these concerns, OTS has
delayed mandatory compliance with the regulation until July 1, 2001.
However, OTS encourages thrifts to comply with the rule before that
date.
Content of privacy notices. Many commenters were concerned that the
rule would require an inappropriate level of detail in privacy notices,
making those notices too lengthy. Some commenters noted that detailed
privacy notices would require burdensome and costly frequent revisions.
Many commenters suggested that OTS issue model privacy disclosures. OTS
responded to such comments by clarifying the requirements for the
content of privacy notices, as discussed more fully in the preceding
section-by-section analysis. These clarifications should ease the
compliance burden of this rule.
Further, OTS has included an appendix to the rule, containing a
variety of sample clauses for privacy notices. OTS also has included in
this Federal Register notice a Compliance Guide. Both the Appendix and
the Compliance Guide are designed to assist financial institutions,
especially small institutions, in complying with this new rule.
Exemption for small institutions. Some commenters suggested that
small institutions be exempt from many requirements of this rule.
However, OTS does not believe the GLB Act allows alternative privacy
rules based on a financial institution's size. As Congress stated in
Sec. 501(a) of the Act, ``It is the policy of the Congress that each
financial institution has an affirmative and continuing obligation to
respect the privacy of its customers and to protect
[[Page 35195]]
the security and confidentiality of those customers' nonpublic personal
information.'' (Emphasis added.) OTS believes a person's privacy is
equally deserving no matter the size of the financial institutions with
which the person interacts. OTS did not, therefore, exempt small
institutions from this rule.
Number of notices. Many commenters believe that the proposed rule
would have required an undue number of privacy notices. In response, as
discussed above, OTS considered alternative methods to reduce the
burden of providing redundant or unhelpful privacy notices. First, the
final rule makes clear that financial institutions do not need to
provide a repetitive privacy notice each time an existing customer
obtains a new financial product or service, as long as that customer
already received a notice covering the new product or service.
Second, the final rule clarifies the notice requirements in
connection with joint accounts. It makes clear that financial
institutions do not necessarily have to provide privacy and opt out
notices to each joint account holder.
Third, the final rule does not require a financial institution to
provide a full initial notice to consumers who do not establish a
customer relationship with the institution, if the institution will not
share that consumer's nonpublic personal information with nonaffiliated
third parties. In these situations, the institution may instead provide
a short-form initial notice, and give the consumer a reasonable means
to obtain the full initial notice if the consumer wishes to do so. A
full initial notice would not be helpful in these cases to consumers
who have no continuing relationship with the institution. The
institution is still restricted from disclosing that consumer's
nonpublic personal information to nonaffiliated parties without first
providing opt out rights, as GLB requires.
Fourth, the final rule requires fewer notices than the proposed
rule would have required, concerning loans that involve multiple
financial institutions. The proposed rule would have required privacy
notices to consumers from each financial institution that owns any part
of, or that services, a single consumer loan. Commenters suggested that
multiple privacy notices in these cases would be unnecessarily
burdensome. In response to these comments, OTS has included a special
rule for loans, discussed more fully earlier in this preamble, that
would reduce the number of privacy notices required in these cases.
These changes are designed to reduce the number of redundant and
unhelpful notices required, and thereby reduce the regulatory burden of
this rule, without eroding consumer protections.
Annual notices. Many commenters requested that OTS reduce
regulatory burden by requiring less frequent or shorter annual notices.
The GLB Act plainly requires annual privacy notices to customers, so
OTS lacks authority to eliminate the requirement altogether. However,
as discussed earlier, the final rule does allow institutions under
certain circumstances to provide annual notices on their web sites.
This change should reduce costs of providing required annual notices,
consistent with GLB Act mandates.
Outside service providers. Some commenters expressed concern that
the proposed rule would have required burdensome contractual terms in
connection with outside service providers. Disclosures a financial
institution makes to its service providers are exempt from opt out
requirements under Sec. 573.13, but require the disclosing financial
institution to restrict, by contract, the service provider's ability to
use the information. Other disclosures are exempt from the rule's
notice and opt out requirements under Secs. 573.14 and 573.15, but,
unlike Sec. 573.13, Secs. 573.14 and 573.15 do not require contractual
restrictions on recipients' use of information. Commenters noted that
some disclosures simultaneously quality for exemption under Sec. 573.13
and under Secs. 573.14 or 573.15. These commenters requested that the
final rule clarify whether, in such cases, the specific contractual
requirements in Sec. 573.13 apply. The final rule clarifies that they
do not, as discussed more fully in the preceding section-by-section
analysis.
This clarification may be especially important to smaller
institutions because they may be more likely than large institutions to
use outside parties to service transactions. Further, small
institutions may be less likely to have in-house counsel available to
advise them on, and to draft, the contractual terms that Sec. 573.13
would have required without this clarification. Without this change,
small institutions may have needed to seek expensive outside legal
advice to comply with the rule. This clarification will allow small
institutions to outsource transaction processing without having to use
unnecessarily burdensome and costly contractual language.
Nonpublic Personal Information. Nonpublic personal information gets
certain protections under this rule, but it is defined to exclude
publicly available information. The proposed rule included two
alternative definitions. Under proposed Alternative A, information
would be considered publicly available if a financial institution were
to actually obtain the information from a public source. Under proposed
Alternative B, information would be considered publicly available if a
financial institution could obtain it from a public source. Many
commenters urged OTS to adopt Alternative B. They pointed out that
Alternative A would require institutions to develop and maintain an
information tracking system to determine whether particular information
is publicly available. In response to these concerns, the final rule
includes a definition of nonpublic personal information, discussed more
fully above, that does not require financial institutions to create
tracking systems for publicly available information.
Plain language. Some commenters, including small institutions,
complained that the proposed rule was complex. Institutions expressed
concerns that they could be exposed to legal liability because they
could not understand what the rule requires. OTS responded to these
comments by revising the proposed rule to be more understandable. The
final rule is reorganized, is broken down into more sections, and has
similar sections grouped together in subparts. This makes provisions of
the rule easier to find. Additionally, OTS reworded its final rule to
use more direct and clear language.
The OTS, along with the other Agencies, intends to publish a small
entity compliance guide--separate from and in addition to the guidance
for certain financial institutions included as part of this Federal
Register notice--that will clarify the operation of and compliance with
the rule.
C. Executive Order 12866
OCC and OTS: The Comptroller of the Currency and Director of the
Office of Thrift Supervision each has determined that this rule does
not constitute a ``significant regulatory action'' for the purposes of
Executive Order 12866. The rule follows closely the requirements of
title V, subtitle A of the GLB Act. Since, the GLB Act establishes the
minimum requirements for this activity, the OCC and OTS have little
discretion to propose regulatory options that might significantly
reduce costs or other burdens. However, even absent the requirements of
the GLB Act, if the OCC and OTS issued the rule under its own
authority, the rule would not constitute a ``significant regulatory
action'' for the purposes of Executive Order 12866.
[[Page 35196]]
For a financial institution that does not intend to disclose
nonpublic personal information about its consumers or customers to
nonaffiliated third parties, the burden created by the statute and
implementing regulation is that of preparing and distributing an
initial and annual notice of the institution's privacy policies and
practices. The institution need not provide an opt out notice or
establish a system for consumers to opt out. For institutions that do
intend to make such disclosures, they will do so only after determining
that the benefits of making the disclosures of nonpublic personal
information outweigh the costs. Accordingly, the regulation's
provisions governing opt outs impose no net burden on those
institutions disclosing nonpublic personal information. The final rule
makes a large number of significant changes to the requirements
governing initial and annual notices that reduce burden while
preserving the consumer protections created by the statute.
D. Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1532 (Unfunded Mandates Act), requires that an agency prepare a
budgetary impact statement before promulgating any rule likely to
result in a Federal mandate that may result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $100 million or more in any one year. If a budgetary
impact statement is required, section 205 of the Unfunded Mandates Act
also requires the agency to identify and consider a reasonable number
of regulatory alternatives before promulgating the rule. However, an
agency is not required to assess the effects of its regulatory actions
on the private sector to the extent that such regulations incorporate
requirements specifically set forth in law. 2 U.S.C. 1531. Most of the
rule's provisions are already mandated by the applicable provisions in
Title V of the GLB Act, which would become effective and binding on the
private sector even without a regulatory promulgation. Therefore, the
OCC and OTS have determined that this regulation will not result in
expenditures by State, local, and tribal governments, in the aggregate,
or by the private sector, of $100 million or more in any one year.
Accordingly, the OCC and OTS have not prepared a budgetary impact
statement or specifically addressed the regulatory alternatives
considered.
List of Subjects
12 CFR Part 40
Banks, banking, Consumer protection, National banks, Privacy,
Reporting and recordkeeping requirements.
12 CFR Part 216
Banks, banking, Consumer protection, Federal Reserve System,
Foreign banking, Holding companies, Information, Privacy, Reporting and
recordkeeping requirements.
12 CFR Part 332
Banks, banking, Consumer protection, Foreign banking, Privacy,
Reporting and recordkeeping requirements.
12 CFR Part 573
Consumer protection, Privacy, Savings associations.
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set out in the joint preamble, the OCC amends
chapter I of title 12 of the Code of Federal Regulations by adding a
new part 40 to read as follows:
PART 40--PRIVACY OF CONSUMER FINANCIAL INFORMATION
Sec.
40.1 Purpose and scope.
40.2 Rule of construction.
40.3 Definitions.
Subpart A--Privacy and Opt Out Notices
40.4 Initial privacy notice to consumers required.
40.5 Annual privacy notice to customers required.
40.6 Information to be included in privacy notices.
40.7 Form of opt out notice to consumers; opt out methods.
40.8 Revised privacy notices.
40.9 Delivering privacy and opt out notices.
Subpart B--Limits on Disclosures
40.10 Limitation on disclosure of nonpublic personal information
to nonaffiliated third parties.
40.11 Limits on redisclosure and reuse of information.
40.12 Limits on sharing account number information for marketing
purposes.
Subpart C--Exceptions
40.13 Exception to opt out requirements for service providers and
joint marketing.
40.14 Exceptions to notice and opt out requirements for processing
and servicing transactions.
40.15 Other exceptions to notice and opt out requirements.
Subpart D--Relation to Other Laws; Effective Date
40.16 Protection of Fair Credit Reporting Act.
40.17 Relation to State laws.
40.18 Effective date; transition rule.
Appendix A to Part 40--Sample Clauses
Authority: 12 U.S.C. 93a; 15 U.S.C. 6801 et seq.
Sec. 40.1 Purpose and scope.
(a) Purpose. This part governs the treatment of nonpublic personal
information about consumers by the financial institutions listed in
paragraph (b) of this section. This part:
(1) Requires a financial institution to provide notice to customers
about its privacy policies and practices;
(2) Describes the conditions under which a financial institution
may disclose nonpublic personal information about consumers to
nonaffiliated third parties; and
(3) Provides a method for consumers to prevent a financial
institution from disclosing that information to most nonaffiliated
third parties by ``opting out'' of that disclosure, subject to the
exceptions in Secs. 40.13, 40.14, and 40.15.
(b) Scope. (1) This part applies only to nonpublic personal
information about individuals who obtain financial products or services
primarily for personal, family, or household purposes from the
institutions listed below. This part does not apply to information
about companies or about individuals who obtain financial products or
services for business, commercial, or agricultural purposes. This part
applies to United States offices of entities for which the Office of
the Comptroller of the Currency has primary supervisory authority. They
are referred to in this part as ``the bank.'' These are national banks,
District of Columbia banks, Federal branches and Federal agencies of
foreign banks, and any subsidiaries of such entities except a broker or
dealer that is registered under the Securities Exchange Act of 1934, a
registered investment adviser (with respect to the investment advisory
activities of the adviser and activities incidental to those investment
advisory activities), an investment company registered under the
Investment Company Act of 1940, an insurance company that is subject to
supervision by a State insurance regulator (with respect to insurance
activities of the company and activities incidental to those insurance
activities), and an entity that is subject to regulation by the
Commodity Futures Trading Commission.
(2) Nothing in this part modifies, limits, or supersedes the
standards
[[Page 35197]]
governing individually identifiable health information promulgated by
the Secretary of Health and Human Services under the authority of
sections 262 and 264 of the Health Insurance Portability and
Accountability Act of 1996 (42 U.S.C. 1320d-1320d-8).
Sec. 40.2 Rule of construction.
The examples in this part and the sample clauses in appendix A of
this part are not exclusive. Compliance with an example or use of a
sample clause, to the extent applicable, constitutes compliance with
this part.
Sec. 40.3 Definitions.
As used in this part, unless the context requires otherwise:
(a) Affiliate means any company that controls, is controlled by, or
is under common control with another company.
(b)(1) Clear and conspicuous means that a notice is reasonably
understandable and designed to call attention to the nature and
significance of the information in the notice.
(2) Examples. (i) Reasonably understandable. A bank makes its
notice reasonably understandable if it:
(A) Presents the information in the notice in clear, concise
sentences, paragraphs, and sections;
(B) Uses short explanatory sentences or bullet lists whenever
possible;
(C) Uses definite, concrete, everyday words and active voice
whenever possible;
(D) Avoids multiple negatives;
(E) Avoids legal and highly technical business terminology whenever
possible; and
(F) Avoids explanations that are imprecise and readily subject to
different interpretations.
(ii) Designed to call attention. A bank designs its notice to call
attention to the nature and significance of the information in it if
the bank:
(A) Uses a plain-language heading to call attention to the notice;
(B) Uses a typeface and type size that are easy to read;
(C) Provides wide margins and ample line spacing;
(D) Uses boldface or italics for key words; and
(E) In a form that combines the bank's notice with other
information, uses distinctive type size, style, and graphic devices,
such as shading or sidebars, when you combine your notice with other
information.
(iii) Notices on web sites. If a bank provides a notice on a web
page, the bank designs its notice to call attention to the nature and
significance of the information in it if the bank uses text or visual
cues to encourage scrolling down the page if necessary to view the
entire notice and ensure that other elements on the web site (such as
text, graphics, hyperlinks, or sound) do not distract attention from
the notice, and the bank either:
(A) Places the notice on a screen that consumers frequently access,
such as a page on which transactions are conducted; or
(B) Places a link on a screen that consumers frequently access,
such as a page on which transactions are conducted, that connects
directly to the notice and is labeled appropriately to convey the
importance, nature, and relevance of the notice.
(c) Collect means to obtain information that the bank organizes or
can retrieve by the name of an individual or by identifying number,
symbol, or other identifying particular assigned to the individual,
irrespective of the source of the underlying information.
(d) Company means any corporation, limited liability company,
business trust, general or limited partnership, association, or similar
organization.
(e)(1) Consumer means an individual who obtains or has obtained a
financial product or service from a bank that is to be used primarily
for personal, family, or household purposes, or that individual's legal
representative.
(2) Examples. (i) An individual who applies to a bank for credit
for personal, family, or household purposes is a consumer of a
financial service, regardless of whether the credit is extended.
(ii) An individual who provides nonpublic personal information to a
bank in order to obtain a determination about whether he or she may
qualify for a loan to be used primarily for personal, family, or
household purposes is a consumer of a financial service, regardless of
whether the loan is extended.
(iii) An individual who provides nonpublic personal information to
a bank in connection with obtaining or seeking to obtain financial,
investment, or economic advisory services is a consumer regardless of
whether the bank establishes a continuing advisory relationship.
(iv) If a bank holds ownership or servicing rights to an
individual's loan that is used primarily for personal, family, or
household purposes, the individual is the bank's consumer, even if the
bank holds those rights in conjunction with one or more other
institutions. (The individual is also a consumer with respect to the
other financial institutions involved.) An individual who has a loan in
which a bank has ownership or servicing rights is the bank's consumer,
even if the bank, or another institution with those rights, hires an
agent to collect on the loan.
(v) An individual who is a consumer of another financial
institution is not a bank's consumer solely because the bank acts as
agent for, or provides processing or other services to, that financial
institution.
(vi) An individual is not a bank's consumer solely because he or
she has designated the bank as trustee for a trust.
(vii) An individual is not a bank's consumer solely because he or
she is a beneficiary of a trust for which the bank is a trustee.
(viii) An individual is not a bank's consumer solely because he or
she is a participant or a beneficiary of an employee benefit plan that
the bank sponsors or for which the bank acts as a trustee or fiduciary.
(f) Consumer reporting agency has the same meaning as in section
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
(g) Control of a company means:
(1) Ownership, control, or power to vote 25 percent or more of the
outstanding shares of any class of voting security of the company,
directly or indirectly, or acting through one or more other persons;
(2) Control in any manner over the election of a majority of the
directors, trustees, or general partners (or individuals exercising
similar functions) of the company; or
(3) The power to exercise, directly or indirectly, a controlling
influence over the management or policies of the company, as the OCC
determines.
(h) Customer means a consumer who has a customer relationship with
a bank.
(i)(1) Customer relationship means a continuing relationship
between a consumer and a bank under which the bank provides one or more
financial products or services to the consumer that are to be used
primarily for personal, family, or household purposes.
(2) Examples. (i) Continuing relationship. A consumer has a
continuing relationship with a bank if the consumer:
(A) Has a deposit or investment account with the bank;
(B) Obtains a loan from the bank;
(C) Has a loan for which you own the servicing rights;
(D) Purchases an insurance product from the bank;
(E) Holds an investment product through the bank, such as when the
bank acts as a custodian for securities or for assets in an Individual
Retirement Arrangement;
[[Page 35198]]
(F) Enters into an agreement or understanding with the bank whereby
the bank undertakes to arrange or broker a home mortgage loan for the
consumer;
(G) Enters into a lease of personal property with the bank; or
(H) Obtains financial, investment, or economic advisory services
from the bank for a fee.
(ii) No continuing relationship. A consumer does not, however, have
a continuing relationship with a bank if:
(A) The consumer obtains a financial product or service only in
isolated transactions, such as using the bank's ATM to withdraw cash
from an account at another financial institution or purchasing a
cashier's check or money order;
(B) The bank sells the consumer's loan and does not retain the
rights to service that loan; or
(C) The bank sells the consumer airline tickets, travel insurance,
or traveler's checks in isolated transactions.
(j) Federal functional regulator means:
(1) The Board of Governors of the Federal Reserve System;
(2) The Office of the Comptroller of the Currency;
(3) The Board of Directors of the Federal Deposit Insurance
Corporation;
(4) The Director of the Office of Thrift Supervision;
(5) The National Credit Union Administration Board; and
(6) The Securities and Exchange Commission.
(k)(1) Financial institution means any institution the business of
which is engaging in activities that are financial in nature or
incidental to such financial activities as described in section 4(k) of
the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
(2) Financial institution does not include:
(i) Any person or entity with respect to any financial activity
that is subject to the jurisdiction of the Commodity Futures Trading
Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.);
(ii) The Federal Agricultural Mortgage Corporation or any entity
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C.
2001 et seq.); or
(iii) Institutions chartered by Congress specifically to engage in
securitizations, secondary market sales (including sales of servicing
rights), or similar transactions related to a transaction of a
consumer, as long as such institutions do not sell or transfer
nonpublic personal information to a nonaffiliated third party.
(l)(1) Financial product or service means any product or service
that a financial holding company could offer by engaging in an activity
that is financial in nature or incidental to such a financial activity
under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(k)).
(2) Financial service includes a bank's evaluation or brokerage of
information that the bank collects in connection with a request or an
application from a consumer for a financial product or service.
(m)(1) Nonaffiliated third party means any person except:
(i) A bank's affiliate; or
(ii) A person employed jointly by a bank and any company that is
not the bank's affiliate (but nonaffiliated third party includes the
other company that jointly employs the person).
(2) Nonaffiliated third party includes any company that is an
affiliate solely by virtue of a bank's (or its affiliate's) direct or
indirect ownership or control of the company in conducting merchant
banking or investment banking activities of the type described in
section 4(k)(4)(H) or insurance company investment activities of the
type described in section 4(k)(4)(I) of the Bank Holding Company Act of
1956 (12 U.S.C. 1843(k)(4)(H) and (I)).
(n)(1) Nonpublic personal information means:
(i) Personally identifiable financial information; and
(ii) Any list, description, or other grouping of consumers (and
publicly available information pertaining to them) that is derived
using any personally identifiable financial information that is not
publicly available.
(2) Nonpublic personal information does not include:
(i) Publicly available information, except as included on a list
described in paragraph (n)(1)(ii) of this section; or
(ii) Any list, description, or other grouping of consumers (and
publicly available information pertaining to them) that is derived
without using any personally identifiable financial information that is
not publicly available.
(3) Examples of lists. (i) Nonpublic personal information includes
any list of individuals' names and street addresses that is derived in
whole or in part using personally identifiable financial information
that is not publicly available, such as account numbers.
(ii) Nonpublic personal information does not include any list of
individuals' names and addresses that contains only publicly available
information, is not derived in whole or in part using personally
identifiable financial information that is not publicly available, and
is not disclosed in a manner that indicates that any of the individuals
on the list is a consumer of a financial institution.
(o)(1) Personally identifiable financial information means any
information:
(i) A consumer provides to a bank to obtain a financial product or
service from the bank;
(ii) About a consumer resulting from any transaction involving a
financial product or service between a bank and a consumer; or
(iii) The bank otherwise obtains about a consumer in connection
with providing a financial product or service to that consumer.
(2) Examples. (i) Information included. Personally identifiable
financial information includes:
(A) Information a consumer provides to a bank on an application to
obtain a loan, credit card, or other financial product or service;
(B) Account balance information, payment history, overdraft
history, and credit or debit card purchase information;
(C) The fact that an individual is or has been one of the bank's
customers or has obtained a financial product or service from the bank;
(D) Any information about the bank's consumer if it is disclosed in
a manner that indicates that the individual is or has been the bank's
consumer;
(E) Any information that a consumer provides to a bank or that the
bank or its agent otherwise obtains in connection with collecting on a
loan or servicing a loan;
(F) Any information the bank collects through an Internet
``cookie'' (an information collecting device from a web server); and
(G) Information from a consumer report.
(ii) Information not included. Personally identifiable financial
information does not include:
(A) A list of names and addresses of customers of an entity that is
not a financial institution; and
(B) Information that does not identify a consumer, such as
aggregate information or blind data that does not contain personal
identifiers such as account numbers, names, or addresses.
(p)(1) Publicly available information means any information that a
bank has a reasonable basis to believe is lawfully made available to
the general public from:
(i) Federal, State, or local government records;
(ii) Widely distributed media; or
(iii) Disclosures to the general public that are required to be
made by Federal, State, or local law.
[[Page 35199]]
(2) Reasonable basis. A bank has a reasonable basis to believe that
information is lawfully made available to the general public if the
bank has taken steps to determine:
(i) That the information is of the type that is available to the
general public; and
(ii) Whether an individual can direct that the information not be
made available to the general public and, if so, that the bank's
consumer has not done so.
(3) Examples. (i) Government records. Publicly available
information in government records includes information in government
real estate records and security interest filings.
(ii) Widely distributed media. Publicly available information from
widely distributed media includes information from a telephone book, a
television or radio program, a newspaper, or a web site that is
available to the general public on an unrestricted basis. A web site is
not restricted merely because an Internet service provider or a site
operator requires a fee or a password, so long as access is available
to the general public.
(iii) Reasonable basis. (A) A bank has a reasonable basis to
believe that mortgage information is lawfully made available to the
general public if the bank has determined that the information is of
the type included on the public record in the jurisdiction where the
mortgage would be recorded.
(B) A bank has a reasonable basis to believe that an individual's
telephone number is lawfully made available to the general public if
the bank has located the telephone number in the telephone book or the
consumer has informed you that the telephone number is not unlisted.
Subpart A--Privacy and Opt Out Notices
Sec. 40.4 Initial privacy notice to consumers required.
(a) Initial notice requirement. A bank must provide a clear and
conspicuous notice that accurately reflects its privacy policies and
practices to:
(1) Customer. An individual who becomes the bank's customer, not
later than when the bank establishes a customer relationship, except as
provided in paragraph (e) of this section; and
(2) Consumer. A consumer, before the bank discloses any nonpublic
personal information about the consumer to any nonaffiliated third
party, if the bank makes such a disclosure other than as authorized by
Secs. 40.14 and 40.15.
(b) When initial notice to a consumer is not required. A bank is
not required to provide an initial notice to a consumer under paragraph
(a) of this section if:
(1) The bank does not disclose any nonpublic personal information
about the consumer to any nonaffiliated third party, other than as
authorized by Secs. 40.14 and 40.15; and
(2) The bank does not have a customer relationship with the
consumer.
(c) When the bank establishes a customer relationship. (1) General
rule. A bank establishes a customer relationship when it and the
consumer enter into a continuing relationship.
(2) Special rule for loans. A bank establishes a customer
relationship with a consumer when the bank originates a loan to the
consumer for personal, family, or household purposes. If the bank
subsequently transfers the servicing rights to that loan to another
financial institution, the customer relationship transfers with the
servicing rights.
(3)(i) Examples of establishing customer relationship. A bank
establishes a customer relationship when the consumer:
(A) Opens a credit card account with the bank;
(B) Executes the contract to open a deposit account with the bank,
obtains credit from the bank, or purchases insurance from the bank;
(C) Agrees to obtain financial, economic, or investment advisory
services from the bank for a fee; or
(D) Becomes the bank's client for the purpose of the bank's
providing credit counseling or tax preparation services.
(ii) Examples of loan rule. A bank establishes a customer
relationship with a consumer who obtains a loan for personal, family,
or household purposes when the bank:
(A) Originates the loan to the consumer; or
(B) Purchases the servicing rights to the consumer's loan.
(d) Existing customers. When an existing customer obtains a new
financial product or service from a bank that is to be used primarily
for personal, family, or household purposes, the bank satisfies the
initial notice requirements of paragraph (a) of this section as
follows:
(1) The bank may provide a revised privacy notice, under Sec. 40.8,
that covers the customer's new financial product or service; or
(2) If the initial, revised, or annual notice that the bank most
recently provided to that customer was accurate with respect to the new
financial product or service, the bank does not need to provide a new
privacy notice under paragraph (a) of this section.
(e) Exceptions to allow subsequent delivery of notice. (1) A bank
may provide the initial notice required by paragraph (a)(1) of this
section within a reasonable time after the bank establishes a customer
relationship if:
(i) Establishing the customer relationship is not at the customer's
election; or
(ii) Providing notice not later than when the bank establishes a
customer relationship would substantially delay the customer's
transaction and the customer agrees to receive the notice at a later
time.
(2) Examples of exceptions. (i) Not at customer's election.
Establishing a customer relationship is not at the customer's election
if a bank acquires a customer's deposit liability or the servicing
rights to a customer's loan from another financial institution and the
customer does not have a choice about the bank's acquisition.
(ii) Substantial delay of customer's transaction. Providing notice
not later than when a bank establishes a customer relationship would
substantially delay the customer's transaction when:
(A) The bank and the individual agree over the telephone to enter
into a customer relationship involving prompt delivery of the financial
product or service; or
(B) The bank establishes a customer relationship with an individual
under a program authorized by Title IV of the Higher Education Act of
1965 (20 U.S.C. 1070 et seq.) or similar student loan programs where
loan proceeds are disbursed promptly without prior communication
between the bank and the customer.
(iii) No substantial delay of customer's transaction. Providing
notice not later than when a bank establishes a customer relationship
would not substantially delay the customer's transaction when the
relationship is initiated in person at the bank's office or through
other means by which the customer may view the notice, such as on a web
site.
(f) Delivery. When a bank is required to deliver an initial privacy
notice by this section, the bank must deliver it according to
Sec. 40.9. If the bank uses a short-form initial notice for non-
customers according to Sec. 40.6(d), the bank may deliver its privacy
notice according to Sec. 40.6(d)(3).
Sec. 40.5 Annual privacy notice to customers required.
(a)(1) General rule. A bank must provide a clear and conspicuous
notice to customers that accurately reflects its privacy policies and
practices not less
[[Page 35200]]
than annually during the continuation of the customer relationship.
Annually means at least once in any period of 12 consecutive months
during which that relationship exists. A bank may define the 12-
consecutive-month period, but the bank must apply it to the customer on
a consistent basis.
(2) Example. A bank provides a notice annually if it defines the
12-consecutive-month period as a calendar year and provides the annual
notice to the customer once in each calendar year following the
calendar year in which the bank provided the initial notice. For
example, if a customer opens an account on any day of year 1, the bank
must provide an annual notice to that customer by December 31 of year
2.
(b)(1) Termination of customer relationship. A bank is not required
to provide an annual notice to a former customer.
(2) Examples. A bank's customer becomes a former customer when:
(i) In the case of a deposit account, the account is inactive under
the bank's policies;
(ii) In the case of a closed-end loan, the customer pays the loan
in full, the bank charges off the loan, or the bank sells the loan
without retaining servicing rights;
(iii) In the case of a credit card relationship or other open-end
credit relationship, the bank no longer provides any statements or
notices to the customer concerning that relationship or the bank sells
the credit card receivables without retaining servicing rights; or
(iv) The bank has not communicated with the customer about the
relationship for a period of 12 consecutive months, other than to
provide annual privacy notices or promotional material.
(c) Special rule for loans. If a bank does not have a customer
relationship with a consumer under the special rule for loans in
Sec. 40.4(c)(2), then the bank need not provide an annual notice to
that consumer under this section.
(d) Delivery. When a bank is required to deliver an annual privacy
notice by this section, the bank must deliver it according to
Sec. 40.9.
Sec. 40.6 Information to be included in privacy notices.
(a) General rule. The initial, annual, and revised privacy notices
that a bank provides under Secs. 40.4, 40.5, and 40.8 must include each
of the following items of information, in addition to any other
information the bank wishes to provide, that applies to the bank and to
the consumers to whom the bank sends its privacy notice:
(1) The categories of nonpublic personal information that the bank
collects;
(2) The categories of nonpublic personal information that the bank
discloses;
(3) The categories of affiliates and nonaffiliated third parties to
whom the bank discloses nonpublic personal information, other than
those parties to whom the bank discloses information under Secs. 40.14
and 40.15;
(4) The categories of nonpublic personal information about the
bank's former customers that the bank discloses and the categories of
affiliates and nonaffiliated third parties to whom the bank discloses
nonpublic personal information about the bank's former customers, other
than those parties to whom the bank discloses information under
Secs. 40.14 and 40.15;
(5) If a bank discloses nonpublic personal information to a
nonaffiliated third party under Sec. 40.13 (and no other exception in
Secs. 40.14 or 40.15 applies to that disclosure), a separate statement
of the categories of information the bank discloses and the categories
of third parties with whom the bank has contracted;
(6) An explanation of the consumer's right under Sec. 40.10(a) to
opt out of the disclosure of nonpublic personal information to
nonaffiliated third parties, including the method(s) by which the
consumer may exercise that right at that time;
(7) Any disclosures that the bank makes under section
603(d)(2)(A)(iii) of the Fair Credit Reporting Act (15 U.S.C.
1681a(d)(2)(A)(iii)) (that is, notices regarding the ability to opt out
of disclosures of information among affiliates);
(8) The bank's policies and practices with respect to protecting
the confidentiality and security of nonpublic personal information; and
(9) Any disclosure that the bank makes under paragraph (b) of this
section.
(b) Description of nonaffiliated third parties subject to
exceptions. If a bank discloses nonpublic personal information to third
parties as authorized under Secs. 40.14 and 40.15, the bank is not
required to list those exceptions in the initial or annual privacy
notices required by Secs. 40.4 and 40.5. When describing the categories
with respect to those parties, the bank is required to state only that
it makes disclosures to other nonaffiliated third parties as permitted
by law.
(c) Examples. (1) Categories of nonpublic personal information that
the bank collects. A bank satisfies the requirement to categorize the
nonpublic personal information that it collects if it lists the
following categories, as applicable:
(i) Information from the consumer;
(ii) Information about the consumer's transactions with the bank or
its affiliates;
(iii) Information about the consumer's transactions with
nonaffiliated third parties; and
(iv) Information from a consumer reporting agency.
(2) Categories of nonpublic personal information the bank
discloses. (i) A bank satisfies the requirement to categorize the
nonpublic personal information that it discloses if the bank lists the
categories described in paragraph (e)(1) of this section, as
applicable, and a few examples to illustrate the types of information
in each category.
(ii) If a bank reserves the right to disclose all of the nonpublic
personal information about consumers that it collects, it may simply
state that fact without describing the categories or examples of the
nonpublic personal information it discloses.
(3) Categories of affiliates and nonaffiliated third parties to
whom the bank discloses. A bank satisfies the requirement to categorize
the affiliates and nonaffiliated third parties to whom it discloses
nonpublic personal information if the bank lists the following
categories, as applicable, and a few examples to illustrate the types
of third parties in each category:
(i) Financial service providers;
(ii) Non-financial companies; and
(iii) Others.
(4) Disclosures under exception for service providers and joint
marketers. If a bank discloses nonpublic personal information under the
exception in Sec. 40.13 to a nonaffiliated third party to market
products or services that it offers alone or jointly with another
financial institution, the bank satisfies the disclosure requirement of
paragraph (a)(5) of this section if it:
(i) Lists the categories of nonpublic personal information it
discloses, using the same categories and examples the bank used to meet
the requirements of paragraph (a)(2) of this section, as applicable;
and
(ii) States whether the third party is:
(A) A service provider that performs marketing services on the
bank's behalf or on behalf of the bank and another financial
institution; or
(B) A financial institution with whom the bank has a joint
marketing agreement.
(5) Simplified notices. If a bank does not disclose, and does not
wish to reserve the right to disclose, nonpublic
[[Page 35201]]
personal information about customers or former customers to affiliates
or nonaffiliated third parties except as authorized under Secs. 40.14
and 40.15, the bank may simply state that fact, in addition to the
information it must provide under paragraphs (a)(1), (a)(8), (a)(9),
and (b) of this section.
(6) Confidentiality and security. A bank describes its policies and
practices with respect to protecting the confidentiality and security
of nonpublic personal information if it does both of the following:
(i) Describes in general terms who is authorized to have access to
the information; and
(ii) States whether the bank has security practices and procedures
in place to ensure the confidentiality of the information in accordance
with the bank's policy. The bank is not required to describe technical
information about the safeguards it uses.
(d) Short-form initial notice with opt out notice for non-
customers. (1) A bank may satisfy the initial notice requirements in
Secs. 40.4(a)(2), 40.7(b), and 40.7(c) for a consumer who is not a
customer by providing a short-form initial notice at the same time as
the bank delivers an opt out notice as required in Sec. 40.7.
(2) A short-form initial notice must:
(i) Be clear and conspicuous;
(ii) State that the bank's privacy notice is available upon
request; and
(iii) Explain a reasonable means by which the consumer may obtain
that notice.
(3) The bank must deliver its short-form initial notice according
to Sec. 40.9. The bank is not required to deliver its privacy notice
with its short-form initial notice. The bank instead may simply provide
the consumer a reasonable means to obtain its privacy notice. If a
consumer who receives the bank's short-form notice requests the bank's
privacy notice, the bank must deliver its privacy notice according to
Sec. 40.9.
(4) Examples of obtaining privacy notice. The bank provides a
reasonable means by which a consumer may obtain a copy of its privacy
notice if the bank:
(i) Provides a toll-free telephone number that the consumer may
call to request the notice; or
(ii) For a consumer who conducts business in person at the bank's
office, maintain copies of the notice on hand that the bank provides to
the consumer immediately upon request.
(e) Future disclosures. The bank's notice may include:
(1) Categories of nonpublic personal information that the bank
reserves the right to disclose in the future, but do not currently
disclose; and
(2) Categories of affiliates or nonaffiliated third parties to whom
the bank reserves the right in the future to disclose, but to whom the
bank does not currently disclose, nonpublic personal information.
(f) Sample clauses. Sample clauses illustrating some of the notice
content required by this section are included in Appendix A of this
part.
Sec. 40.7 Form of opt out notice to consumers; opt out methods.
(a) (1) Form of opt out notice. If a bank is required to provide an
opt out notice under Sec. 40.10(a), it must provide a clear and
conspicuous notice to each of its consumers that accurately explains
the right to opt out under that section. The notice must state:
(i) That the bank discloses or reserves the right to disclose
nonpublic personal information about its consumer to a nonaffiliated
third party;
(ii) That the consumer has the right to opt out of that disclosure;
and
(iii) A reasonable means by which the consumer may exercise the opt
out right.
(2) Examples. (i) Adequate opt out notice. A bank provides adequate
notice that the consumer can opt out of the disclosure of nonpublic
personal information to a nonaffiliated third party if the bank:
(A) Identifies all of the categories of nonpublic personal
information that it discloses or reserves the right to disclose, and
all of the categories of nonaffiliated third parties to which the bank
discloses the information, as described in Sec. 40.6(a)(2) and (3), and
states that the consumer can opt out of the disclosure of that
information; and
(B) Identifies the financial products or services that the consumer
obtains from the bank, either singly or jointly, to which the opt out
direction would apply.
(ii) Reasonable opt out means. A bank provides a reasonable means
to exercise an opt out right if it:
(A) Designates check-off boxes in a prominent position on the
relevant forms with the opt out notice;
(B) Includes a reply form together with the opt out notice;
(C) Provides an electronic means to opt out, such as a form that
can be sent via electronic mail or a process at the bank's web site, if
the consumer agrees to the electronic delivery of information; or
(D) Provides a toll-free telephone number that consumers may call
to opt out.
(iii) Unreasonable opt out means. A bank does not provide a
reasonable means of opting out if:
(A) The only means of opting out is for the consumer to write his
or her own letter to exercise that opt out right; or
(B) The only means of opting out as described in any notice
subsequent to the initial notice is to use a check-off box that the
bank provided with the initial notice but did not include with the
subsequent notice.
(iv) Specific opt out means. A bank may require each consumer to
opt out through a specific means, as long as that means is reasonable
for that consumer.
(b) Same form as initial notice permitted. A bank may provide the
opt out notice together with or on the same written or electronic form
as the initial notice the bank provides in accordance with Sec. 40.4.
(c) Initial notice required when opt out notice delivered
subsequent to initial notice. If a bank provides the opt out notice
later than required for the initial notice in accordance with
Sec. 40.4, the bank must also include a copy of the initial notice with
the opt out notice in writing or, if the consumer agrees,
electronically.
(d) Joint relationships. (1) If two or more consumers jointly
obtain a financial product or service from a bank, the bank may provide
a single opt out notice. The bank's opt out notice must explain how the
bank will treat an opt out direction by a joint consumer (as explained
in paragraph (d)(5) of this section).
(2) Any of the joint consumers may exercise the right to opt out.
The bank may either:
(i) Treat an opt out direction by a joint consumer as applying to
all of the associated joint consumers; or
(ii) Permit each joint consumer to opt out separately.
(3) If a bank permits each joint consumer to opt out separately,
the bank must permit one of the joint consumers to opt out on behalf of
all of the joint consumers.
(4) A bank may not require all joint consumers to opt out before it
implements any opt out direction.
(5) Example. If John and Mary have a joint checking account with a
bank and arranges for the bank to send statements to John's address,
the bank may do any of the following, but it must explain in its opt
out notice which opt out policy the bank will follow:
(i) Send a single opt out notice to John's address, but the bank
must accept an opt out direction from either John or Mary.
(ii) Treat an opt out direction by either John or Mary as applying
to the entire account. If the bank does so and John opts out, the bank
may not require
[[Page 35202]]
Mary to opt out as well before implementing John's opt out direction.
(iii) Permit John and Mary to make different opt out directions. If
the bank does so:
(A) It must permit John and Mary to opt out for each other;
(B) If both opt out, the bank must permit both of them to notify it
in a single response (such as on a form or through a telephone call);
and
(C) If John opts out and Mary does not, the bank may only disclose
nonpublic personal information about Mary, but not about John and not
about John and Mary jointly.
(e) Time to comply with opt out. A bank must comply with a
consumer's opt out direction as soon as reasonably practicable after
the bank receives it.
(f) Continuing right to opt out. A consumer may exercise the right
to opt out at any time.
(g) Duration of consumer's opt out direction. (1) A consumer's
direction to opt out under this section is effective until the consumer
revokes it in writing or, if the consumer agrees, electronically.
(2) When a customer relationship terminates, the customer's opt out
direction continues to apply to the nonpublic personal information that
the bank collected during or related to that relationship. If the
individual subsequently establishes a new customer relationship with
the bank, the opt out direction that applied to the former relationship
does not apply to the new relationship.
(h) Delivery. When a bank is required to deliver an opt out notice
by this section, the bank must deliver it according to Sec. 40.9.
Sec. 40.8 Revised privacy notices.
(a) General rule. Except as otherwise authorized in this part, a
bank must not, directly or through any affiliate, disclose any
nonpublic personal information about a consumer to a nonaffiliated
third party other than as described in the initial notice that the bank
provided to that consumer under Sec. 40.4, unless:
(1) The bank has provided to the consumer a clear and conspicuous
revised notice that accurately describes its policies and practices;
(2) The bank has provided to the consumer a new opt out notice;
(3) The bank has given the consumer a reasonable opportunity,
before the bank discloses the information to the nonaffiliated third
party, to opt out of the disclosure; and
(4) The consumer does not opt out.
(b) Examples. (1) Except as otherwise permitted by Secs. 40.13,
40.14, and 40.15, a bank must provide a revised notice before it:
(i) Discloses a new category of nonpublic personal information to
any nonaffiliated third party;
(ii) Discloses nonpublic personal information to a new category of
nonaffiliated third party; or
(iii) Disclose nonpublic personal information about a former
customer to a nonaffiliated third party, if that former customer has
not had the opportunity to exercise an opt out right regarding that
disclosure.
(2) A revised notice is not required if the bank discloses
nonpublic personal information to a new nonaffiliated third party that
the bank adequately described in its prior notice.
(c) Delivery. When a bank is required to deliver a revised privacy
notice by this section, the bank must deliver it according to
Sec. 40.9.
Sec. 40.9 Delivering privacy and opt out notices.
(a) How to provide notices. A bank must provide any privacy notices
and opt out notices, including short-form initial notices, that this
part requires so that each consumer can reasonably be expected to
receive actual notice in writing or, if the consumer agrees,
electronically.
(b) (1) Examples of reasonable expectation of actual notice. A bank
may reasonably expect that a consumer will receive actual notice if the
bank:
(i) Hand-delivers a printed copy of the notice to the consumer;
(ii) Mails a printed copy of the notice to the last known address
of the consumer;
(iii) For the consumer who conducts transactions electronically,
posts the notice on the electronic site and requires the consumer to
acknowledge receipt of the notice as a necessary step to obtaining a
particular financial product or service;
(iv) For an isolated transaction with the consumer, such as an ATM
transaction, posts the notice on the ATM screen and requires the
consumer to acknowledge receipt of the notice as a necessary step to
obtaining the particular financial product or service.
(2) Examples of unreasonable expectation of actual notice. A bank
may not, however, reasonably expect that a consumer will receive actual
notice of its privacy policies and practices if it:
(i) Only posts a sign in its branch or office or generally publish
advertisements of its privacy policies and practices;
(ii) Sends the notice via electronic mail to a consumer who does
not obtain a financial product or service from the bank electronically.
(c) Annual notices only. A bank may reasonably expect that a
customer will receive actual notice of the bank's annual privacy notice
if:
(1) The customer uses the bank's web site to access financial
products and services electronically and agrees to receive notices at
the web site and the bank posts its current privacy notice continuously
in a clear and conspicuous manner on the web site; or
(2) The customer has requested that the bank refrain from sending
any information regarding the customer relationship, and the bank's
current privacy notice remains available to the customer upon request.
(d) Oral description of notice insufficient. A bank may not provide
any notice required by this part solely by orally explaining the
notice, either in person or over the telephone.
(e) Retention or accessibility of notices for customers. (1) For
customers only, a bank must provide the initial notice required by
Sec. 40.4(a)(1), the annual notice required by Sec. 40.5(a), and the
revised notice required by Sec. 40.8 so that the customer can retain
them or obtain them later in writing or, if the customer agrees,
electronically.
(2) Examples of retention or accessibility. A bank provides a
privacy notice to the customer so that the customer can retain it or
obtain it later if the bank:
(i) Hand-delivers a printed copy of the notice to the customer;
(ii) Mails a printed copy of the notice to the last known address
of the customer; or
(iii) Makes its current privacy notice available on a web site (or
a link to another web site) for the customer who obtains a financial
product or service electronically and agrees to receive the notice at
the web site.
(f) Joint notice with other financial institutions. A bank may
provide a joint notice from it and one or more of its affiliates or
other financial institutions, as identified in the notice, as long as
the notice is accurate with respect to the bank and the other
institutions.
(g) Joint relationships. If two or more consumers jointly obtain a
financial product or service from a bank, the bank may satisfy the
initial, annual, and revised notice requirements of Secs. 40.4(a),
40.5(a), and 40.8(a), respectively, by providing one notice to those
consumers jointly.
Subpart B--Limits on Disclosures
Sec. 40.10 Limits on disclosure of non-public personal information to
nonaffiliated third parties.
(a)(1) Conditions for disclosure. Except as otherwise authorized in
this
[[Page 35203]]
part, a bank may not, directly or through any affiliate, disclose any
nonpublic personal information about a consumer to a nonaffiliated
third party unless:
(i) The bank has provided to the consumer an initial notice as
required under Sec. 40.4;
(ii) The bank has provided to the consumer an opt out notice as
required in Sec. 40.7;
(iii) The bank has given the consumer a reasonable opportunity,
before it discloses the information to the nonaffiliated third party,
to opt out of the disclosure; and
(iv) The consumer does not opt out.
(2) Opt out definition. Opt out means a direction by the consumer
that the bank not disclose nonpublic personal information about that
consumer to a nonaffiliated third party, other than as permitted by
Secs. 40.13, 40.14, and 40.15.
(3) Examples of reasonable opportunity to opt out. A bank provides
a consumer with a reasonable opportunity to opt out if:
(i) By mail. The bank mails the notices required in paragraph
(a)(1) of this section to the consumer and allows the consumer to opt
out by mailing a form, calling a toll-free telephone number, or any
other reasonable means within 30 days from the date the bank mailed the
notices.
(ii) By electronic means. A customer opens an on-line account with
a bank and agrees to receive the notices required in paragraph (a)(1)
of this section electronically, and the bank allows the customer to opt
out by any reasonable means within 30 days after the date that the
customer acknowledges receipt of the notices in conjunction with
opening the account.
(iii) Isolated transaction with consumer. For an isolated
transaction, such as the purchase of a cashier's check by a consumer, a
bank provides the consumer with a reasonable opportunity to opt out if
the bank provides the notices required in paragraph (a)(1) of this
section at the time of the transaction and requests that the consumer
decide, as a necessary part of the transaction, whether to opt out
before completing the transaction.
(b) Application of opt out to all consumers and all nonpublic
personal information. (1) A bank must comply with this section,
regardless of whether the bank and the consumer have established a
customer relationship.
(2) Unless a bank complies with this section, the bank may not,
directly or through any affiliate, disclose any nonpublic personal
information about a consumer that the bank has collected, regardless of
whether the bank collected it before or after receiving the direction
to opt out from the consumer.
(c) Partial opt out. A bank may allow a consumer to select certain
nonpublic personal information or certain nonaffiliated third parties
with respect to which the consumer wishes to opt out.
Sec. 40.11 Limits on redisclosure and reuse of information.
(a)(1) Information the bank receives under an exception. If a bank
receives nonpublic personal information from a nonaffiliated financial
institution under an exception in Secs. 40.14 or 40.15 of this part,
the bank's disclosure and use of that information is limited as
follows:
(i) The bank may disclose the information to the affiliates of the
financial institution from which the bank received the information;
(ii) The bank may disclose the information to its affiliates, but
the bank's affiliates may, in turn, disclose and use the information
only to the extent that the bank may disclose and use the information;
and
(iii) The bank may disclose and use the information pursuant to an
exception in Secs. 40.14 or 40.15 in the ordinary course of business to
carry out the activity covered by the exception under which the bank
received the information.
(2) Example. If a bank receives a customer list from a
nonaffiliated financial institution in order to provide account
processing services under the exception in Sec. 40.14(a), the bank may
disclose that information under any exception in Secs. 40.14 or 40.15
in the ordinary course of business in order to provide those services.
For example, the bank could disclose the information in response to a
properly authorized subpoena or to its attorneys, accountants, and
auditors. The bank could not disclose that information to a third party
for marketing purposes or use that information for its own marketing
purposes.
(b)(1) Information a bank receives outside of an exception. If a
bank receives nonpublic personal information from a nonaffiliated
financial institution other than under an exception in Secs. 40.14 or
40.15 of this part, the bank may disclose the information only:
(i) To the affiliates of the financial institution from which the
bank received the information;
(ii) To its affiliates, but its affiliates may, in turn, disclose
the information only to the extent that the bank can disclose the
information; and
(iii) To any other person, if the disclosure would be lawful if
made directly to that person by the financial institution from which
the bank received the information.
(2) Example. If a bank obtains a customer list from a nonaffiliated
financial institution outside of the exceptions in Secs. 40.14 and
40.15:
(i) The bank may use that list for its own purposes; and
(ii) The bank may disclose that list to another nonaffiliated third
party only if the financial institution from which the bank purchased
the list could have lawfully disclosed the list to that third party.
That is, the bank may disclose the list in accordance with the privacy
policy of the financial institution from which the bank received the
list, as limited by the opt out direction of each consumer whose
nonpublic personal information the bank intends to disclose and the
bank may disclose the list in accordance with an exception in
Secs. 40.14 or 40.15, such as to the bank's attorneys or accountants.
(c) Information a bank discloses under an exception. If a bank
discloses nonpublic personal information to a nonaffiliated third party
under an exception in Secs. 40.14 or 40.15 of this part, the third
party may disclose and use that information only as follows:
(1) The third party may disclose the information to the bank's
affiliates;
(2) The third party may disclose the information to its affiliates,
but its affiliates may, in turn, disclose and use the information only
to the extent that the third party may disclose and use the
information; and
(3) The third party may disclose and use the information pursuant
to an exception in Secs. 40.14 or 40.15 in the ordinary course of
business to carry out the activity covered by the exception under which
it received the information.
(d) Information a bank discloses outside of an exception. If a bank
discloses nonpublic personal information to a nonaffiliated third party
other than under an exception in Secs. 40.14 or 40.15 of this part, the
third party may disclose the information only:
(1) To the bank's affiliates;
(2) To the third party's affiliates, but the third party's
affiliates, in turn, may disclose the information only to the extent
the third party can disclose the information; and
(3) To any other person, if the disclosure would be lawful if the
bank made it directly to that person.
Sec. 40.12 Limits on sharing account number information for marketing
purposes.
(a) General prohibition on disclosure of account numbers. A bank
must not, directly or through an affiliate, disclose, other than to a
consumer reporting
[[Page 35204]]
agency, an account number or similar form of access number or access
code for a consumer's credit card account, deposit account, or
transaction account to any nonaffiliated third party for use in
telemarketing, direct mail marketing, or other marketing through
electronic mail to the consumer.
(b) Exceptions. Paragraph (a) of this section does not apply if a
bank discloses an account number or similar form of access number or
access code:
(1) To the bank's agent or service provider solely in order to
perform marketing for the bank's own products or services, as long as
the agent or service provider is not authorized to directly initiate
charges to the account; or
(2) To a participant in a private label credit card program or an
affinity or similar program where the participants in the program are
identified to the customer when the customer enters into the program.
(c) Examples. (1) Account number. An account number, or similar
form of access number or access code, does not include a number or code
in an encrypted form, as long as the bank does not provide the
recipient with a means to decode the number or code.
(2) Transaction account. A transaction account is an account other
than a deposit account or a credit card account. A transaction account
does not include an account to which third parties cannot initiate
charges.
Subpart C--Exceptions
Sec. 40.13 Exception to opt out requirements for service providers and
joint marketing.
(a) General rule. (1) The opt out requirements in Secs. 40.7 and
40.10 do not apply when a bank provides nonpublic personal information
to a nonaffiliated third party to perform services for the bank or
functions on the bank's behalf, if the bank:
(i) Provides the initial notice in accordance with Sec. 40.4; and
(ii) Enters into a contractual agreement with the third party that
prohibits the third party from disclosing or using the information
other than to carry out the purposes for which the bank disclosed the
information, including use under an exception in Sec. 40.14 or 40.15 in
the ordinary course of business to carry out those purposes.
(2) Example. If a bank discloses nonpublic personal information
under this section to a financial institution with which the bank
performs joint marketing, the bank's contractual agreement with that
institution meets the requirements of paragraph (a)(1)(ii) of this
section if it prohibits the institution from disclosing or using the
nonpublic personal information except as necessary to carry out the
joint marketing or under an exception in Secs. 40.14 or 40.15 in the
ordinary course of business to carry out that joint marketing.
(b) Service may include joint marketing. The services a
nonaffiliated third party performs for a bank under paragraph (a) of
this section may include marketing of the bank's own products or
services or marketing of financial products or services offered
pursuant to joint agreements between the bank and one or more financial
institutions.
(c) Definition of joint agreement. For purposes of this section,
joint agreement means a written contract pursuant to which a bank and
one or more financial institutions jointly offer, endorse, or sponsor a
financial product or service.
Sec. 40.14 Exceptions to notice and opt out requirements for
processing and servicing transactions.
(a) Exceptions for processing transactions at consumer's request.
The requirements for initial notice in Sec. 40.4(a)(2), the opt out in
Secs. 40.7 and 40.10 and service providers and joint marketing in
Sec. 40.13 do not apply if the bank discloses nonpublic personal
information as necessary to effect, administer, or enforce a
transaction that a consumer requests or authorizes, or in connection
with:
(1) Servicing or processing a financial product or service that a
consumer requests or authorizes;
(2) Maintaining or servicing the consumer's account with a bank, or
with another entity as part of a private label credit card program or
other extension of credit on behalf of such entity; or
(3) A proposed or actual securitization, secondary market sale
(including sales of servicing rights), or similar transaction related
to a transaction of the consumer.
(b) Necessary to effect, administer, or enforce a transaction means
that the disclosure is:
(1) Required, or is one of the lawful or appropriate methods, to
enforce the bank's rights or the rights of other persons engaged in
carrying out the financial transaction or providing the product or
service; or
(2) Required, or is a usual, appropriate or acceptable method:
(i) To carry out the transaction or the product or service business
of which the transaction is a part, and record, service, or maintain
the consumer's account in the ordinary course of providing the
financial service or financial product;
(ii) To administer or service benefits or claims relating to the
transaction or the product or service business of which it is a part;
(iii) To provide a confirmation, statement, or other record of the
transaction, or information on the status or value of the financial
service or financial product to the consumer or the consumer's agent or
broker;
(iv) To accrue or recognize incentives or bonuses associated with
the transaction that are provided by a bank or any other party;
(v) To underwrite insurance at the consumer's request or for
reinsurance purposes, or for any of the following purposes as they
relate to a consumer's insurance: account administration, reporting,
investigating, or preventing fraud or material misrepresentation,
processing premium payments, processing insurance claims, administering
insurance benefits (including utilization review activities),
participating in research projects, or as otherwise required or
specifically permitted by Federal or State law;
(vi) In connection with:
(A) The authorization, settlement, billing, processing, clearing,
transferring, reconciling or collection of amounts charged, debited, or
otherwise paid using a debit, credit, or other payment card, check, or
account number, or by other payment means;
(B) The transfer of receivables, accounts, or interests therein; or
(C) The audit of debit, credit, or other payment information.
Sec. 40.15 Other exceptions to notice and opt out requirements.
(a) Exceptions to opt out requirements. The requirements for
initial notice to consumers in Sec. 40.4(a)(2), the opt out in
Secs. 40.7 and 40.10, and service providers and joint marketing in
Sec. 40.13 do not apply when a bank discloses nonpublic personal
information:
(1) With the consent or at the direction of the consumer, provided
that the consumer has not revoked the consent or direction;
(2) (i) To protect the confidentiality or security of a bank's
records pertaining to the consumer, service, product, or transaction;
(ii) To protect against or prevent actual or potential fraud,
unauthorized transactions, claims, or other liability;
(iii) For required institutional risk control or for resolving
consumer disputes or inquiries;
(iv) To persons holding a legal or beneficial interest relating to
the consumer; or
(v) To persons acting in a fiduciary or representative capacity on
behalf of the consumer;
[[Page 35205]]
(3) To provide information to insurance rate advisory
organizations, guaranty funds or agencies, agencies that are rating a
bank, persons that are assessing the bank's compliance with industry
standards, and the bank's attorneys, accountants, and auditors;
(4) To the extent specifically permitted or required under other
provisions of law and in accordance with the Right to Financial Privacy
Act of 1978 (12 U.S.C. 3401 et seq.), to law enforcement agencies
(including a federal functional regulator, the Secretary of the
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records
and Reports on Monetary Instruments and Transactions) and 12 U.S.C.
Chapter 21 (Financial Recordkeeping), a State insurance authority, with
respect to any person domiciled in that insurance authority's State
that is engaged in providing insurance, and the Federal Trade
Commission), self-regulatory organizations, or for an investigation on
a matter related to public safety;
(5)(i) To a consumer reporting agency in accordance with the Fair
Credit Reporting Act (15 U.S.C. 1681 et seq.); or
(ii) From a consumer report reported by a consumer reporting
agency;
(6) In connection with a proposed or actual sale, merger, transfer,
or exchange of all or a portion of a business or operating unit if the
disclosure of nonpublic personal information concerns solely consumers
of such business or unit; or
(7)(i) To comply with Federal, State, or local laws, rules and
other applicable legal requirements;
(ii) To comply with a properly authorized civil, criminal, or
regulatory investigation, or subpoena or summons by Federal, State, or
local authorities; or
(iii) To respond to judicial process or government regulatory
authorities having jurisdiction over a bank for examination,
compliance, or other purposes as authorized by law.
(b) Examples of consent and revocation of consent. (1) A consumer
may specifically consent to a bank's disclosure to a nonaffiliated
insurance company of the fact that the consumer has applied to the bank
for a mortgage so that the insurance company can offer homeowner's
insurance to the consumer.
(2) A consumer may revoke consent by subsequently exercising the
right to opt out of future disclosures of nonpublic personal
information as permitted under Sec. 40.7(f).
Subpart D--Relation to Other Laws; Effective Date
Sec. 40.16 Protection of Fair Credit Reporting Act.
Nothing in this part shall be construed to modify, limit, or
supersede the operation of the Fair Credit Reporting Act (15 U.S.C.
1681 et seq.), and no inference shall be drawn on the basis of the
provisions of this part regarding whether information is transaction or
experience information under section 603 of that Act.
Sec. 40.17 Relation to State laws.
(a) In general. This part shall not be construed as superseding,
altering, or affecting any statute, regulation, order, or
interpretation in effect in any State, except to the extent that such
State statute, regulation, order, or interpretation is inconsistent
with the provisions of this part, and then only to the extent of the
inconsistency.
(b) Greater protection under State law. For purposes of this
section, a State statute, regulation, order, or interpretation is not
inconsistent with the provisions of this part if the protection such
statute, regulation, order, or interpretation affords any consumer is
greater than the protection provided under this part, as determined by
the Federal Trade Commission, after consultation with the OCC, on the
Federal Trade Commission's own motion, or upon the petition of any
interested party.
Sec. 40.18 Effective date; transition rule.
(a) Effective date. This part is effective November 13, 2000. In
order to provide sufficient time for banks to establish policies and
systems to comply with the requirements of this part, the OCC has
extended the time for compliance with this part until July 1, 2001.
(b)(1) Notice requirement for consumers who are the bank's
customers on the compliance date. By July 1, 2001, a bank must have
provided an initial notice, as required by Sec. 40.4, to consumers who
are the bank's customers on July 1, 2001.
(2) Example. A bank provides an initial notice to consumers who are
its customers on July 1, 2001, if, by that date, the bank has
established a system for providing an initial notice to all new
customers and has mailed the initial notice to all the bank's existing
customers.
(c) Two-year grandfathering of service agreements. Until July 1,
2002, a contract that a bank has entered into with a nonaffiliated
third party to perform services for the bank or functions on the bank's
behalf satisfies the provisions of Sec. 40.13(a)(1)(ii) of this part,
even if the contract does not include a requirement that the third
party maintain the confidentiality of nonpublic personal information,
as long as the bank entered into the agreement on or before July 1,
2000.
Appendix A to Part 40--Sample Clauses
Financial institutions, including a group of financial holding
company affiliates that use a common privacy notice, may use the
following sample clauses, if the clause is accurate for each
institution that uses the notice. (Note that disclosure of certain
information, such as assets, income, and information from a consumer
reporting agency, may give rise to obligations under the Fair Credit
Reporting Act, such as a requirement to permit a consumer to opt out
of disclosures to affiliates or designation as a consumer reporting
agency if disclosures are made to nonaffiliated third parties.)
A-1--Categories of information a bank collects (all institutions)
A bank may use this clause, as applicable, to meet the
requirement of Sec. 40.6(a)(1) to describe the categories of
nonpublic personal information the bank collects.
Sample Clause A-1:
We collect nonpublic personal information about you from the
following sources:
Information we receive from you on applications or
other forms;
Information about your transactions with us, our
affiliates, or others; and
Information we receive from a consumer reporting
agency.
A-2--Categories of information a bank discloses (institutions that
disclose outside of the exceptions)
A bank may use one of these clauses, as applicable, to meet the
requirement of Sec. 40.6(a)(2) to describe the categories of
nonpublic personal information the bank discloses. The bank may use
these clauses if it discloses nonpublic personal information other
than as permitted by the exceptions in Secs. 40.13, 40.14, and
40.15.
Sample Clause A-2, Alternative 1:
We may disclose the following kinds of nonpublic personal
information about you:
Information we receive from you on applications or
other forms, such as [provide illustrative examples, such as ``your
name, address, social security number, assets, and income''];
Information about your transactions with us, our
affiliates, or others, such as [provide illustrative examples, such
as ``your account balance, payment history, parties to transactions,
and credit card usage'']; and
Information we receive from a consumer reporting
agency, such as [provide illustrative examples, such as ``your
creditworthiness and credit history''].
Sample Clause A-2, Alternative 2:
We may disclose all of the information that we collect, as
described [describe location in the notice, such as ``above'' or
``below''].
[[Page 35206]]
A-3--Categories of information a bank discloses and parties to whom the
bank discloses (institutions that do not disclose outside of the
exceptions)
A bank may use this clause, as applicable, to meet the
requirements of Secs. 40.6(a)(2), (3), and (4) to describe the
categories of nonpublic personal information about customers and
former customers that the bank discloses and the categories of
affiliates and nonaffiliated third parties to whom the bank
discloses. A bank may use this clause if the bank does not disclose
nonpublic personal information to any party, other than as permitted
by the exceptions in Secs. 40.14, and 40.15.
Sample Clause A-3:
We do not disclose any nonpublic personal information about our
customers or former customers to anyone, except as permitted by law.
A-4--Categories of parties to whom a bank discloses (institutions that
disclose outside of the exceptions)
A bank may use this clause, as applicable, to meet the
requirement of Sec. 40.6(a)(3) to describe the categories of
affiliates and nonaffiliated third parties to whom the bank
discloses nonpublic personal information. The bank may use this
clause if the bank discloses nonpublic personal information other
than as permitted by the exceptions in Secs. 40.13, 40.14, and
40.15, as well as when permitted by the exceptions in Secs. 40.14
and 40.15.
Sample Clause A-4:
We may disclose nonpublic personal information about you to the
following types of third parties:
Financial service providers, such as [provide
illustrative examples, such as ``mortgage bankers, securities
broker-dealers, and insurance agents''];
Non-financial companies, such as [provide illustrative
examples, such as ``retailers, direct marketers, airlines, and
publishers'']; and
Others, such as [provide illustrative examples, such as
``non-profit organizations''].
We may also disclose nonpublic personal information about you to
nonaffiliated third parties as permitted by law.
A-5--Service provider/joint marketing exception
A bank may use one of these clauses, as applicable, to meet the
requirements of Sec. 40.6(a)(5) related to the exception for service
providers and joint marketers in Sec. 40.13. If a bank discloses
nonpublic personal information under this exception, the bank must
describe the categories of nonpublic personal information the bank
discloses and the categories of third parties with whom the bank has
contracted.
Sample Clause A-5, Alternative 1:
We may disclose the following information to companies that
perform marketing services on our behalf or to other financial
institutions with whom we have joint marketing agreements:
Information we receive from you on applications or
other forms, such as [provide illustrative examples, such as ``your
name, address, social security number, assets, and income''];
Information about your transactions with us, our
affiliates, or others, such as [provide illustrative examples, such
as ``your account balance, payment history, parties to transactions,
and credit card usage'']; and
Information we receive from a consumer reporting
agency, such as [provide illustrative examples, such as ``your
creditworthiness and credit history''].
Sample Clause A-5, Alternative 2:
We may disclose all of the information we collect, as described
[describe location in the notice, such as ``above'' or ``below''] to
companies that perform marketing services on our behalf or to other
financial institutions with whom we have joint marketing agreements.
A-6--Explanation of opt out right (institutions that disclose outside
of the exceptions)
A bank may use this clause, as applicable, to meet the
requirement of Sec. 40.6(a)(6) to provide an explanation of the
consumer's right to opt out of the disclosure of nonpublic personal
information to nonaffiliated third parties, including the method(s)
by which the consumer may exercise that right. The bank may use this
clause if the bank discloses nonpublic personal information other
than as permitted by the exceptions in Secs. 40.13, 40.14, and
40.15.
Sample Clause A-6:
If you prefer that we not disclose nonpublic personal
information about you to nonaffiliated third parties, you may opt
out of those disclosures, that is, you may direct us not to make
those disclosures (other than disclosures permitted by law). If you
wish to opt out of disclosures to nonaffiliated third parties, you
may [describe a reasonable means of opting out, such as ``call the
following toll-free number: (insert number)].
A-7--Confidentiality and security (all institutions)
A bank may use this clause, as applicable, to meet the
requirement of Sec. 40.6(a)(8) to describe its policies and
practices with respect to protecting the confidentiality and
security of nonpublic personal information.
Sample Clause A-7:
We restrict access to nonpublic personal information about you
to [provide an appropriate description, such as ``those employees
who need to know that information to provide products or services to
you'']. We maintain physical, electronic, and procedural safeguards
that comply with federal standards to guard your nonpublic personal
information.
Dated: May 9, 2000.
John D. Hawke, Jr.,
Comptroller of the Currency.
Board of Governors of the Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set out in the joint preamble, Title 12, Chapter
II, of the Code of Federal Regulations is amended by adding a new part
216 to read as follows:
PART 216--PRIVACY OF CONSUMER FINANCIAL INFORMATION (REGULATION P)
Sec.
216.1 Purpose and scope.
216.2 Rule of construction.
216.3 Definitions.
Subpart A--Privacy and Opt Out Notices
216.4 Initial privacy notice to consumers required.
216.5 Annual privacy notice to customers required.
216.6 Information to be included in privacy notices.
216.7 Form of opt out notice to consumers; opt out methods.
216.8 Revised privacy notices.
216.9 Delivering privacy and opt out notices.
Subpart B--Limits on Disclosures
216.10 Limitation on disclosure of nonpublic personal information
to nonaffiliated third parties.
216.11 Limits on redisclosure and reuse of information.
216.12 Limits on sharing account number information for marketing
purposes.
Subpart C--Exceptions
216.13 Exception to opt out requirements for service providers and
joint marketing.
216.14 Exceptions to notice and opt out requirements for
processing and servicing transactions.
216.15 Other exceptions to notice and opt out requirements.
Subpart D--Relation to Other Laws; Effective Date
216.16 Protection of Fair Credit Reporting Act.
216.17 Relation to State laws.
216.18 Effective date; transition rule.
Appendix A to Part 216--Sample Clauses
Authority: 15 U.S.C. 6801 et seq.
Sec. 216.1 Purpose and scope.
(a) Purpose. This part governs the treatment of nonpublic personal
information about consumers by the financial institutions listed in
paragraph (b) of this section. This part:
(1) Requires a financial institution to provide notice to customers
about its privacy policies and practices;
(2) Describes the conditions under which a financial institution
may disclose nonpublic personal information about consumers to
nonaffiliated third parties; and
(3) Provides a method for consumers to prevent a financial
institution from disclosing that information to most nonaffiliated
third parties by ``opting out'' of that disclosure, subject to the
exceptions in Secs. 216.13, 216.14, and 216.15.
[[Page 35207]]
(b) Scope. (1) This part applies only to nonpublic personal
information about individuals who obtain financial products or services
primarily for personal, family, or household purposes from the
institutions listed below. This part does not apply to information
about companies or about individuals who obtain financial products or
services for business, commercial, or agricultural purposes. This part
applies to the U. S. offices of entities for which the Board has
primary supervisory authority. They are referred to in this part as
``you.'' These are: State member banks, bank holding companies and
certain of their nonbank subsidiaries or affiliates, State uninsured
branches and agencies of foreign banks, commercial lending companies
owned or controlled by foreign banks, and Edge and Agreement
corporations.
(2) Nothing in this part modifies, limits, or supersedes the
standards governing individually identifiable health information
promulgated by the Secretary of Health and Human Services under the
authority of sections 262 and 264 of the Health Insurance Portability
and Accountability Act of 1996 (42 U.S.C. 1320d-1320d-8).
Sec. 216.2 Rule of construction.
The examples in this part and the sample clauses in appendix A of
this part are not exclusive. Compliance with an example or use of a
sample clause, to the extent applicable, constitutes compliance with
this part.
Sec. 216.3 Definitions.
As used in this part, unless the context requires otherwise:
(a) Affiliate means any company that controls, is controlled by, or
is under common control with another company.
(b) (1) Clear and conspicuous means that a notice is reasonably
understandable and designed to call attention to the nature and
significance of the information in the notice.
(2) Examples--(i) Reasonably understandable. You make your notice
reasonably understandable if you:
(A) Present the information in the notice in clear, concise
sentences, paragraphs, and sections;
(B) Use short explanatory sentences or bullet lists whenever
possible;
(C) Use definite, concrete, everyday words and active voice
whenever possible;
(D) Avoid multiple negatives;
(E) Avoid legal and highly technical business terminology whenever
possible; and
(F) Avoid explanations that are imprecise and readily subject to
different interpretations.
(ii) Designed to call attention. You design your notice to call
attention to the nature and significance of the information in it if
you:
(A) Use a plain-language heading to call attention to the notice;
(B) Use a typeface and type size that are easy to read;
(C) Provide wide margins and ample line spacing;
(D) Use boldface or italics for key words; and
(E) In a form that combines your notice with other information, use
distinctive type size, style, and graphic devices, such as shading or
sidebars, when you combine your notice with other information.
(iii) Notices on web sites. If you provide a notice on a web page,
you design your notice to call attention to the nature and significance
of the information in it if you use text or visual cues to encourage
scrolling down the page if necessary to view the entire notice and
ensure that other elements on the web site (such as text, graphics,
hyperlinks, or sound) do not distract attention from the notice, and
you either:
(A) Place the notice on a screen that consumers frequently access,
such as a page on which transactions are conducted; or
(B) Place a link on a screen that consumers frequently access, such
as a page on which transactions are conducted, that connects directly
to the notice and is labeled appropriately to convey the importance,
nature, and relevance of the notice.
(c) Collect means to obtain information that you organize or can
retrieve by the name of an individual or by identifying number, symbol,
or other identifying particular assigned to the individual,
irrespective of the source of the underlying information.
(d) Company means any corporation, limited liability company,
business trust, general or limited partnership, association, or similar
organization.
(e)(1) Consumer means an individual who obtains or has obtained a
financial product or service from you that is to be used primarily for
personal, family, or household purposes, or that individual's legal
representative.
(2) Examples--(i) An individual who applies to you for credit for
personal, family, or household purposes is a consumer of a financial
service, regardless of whether the credit is extended.
(ii) An individual who provides nonpublic personal information to
you in order to obtain a determination about whether he or she may
qualify for a loan to be used primarily for personal, family, or
household purposes is a consumer of a financial service, regardless of
whether the loan is extended.
(iii) An individual who provides nonpublic personal information to
you in connection with obtaining or seeking to obtain financial,
investment, or economic advisory services is a consumer regardless of
whether you establish a continuing advisory relationship.
(iv) If you hold ownership or servicing rights to an individual's
loan that is used primarily for personal, family, or household
purposes, the individual is your consumer, even if you hold those
rights in conjunction with one or more other institutions. (The
individual is also a consumer with respect to the other financial
institutions involved.) An individual who has a loan in which you have
ownership or servicing rights is your consumer, even if you, or another
institution with those rights, hire an agent to collect on the loan.
(v) An individual who is a consumer of another financial
institution is not your consumer solely because you act as agent for,
or provide processing or other services to, that financial institution.
(vi) An individual is not your consumer solely because he or she
has designated you as trustee for a trust.
(vii) An individual is not your consumer solely because he or she
is a beneficiary of a trust for which you are a trustee.
(viii) An individual is not your consumer solely because he or she
is a participant or a beneficiary of an employee benefit plan that you
sponsor or for which you act as a trustee or fiduciary.
(f) Consumer reporting agency has the same meaning as in section
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
(g) Control of a company means:
(1) Ownership, control, or power to vote 25 percent or more of the
outstanding shares of any class of voting security of the company,
directly or indirectly, or acting through one or more other persons;
(2) Control in any manner over the election of a majority of the
directors, trustees, or general partners (or individuals exercising
similar functions) of the company; or
(3) The power to exercise, directly or indirectly, a controlling
influence over the management or policies of the company, as the Board
determines.
(h) Customer means a consumer who has a customer relationship with
you.
(i)(1) Customer relationship means a continuing relationship
between a
[[Page 35208]]
consumer and you under which you provide one or more financial products
or services to the consumer that are to be used primarily for personal,
family, or household purposes.
(2) Examples--(i) Continuing relationship. A consumer has a
continuing relationship with you if the consumer:
(A) Has a deposit or investment account with you;
(B) Obtains a loan from you;
(C) Has a loan for which you own the servicing rights;
(D) Purchases an insurance product from you;
(E) Holds an investment product through you, such as when you act
as a custodian for securities or for assets in an Individual Retirement
Arrangement;
(F) Enters into an agreement or understanding with you whereby you
undertake to arrange or broker a home mortgage loan for the consumer;
(G) Enters into a lease of personal property with you; or
(H) Obtains financial, investment, or economic advisory services
from you for a fee.
(ii) No continuing relationship. A consumer does not, however, have
a continuing relationship with you if:
(A) The consumer obtains a financial product or service only in
isolated transactions, such as using your ATM to withdraw cash from an
account at another financial institution or purchasing a cashier's
check or money order;
(B) You sell the consumer's loan and do not retain the rights to
service that loan; or
(C) You sell the consumer airline tickets, travel insurance, or
traveler's checks in isolated transactions.
(j) Federal functional regulator means:
(1) The Board of Governors of the Federal Reserve System;
(2) The Office of the Comptroller of the Currency;
(3) The Board of Directors of the Federal Deposit Insurance
Corporation;
(4) The Director of the Office of Thrift Supervision;
(5) The National Credit Union Administration Board; and
(6) The Securities and Exchange Commission.
(k)(1) Financial institution means any institution the business of
which is engaging in activities that are financial in nature or
incidental to such financial activities as described in section 4(k) of
the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
(2) Financial institution does not include:
(i) Any person or entity with respect to any financial activity
that is subject to the jurisdiction of the Commodity Futures Trading
Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.);
(ii) The Federal Agricultural Mortgage Corporation or any entity
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C.
2001 et seq.); or
(iii) Institutions chartered by Congress specifically to engage in
securitizations, secondary market sales (including sales of servicing
rights), or similar transactions related to a transaction of a
consumer, as long as such institutions do not sell or transfer
nonpublic personal information to a nonaffiliated third party.
(l)(1) Financial product or service means any product or service
that a financial holding company could offer by engaging in an activity
that is financial in nature or incidental to such a financial activity
under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(k)).
(2) Financial service includes your evaluation or brokerage of
information that you collect in connection with a request or an
application from a consumer for a financial product or service.
(m)(1) Nonaffiliated third party means any person except:
(i) Your affiliate; or
(ii) A person employed jointly by you and any company that is not
your affiliate (but nonaffiliated third party includes the other
company that jointly employs the person).
(2) Nonaffiliated third party includes any company that is an
affiliate solely by virtue of your or your affiliate's direct or
indirect ownership or control of the company in conducting merchant
banking or investment banking activities of the type described in
section 4(k)(4)(H) or insurance company investment activities of the
type described in section 4(k)(4)(I) of the Bank Holding Company Act of
1956 (12 U.S.C. 1843(k)(4)(H) and (I)).
(n)(1) Nonpublic personal information means:
(i) Personally identifiable financial information; and
(ii) Any list, description, or other grouping of consumers (and
publicly available information pertaining to them) that is derived
using any personally identifiable financial information that is not
publicly available.
(2) Nonpublic personal information does not include:
(i) Publicly available information, except as included on a list
described in paragraph (n)(1)(ii) of this section; or
(ii) Any list, description, or other grouping of consumers (and
publicly available information pertaining to them) that is derived
without using any personally identifiable financial information that is
not publicly available.
(3) Examples of lists--(i) Nonpublic personal information includes
any list of individuals' names and street addresses that is derived in
whole or in part using personally identifiable financial information
that is not publicly available, such as account numbers.
(ii) Nonpublic personal information does not include any list of
individuals' names and addresses that contains only publicly available
information, is not derived in whole or in part using personally
identifiable financial information that is not publicly available, and
is not disclosed in a manner that indicates that any of the individuals
on the list is a consumer of a financial institution.
(o)(1) Personally identifiable financial information means any
information:
(i) A consumer provides to you to obtain a financial product or
service from you;
(ii) About a consumer resulting from any transaction involving a
financial product or service between you and a consumer; or
(iii) You otherwise obtain about a consumer in connection with
providing a financial product or service to that consumer.
(2) Examples--(i) Information included. Personally identifiable
financial information includes:
(A) Information a consumer provides to you on an application to
obtain a loan, credit card, or other financial product or service;
(B) Account balance information, payment history, overdraft
history, and credit or debit card purchase information;
(C) The fact that an individual is or has been one of your
customers or has obtained a financial product or service from you;
(D) Any information about your consumer if it is disclosed in a
manner that indicates that the individual is or has been your consumer;
(E) Any information that a consumer provides to you or that you or
your agent otherwise obtain in connection with collecting on a loan or
servicing a loan;
(F) Any information you collect through an Internet ``cookie'' (an
information collecting device from a web server); and
(G) Information from a consumer report.
[[Page 35209]]
(ii) Information not included. Personally identifiable financial
information does not include:
(A) A list of names and addresses of customers of an entity that is
not a financial institution; and
(B) Information that does not identify a consumer, such as
aggregate information or blind data that does not contain personal
identifiers such as account numbers, names, or addresses.
(p)(1) Publicly available information means any information that
you have a reasonable basis to believe is lawfully made available to
the general public from:
(i) Federal, State, or local government records;
(ii) Widely distributed media; or
(iii) Disclosures to the general public that are required to be
made by Federal, State, or local law.
(2) Reasonable basis. You have a reasonable basis to believe that
information is lawfully made available to the general public if you
have taken steps to determine:
(i) That the information is of the type that is available to the
general public; and
(ii) Whether an individual can direct that the information not be
made available to the general public and, if so, that your consumer has
not done so.
(3) Examples--(i) Government records. Publicly available
information in government records includes information in government
real estate records and security interest filings.
(ii) Widely distributed media. Publicly available information from
widely distributed media includes information from a telephone book, a
television or radio program, a newspaper, or a web site that is
available to the general public on an unrestricted basis. A web site is
not restricted merely because an Internet service provider or a site
operator requires a fee or a password, so long as access is available
to the general public.
(iii) Reasonable basis--(A) You have a reasonable basis to believe
that mortgage information is lawfully made available to the general
public if you have determined that the information is of the type
included on the public record in the jurisdiction where the mortgage
would be recorded.
(B) You have a reasonable basis to believe that an individual's
telephone number is lawfully made available to the general public if
you have located the telephone number in the telephone book or the
consumer has informed you that the telephone number is not unlisted.
(q) You means:
(1) A State member bank, as defined in 12 CFR 208.3(g);
(2) A bank holding company, as defined in 12 CFR 225.2(c);
(3) A subsidiary (as defined in 12 CFR 225.2(o)) or affiliate of a
bank holding company and a subsidiary of a State member bank, except
for:
(i) A national bank or a State bank that is not a member of the
Federal Reserve System;
(ii) A broker or dealer that is registered under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.);
(iii) A registered investment adviser, properly registered by or on
behalf of either the Securities Exchange Commission or any State, with
respect to its investment advisory activities and its activities
incidental to those investment advisory activities;
(iv) An investment company that is registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.); or
(v) An insurance company, with respect to its insurance activities
and its activities incidental to those insurance activities, that is
subject to supervision by a State insurance regulator;
(4) A State agency or State branch of a foreign bank, as those
terms are defined in 12 U.S.C. 3101(b) (11) and (12), the deposits of
which agency or branch are not insured by the Federal Deposit Insurance
Corporation;
(5) A commercial lending company, as defined in 12 CFR 211.21(f),
that is owned or controlled by a foreign bank, as defined in 12 CFR
211.21(m); or
(6) A corporation organized under section 25A of the Federal
Reserve Act (12 U.S.C. 611-631) or a corporation having an agreement or
undertaking with the Board under section 25 of the Federal Reserve Act
(12 U.S.C. 601-604a).
Subpart A--Privacy and Opt Out Notices
Sec. 216.4 Initial privacy notice to consumers required.
(a) Initial notice requirement. You must provide a clear and
conspicuous notice that accurately reflects your privacy policies and
practices to:
(1) Customer. An individual who becomes your customer, not later
than when you establish a customer relationship, except as provided in
paragraph (e) of this section; and
(2) Consumer. A consumer, before you disclose any nonpublic
personal information about the consumer to any nonaffiliated third
party, if you make such a disclosure other than as authorized by
Secs. 216.14 and 216.15.
(b) When initial notice to a consumer is not required. You are not
required to provide an initial notice to a consumer under paragraph (a)
of this section if:
(1) You do not disclose any nonpublic personal information about
the consumer to any nonaffiliated third party, other than as authorized
by Secs. 216.14 and 216.15; and
(2) You do not have a customer relationship with the consumer.
(c) When you establish a customer relationship--(1) General rule.
You establish a customer relationship when you and the consumer enter
into a continuing relationship.
(2) Special rule for loans.--You establish a customer relationship
with a consumer when you originate a loan to the consumer for personal,
family, or household purposes. If you subsequently transfer the
servicing rights to that loan to another financial institution, the
customer relationship transfers with the servicing rights.
(3)(i) Examples of establishing customer relationship. You
establish a customer relationship when the consumer:
(A) Opens a credit card account with you;
(B) Executes the contract to open a deposit account with you,
obtains credit from you, or purchases insurance from you;
(C) Agrees to obtain financial, economic, or investment advisory
services from you for a fee; or
(D) Becomes your client for the purpose of your providing credit
counseling or tax preparation services.
(ii) Examples of loan rule. You establish a customer relationship
with a consumer who obtains a loan for personal, family, or household
purposes when you:
(A) Originate the loan to the consumer; or
(B) Purchase the servicing rights to the consumer's loan.
(d) Existing customers. When an existing customer obtains a new
financial product or service from you that is to be used primarily for
personal, family, or household purposes, you satisfy the initial notice
requirements of paragraph (a) of this section as follows:
(1) You may provide a revised privacy notice, under Sec. 216.8,
that covers the customer's new financial product or service; or
(2) If the initial, revised, or annual notice that you most
recently provided to that customer was accurate with respect to the new
financial product or service, you do not need to provide a new privacy
notice under paragraph (a) of this section.
(e) Exceptions to allow subsequent delivery of notice. (1) You may
provide
[[Page 35210]]
the initial notice required by paragraph (a)(1) of this section within
a reasonable time after you establish a customer relationship if:
(i) Establishing the customer relationship is not at the customer's
election; or
(ii) Providing notice not later than when you establish a customer
relationship would substantially delay the customer's transaction and
the customer agrees to receive the notice at a later time.
(2) Examples of exceptions--(i)
Not at customer's election. Establishing a customer relationship is
not at the customer's election if you acquire a customer's deposit
liability or the servicing rights to a customer's loan from another
financial institution and the customer does not have a choice about
your acquisition.
(ii) Substantial delay of customer's transaction. Providing notice
not later than when you establish a customer relationship would
substantially delay the customer's transaction when:
(A) You and the individual agree over the telephone to enter into a
customer relationship involving prompt delivery of the financial
product or service; or
(B) You establish a customer relationship with an individual under
a program authorized by Title IV of the Higher Education Act of 1965
(20 U.S.C. 1070 et seq.) or similar student loan programs where loan
proceeds are disbursed promptly without prior communication between you
and the customer.
(iii) No substantial delay of customer's transaction. Providing
notice not later than when you establish a customer relationship would
not substantially delay the customer's transaction when the
relationship is initiated in person at your office or through other
means by which the customer may view the notice, such as on a web site.
(f) Delivery. When you are required to deliver an initial privacy
notice by this section, you must deliver it according to Sec. 216.9. If
you use a short-form initial notice for non-customers according to
Sec. 216.6(d), you may deliver your privacy notice according to
Sec. 216.6(d)(3).
Sec. 216.5 Annual privacy notice to customers required.
(a)(1) General rule. You must provide a clear and conspicuous
notice to customers that accurately reflects your privacy policies and
practices not less than annually during the continuation of the
customer relationship. Annually means at least once in any period of 12
consecutive months during which that relationship exists. You may
define the 12-consecutive-month period, but you must apply it to the
customer on a consistent basis.
(2) Example. You provide a notice annually if you define the 12-
consecutive-month period as a calendar year and provide the annual
notice to the customer once in each calendar year following the
calendar year in which you provided the initial notice. For example, if
a customer opens an account on any day of year 1, you must provide an
annual notice to that customer by December 31 of year 2.
(b)(1) Termination of customer relationship. You are not required
to provide an annual notice to a former customer.
(2) Examples. Your customer becomes a former customer when:
(i) In the case of a deposit account, the account is inactive under
your policies;
(ii) In the case of a closed-end loan, the customer pays the loan
in full, you charge off the loan, or you sell the loan without
retaining servicing rights;
(iii) In the case of a credit card relationship or other open-end
credit relationship, you no longer provide any statements or notices to
the customer concerning that relationship or you sell the credit card
receivables without retaining servicing rights; or
(iv) You have not communicated with the customer about the
relationship for a period of 12 consecutive months, other than to
provide annual privacy notices or promotional material.
(c) Special rule for loans. If you do not have a customer
relationship with a consumer under the special rule for loans in
Sec. 216.4(c)(2), then you need not provide an annual notice to that
consumer under this section.
(d) Delivery. When you are required to deliver an annual privacy
notice by this section, you must deliver it according to Sec. 216.9.
Sec. 216.6 Information to be included in privacy notices.
(a) General rule. The initial, annual, and revised privacy notices
that you provide under Secs. 216.4, 216.5, and 216.8 must include each
of the following items of information, in addition to any other
information you wish to provide, that applies to you and to the
consumers to whom you send your privacy notice:
(1) The categories of nonpublic personal information that you
collect;
(2) The categories of nonpublic personal information that you
disclose;
(3) The categories of affiliates and nonaffiliated third parties to
whom you disclose nonpublic personal information, other than those
parties to whom you disclose information under Secs. 216.14 and 216.15;
(4) The categories of nonpublic personal information about your
former customers that you disclose and the categories of affiliates and
nonaffiliated third parties to whom you disclose nonpublic personal
information about your former customers, other than those parties to
whom you disclose information under Secs. 216.14 and 216.15;
(5) If you disclose nonpublic personal information to a
nonaffiliated third party under Sec. 216.13 (and no other exception in
Sec. 216.14 or 216.15 applies to that disclosure), a separate statement
of the categories of information you disclose and the categories of
third parties with whom you have contracted;
(6) An explanation of the consumer's right under Sec. 216.10(a) to
opt out of the disclosure of nonpublic personal information to
nonaffiliated third parties, including the method(s) by which the
consumer may exercise that right at that time;
(7) Any disclosures that you make under section 603(d)(2)(A)(iii)
of the Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) (that
is, notices regarding the ability to opt out of disclosures of
information among affiliates);
(8) Your policies and practices with respect to protecting the
confidentiality and security of nonpublic personal information; and
(9) Any disclosure that you make under paragraph (b) of this
section.
(b) Description of nonaffiliated third parties subject to
exceptions. If you disclose nonpublic personal information to third
parties as authorized under Secs. 216.14 and 216.15, you are not
required to list those exceptions in the initial or annual privacy
notices required by Secs. 216.4 and 216.5. When describing the
categories with respect to those parties, you are required to state
only that you make disclosures to other nonaffiliated third parties as
permitted by law.
(c) Examples--(1) Categories of nonpublic personal information that
you collect. You satisfy the requirement to categorize the nonpublic
personal information that you collect if you list the following
categories, as applicable:
(i) Information from the consumer;
(ii) Information about the consumer's transactions with you or your
affiliates;
(iii) Information about the consumer's transactions with
nonaffiliated third parties; and
(iv) Information from a consumer reporting agency.
(2) Categories of nonpublic personal information you disclose--(i)
You satisfy the requirement to categorize the nonpublic personal
information that you disclose if you list the categories
[[Page 35211]]
described in paragraph (c)(1) of this section, as applicable, and a few
examples to illustrate the types of information in each category.
(ii) If you reserve the right to disclose all of the nonpublic
personal information about consumers that you collect, you may simply
state that fact without describing the categories or examples of the
nonpublic personal information you disclose.
(3) Categories of affiliates and nonaffiliated third parties to
whom you disclose. You satisfy the requirement to categorize the
affiliates and nonaffiliated third parties to whom you disclose
nonpublic personal information if you list the following categories, as
applicable, and a few examples to illustrate the types of third parties
in each category.
(i) Financial service providers;
(ii) Non-financial companies; and
(iii) Others.
(4) Disclosures under exception for service providers and joint
marketers. If you disclose nonpublic personal information under the
exception in Sec. 216.13 to a nonaffiliated third party to market
products or services that you offer alone or jointly with another
financial institution, you satisfy the disclosure requirement of
paragraph (a)(5) of this section if you:
(i) List the categories of nonpublic personal information you
disclose, using the same categories and examples you used to meet the
requirements of paragraph (a)(2) of this section, as applicable; and
(ii) State whether the third party is:
(A) A service provider that performs marketing services on your
behalf or on behalf of you and another financial institution; or
(B) A financial institution with whom you have a joint marketing
agreement.
(5) Simplified notices. If you do not disclose, and do not wish to
reserve the right to disclose, nonpublic personal information about
customers or former customers to affiliates or nonaffiliated third
parties except as authorized under Secs. 216.14 and 216.15, you may
simply state that fact, in addition to the information you must provide
under paragraphs (a)(1), (a)(8), (a)(9), and (b) of this section.
(6) Confidentiality and security. You describe your policies and
practices with respect to protecting the confidentiality and security
of nonpublic personal information if you do both of the following:
(i) Describe in general terms who is authorized to have access to
the information; and
(ii) State whether you have security practices and procedures in
place to ensure the confidentiality of the information in accordance
with your policy. You are not required to describe technical
information about the safeguards you use.
(d) Short-form initial notice with opt out notice for non-
customers--(1) You may satisfy the initial notice requirements in
Secs. 216.4(a)(2), 216.7(b), and 216.7(c) for a consumer who is not a
customer by providing a short-form initial notice at the same time as
you deliver an opt out notice as required in Sec. 216.7.
(2) A short-form initial notice must:
(i) Be clear and conspicuous;
(ii) State that your privacy notice is available upon request; and
(iii) Explain a reasonable means by which the consumer may obtain
that notice.
(3) You must deliver your short-form initial notice according to
Sec. 216.9. You are not required to deliver your privacy notice with
your short-form initial notice. You instead may simply provide the
consumer a reasonable means to obtain your privacy notice. If a
consumer who receives your short-form notice requests your privacy
notice, you must deliver your privacy notice according to Sec. 216.9.
(4) Examples of obtaining privacy notice. You provide a reasonable
means by which a consumer may obtain a copy of your privacy notice if
you:
(i) Provide a toll-free telephone number that the consumer may call
to request the notice; or
(ii) For a consumer who conducts business in person at your office,
maintain copies of the notice on hand that you provide to the consumer
immediately upon request.
(e) Future disclosures. Your notice may include:
(1) Categories of nonpublic personal information that you reserve
the right to disclose in the future, but do not currently disclose; and
(2) Categories of affiliates or nonaffiliated third parties to whom
you reserve the right in the future to disclose, but to whom you do not
currently disclose, nonpublic personal information.
(f) Sample clauses. Sample clauses illustrating some of the notice
content required by this section are included in appendix A of this
part.
Sec. 216.7 Form of opt out notice to consumers; opt out methods.
(a)(1) Form of opt out notice. If you are required to provide an
opt out notice under Sec. 216.10(a), you must provide a clear and
conspicuous notice to each of your consumers that accurately explains
the right to opt out under that section. The notice must state:
(i) That you disclose or reserve the right to disclose nonpublic
personal information about your consumer to a nonaffiliated third
party;
(ii) That the consumer has the right to opt out of that disclosure;
and
(iii) A reasonable means by which the consumer may exercise the opt
out right.
(2) Examples--(i) Adequate opt out notice. You provide adequate
notice that the consumer can opt out of the disclosure of nonpublic
personal information to a nonaffiliated third party if you:
(A) Identify all of the categories of nonpublic personal
information that you disclose or reserve the right to disclose, and all
of the categories of nonaffiliated third parties to which you disclose
the information, as described in Sec. 216.6(a)(2) and (3), and state
that the consumer can opt out of the disclosure of that information;
and
(B) Identify the financial products or services that the consumer
obtains from you, either singly or jointly, to which the opt out
direction would apply.
(ii) Reasonable opt out means. You provide a reasonable means to
exercise an opt out right if you:
(A) Designate check-off boxes in a prominent position on the
relevant forms with the opt out notice;
(B) Include a reply form together with the opt out notice;
(C) Provide an electronic means to opt out, such as a form that can
be sent via electronic mail or a process at your web site, if the
consumer agrees to the electronic delivery of information; or
(D) Provide a toll-free telephone number that consumers may call to
opt out.
(iii) Unreasonable opt out means. You do not provide a reasonable
means of opting out if:
(A) The only means of opting out is for the consumer to write his
or her own letter to exercise that opt out right; or
(B) The only means of opting out as described in any notice
subsequent to the initial notice is to use a check-off box that you
provided with the initial notice but did not include with the
subsequent notice.
(iv) Specific opt out means. You may require each consumer to opt
out through a specific means, as long as that means is reasonable for
that consumer.
(b) Same form as initial notice permitted. You may provide the opt
out notice together with or on the same written or electronic form as
the initial notice you provide in accordance with Sec. 216.4.
(c) Initial notice required when opt out notice delivered
subsequent to initial notice. If you provide the opt out
[[Page 35212]]
notice later than required for the initial notice in accordance with
Sec. 216.4, you must also include a copy of the initial notice with the
opt out notice in writing or, if the consumer agrees, electronically.
(d) Joint relationships--(1) If two or more consumers jointly
obtain a financial product or service from you, you may provide a
single opt out notice. Your opt out notice must explain how you will
treat an opt out direction by a joint consumer (as explained in
paragraph (d)(5) of this section).
(2) Any of the joint consumers may exercise the right to opt out.
You may either:
(i) Treat an opt out direction by a joint consumer as applying to
all of the associated joint consumers; or
(ii) Permit each joint consumer to opt out separately.
(3) If you permit each joint consumer to opt out separately, you
must permit one of the joint consumers to opt out on behalf of all of
the joint consumers.
(4) You may not require all joint consumers to opt out before you
implement any opt out direction.
(5) Example. If John and Mary have a joint checking account with
you and arrange for you to send statements to John's address, you may
do any of the following, but you must explain in your opt out notice
which opt out policy you will follow:
(i) Send a single opt out notice to John's address, but you must
accept an opt out direction from either John or Mary.
(ii) Treat an opt out direction by either John or Mary as applying
to the entire account. If you do so, and John opts out, you may not
require Mary to opt out as well before implementing John's opt out
direction.
(iii) Permit John and Mary to make different opt out directions. If
you do so:
(A) You must permit John and Mary to opt out for each other;
(B) If both opt out, you must permit both to notify you in a single
response (such as on a form or through a telephone call); and
(C) If John opts out and Mary does not, you may only disclose
nonpublic personal information about Mary, but not about John and not
about John and Mary jointly.
(e) Time to comply with opt out. You must comply with a consumer's
opt out direction as soon as reasonably practicable after you receive
it.
(f) Continuing right to opt out. A consumer may exercise the right
to opt out at any time.
(g) Duration of consumer's opt out direction--(1) A consumer's
direction to opt out under this section is effective until the consumer
revokes it in writing or, if the consumer agrees, electronically.
(2) When a customer relationship terminates, the customer's opt out
direction continues to apply to the nonpublic personal information that
you collected during or related to that relationship. If the individual
subsequently establishes a new customer relationship with you, the opt
out direction that applied to the former relationship does not apply to
the new relationship.
(h) Delivery. When you are required to deliver an opt out notice by
this section, you must deliver it according to Sec. 216.9.
Sec. 216.8 Revised privacy notices.
(a) General rule. Except as otherwise authorized in this part, you
must not, directly or through any affiliate, disclose any nonpublic
personal information about a consumer to a nonaffiliated third party
other than as described in the initial notice that you provided to that
consumer under Sec. 216.4, unless:
(1) You have provided to the consumer a clear and conspicuous
revised notice that accurately describes your policies and practices;
(2) You have provided to the consumer a new opt out notice;
(3) You have given the consumer a reasonable opportunity, before
you disclose the information to the nonaffiliated third party, to opt
out of the disclosure; and
(4) The consumer does not opt out.
(b) Examples--(1) Except as otherwise permitted by Secs. 216.13,
216.14, and 216.15, you must provide a revised notice before you:
(i) Disclose a new category of nonpublic personal information to
any nonaffiliated third party;
(ii) Disclose nonpublic personal information to a new category of
nonaffiliated third party; or
(iii) Disclose nonpublic personal information about a former
customer to a nonaffiliated third party, if that former customer has
not had the opportunity to exercise an opt out right regarding that
disclosure.
(2) A revised notice is not required if you disclose nonpublic
personal information to a new nonaffiliated third party that you
adequately described in your prior notice.
(c) Delivery. When you are required to deliver a revised privacy
notice by this section, you must deliver it according to Sec. 216.9.
Sec. 216.9 Delivering privacy and opt out notices.
(a) How to provide notices. You must provide any privacy notices
and opt out notices, including short-form initial notices, that this
part requires so that each consumer can reasonably be expected to
receive actual notice in writing or, if the consumer agrees,
electronically.
(b) (1) Examples of reasonable expectation of actual notice. You
may reasonably expect that a consumer will receive actual notice if
you:
(i) Hand-deliver a printed copy of the notice to the consumer;
(ii) Mail a printed copy of the notice to the last known address of
the consumer;
(iii) For the consumer who conducts transactions electronically,
post the notice on the electronic site and require the consumer to
acknowledge receipt of the notice as a necessary step to obtaining a
particular financial product or service; or
(iv) For an isolated transaction with the consumer, such as an ATM
transaction, post the notice on the ATM screen and require the consumer
to acknowledge receipt of the notice as a necessary step to obtaining
the particular financial product or service.
(2) Examples of unreasonable expectation of actual notice. You may
not, however, reasonably expect that a consumer will receive actual
notice of your privacy policies and practices if you:
(i) Only post a sign in your branch or office or generally publish
advertisements of your privacy policies and practices; or
(ii) Send the notice via electronic mail to a consumer who does not
obtain a financial product or service from you electronically.
(c) Annual notices only. You may reasonably expect that a customer
will receive actual notice of your annual privacy notice if:
(1) The customer uses your web site to access financial products
and services electronically and agrees to receive notices at the web
site, and you post your current privacy notice continuously in a clear
and conspicuous manner on the web site; or
(2) The customer has requested that you refrain from sending any
information regarding the customer relationship, and your current
privacy notice remains available to the customer upon request.
(d) Oral description of notice insufficient. You may not provide
any notice required by this part solely by orally explaining the
notice, either in person or over the telephone.
(e) Retention or accessibility of notices for customers-(1) For
customers only, you must provide the initial notice required by
Sec. 216.4(a)(1), the annual
[[Page 35213]]
notice required by Sec. 216.5(a), and the revised notice required by
Sec. 216.8 so that the customer can retain them or obtain them later in
writing or, if the customer agrees, electronically.
(2) Examples of retention or accessibility. You provide a privacy
notice to the customer so that the customer can retain it or obtain it
later if you:
(i) Hand-deliver a printed copy of the notice to the customer;
(ii) Mail a printed copy of the notice to the last known address of
the customer; or
(iii) Make your current privacy notice available on a web site (or
a link to another web site) for the customer who obtains a financial
product or service electronically and agrees to receive the notice at
the web site.
(f) Joint notice with other financial institutions. You may provide
a joint notice from you and one or more of your affiliates or other
financial institutions, as identified in the notice, as long as the
notice is accurate with respect to you and the other institutions.
(g) Joint relationships. If two or more consumers jointly obtain a
financial product or service from you, you may satisfy the initial,
annual, and revised notice requirements of Secs. 216.4(a), 216.5(a),
and 216.8(a), respectively, by providing one notice to those consumers
jointly.
Subpart B--Limits on Disclosures
Sec. 216.10 Limits on disclosure of non-public personal information to
nonaffiliated third parties.
(a) (1) Conditions for disclosure. Except as otherwise authorized
in this part, you may not, directly or through any affiliate, disclose
any nonpublic personal information about a consumer to a nonaffiliated
third party unless:
(i) You have provided to the consumer an initial notice as required
under Sec. 216.4;
(ii) You have provided to the consumer an opt out notice as
required in Sec. 216.7;
(iii) You have given the consumer a reasonable opportunity, before
you disclose the information to the nonaffiliated third party, to opt
out of the disclosure; and
(iv) The consumer does not opt out.
(2) Opt out definition. Opt out means a direction by the consumer
that you not disclose nonpublic personal information about that
consumer to a nonaffiliated third party, other than as permitted by
Secs. 216.13, 216.14, and 216.15.
(3) Examples of reasonable opportunity to opt out. You provide a
consumer with a reasonable opportunity to opt out if:
(i) By mail. You mail the notices required in paragraph (a)(1) of
this section to the consumer and allow the consumer to opt out by
mailing a form, calling a toll-free telephone number, or any other
reasonable means within 30 days from the date you mailed the notices.
(ii) By electronic means. A customer opens an on-line account with
you and agrees to receive the notices required in paragraph (a)(1) of
this section electronically, and you allow the customer to opt out by
any reasonable means within 30 days after the date that the customer
acknowledges receipt of the notices in conjunction with opening the
account.
(iii) Isolated transaction with consumer. For an isolated
transaction, such as the purchase of a cashier's check by a consumer,
you provide the consumer with a reasonable opportunity to opt out if
you provide the notices required in paragraph (a)(1) of this section at
the time of the transaction and request that the consumer decide, as a
necessary part of the transaction, whether to opt out before completing
the transaction.
(b) Application of opt out to all consumers and all nonpublic
personal information--(1) You must comply with this section, regardless
of whether you and the consumer have established a customer
relationship.
(2) Unless you comply with this section, you may not, directly or
through any affiliate, disclose any nonpublic personal information
about a consumer that you have collected, regardless of whether you
collected it before or after receiving the direction to opt out from
the consumer.
(c) Partial opt out. You may allow a consumer to select certain
nonpublic personal information or certain nonaffiliated third parties
with respect to which the consumer wishes to opt out.
Sec. 216.11 Limits on redisclosure and reuse of information.
(a)(1) Information you receive under an exception. If you receive
nonpublic personal information from a nonaffiliated financial
institution under an exception in Sec. 216.14 or 216.15 of this part,
your disclosure and use of that information is limited as follows:
(i) You may disclose the information to the affiliates of the
financial institution from which you received the information;
(ii) You may disclose the information to your affiliates, but your
affiliates may, in turn, disclose and use the information only to the
extent that you may disclose and use the information; and
(iii) You may disclose and use the information pursuant to an
exception in Sec. 216.14 or 216.15 in the ordinary course of business
to carry out the activity covered by the exception under which you
received the information.
(2) Example. If you receive a customer list from a nonaffiliated
financial institution in order to provide account processing services
under the exception in Sec. 216.14(a), you may disclose that
information under any exception in Sec. 216.14 or 216.15 in the
ordinary course of business in order to provide those services. For
example, you could disclose the information in response to a properly
authorized subpoena or to your attorneys, accountants, and auditors.
You could not disclose that information to a third party for marketing
purposes or use that information for your own marketing purposes.
(b)(1) Information you receive outside of an exception. If you
receive nonpublic personal information from a nonaffiliated financial
institution other than under an exception in Sec. 216.14 or 216.15 of
this part, you may disclose the information only:
(i) To the affiliates of the financial institution from which you
received the information;
(ii) To your affiliates, but your affiliates may, in turn, disclose
the information only to the extent that you can disclose the
information; and
(iii) To any other person, if the disclosure would be lawful if
made directly to that person by the financial institution from which
you received the information.
(2) Example. If you obtain a customer list from a nonaffiliated
financial institution outside of the exceptions in Sec. 216.14 and
216.15:
(i) You may use that list for your own purposes; and
(ii) You may disclose that list to another nonaffiliated third
party only if the financial institution from which you purchased the
list could have lawfully disclosed the list to that third party. That
is, you may disclose the list in accordance with the privacy policy of
the financial institution from which you received the list, as limited
by the opt out direction of each consumer whose nonpublic personal
information you intend to disclose, and you may disclose the list in
accordance with an exception in Sec. 216.14 or 216.15, such as to your
attorneys or accountants.
(c) Information you disclose under an exception. If you disclose
nonpublic personal information to a nonaffiliated third party under an
exception in
[[Page 35214]]
Sec. 216.14 or 216.15 of this part, the third party may disclose and
use that information only as follows:
(1) The third party may disclose the information to your
affiliates;
(2) The third party may disclose the information to its affiliates,
but its affiliates may, in turn, disclose and use the information only
to the extent that the third party may disclose and use the
information; and
(3) The third party may disclose and use the information pursuant
to an exception in Sec. 216.14 or 216.15 in the ordinary course of
business to carry out the activity covered by the exception under which
it received the information.
(d) Information you disclose outside of an exception. If you
disclose nonpublic personal information to a nonaffiliated third party
other than under an exception in Sec. 216.14 or 216.15 of this part,
the third party may disclose the information only:
(1) To your affiliates;
(2) To its affiliates, but its affiliates, in turn, may disclose
the information only to the extent the third party can disclose the
information; and
(3) To any other person, if the disclosure would be lawful if you
made it directly to that person.
Sec. 216.12 Limits on sharing account number information for marketing
purposes.
(a) General prohibition on disclosure of account numbers. You must
not, directly or through an affiliate, disclose, other than to a
consumer reporting agency, an account number or similar form of access
number or access code for a consumer's credit card account, deposit
account, or transaction account to any nonaffiliated third party for
use in telemarketing, direct mail marketing, or other marketing through
electronic mail to the consumer.
(b) Exceptions. Paragraph (a) of this section does not apply if you
disclose an account number or similar form of access number or access
code:
(1) To your agent or service provider solely in order to perform
marketing for your own products or services, as long as the agent or
service provider is not authorized to directly initiate charges to the
account; or
(2) To a participant in a private label credit card program or an
affinity or similar program where the participants in the program are
identified to the customer when the customer enters into the program.
(c) Examples--(1) Account number. An account number, or similar
form of access number or access code, does not include a number or code
in an encrypted form, as long as you do not provide the recipient with
a means to decode the number or code.
(2) Transaction account. A transaction account is an account other
than a deposit account or a credit card account. A transaction account
does not include an account to which third parties cannot initiate
charges.
Subpart C--Exceptions
Sec. 216.13 Exception to opt out requirements for service providers
and joint marketing.
(a) General rule. (1) The opt out requirements in Secs. 216.7 and
216.10 do not apply when you provide nonpublic personal information to
a nonaffiliated third party to perform services for you or functions on
your behalf, if you:
(i) Provide the initial notice in accordance with Sec. 216.4; and
(ii) Enter into a contractual agreement with the third party that
prohibits the third party from disclosing or using the information
other than to carry out the purposes for which you disclosed the
information, including use under an exception in Sec. 216.14 or 216.15
in the ordinary course of business to carry out those purposes.
(2) Example. If you disclose nonpublic personal information under
this section to a financial institution with which you perform joint
marketing, your contractual agreement with that institution meets the
requirements of paragraph (a)(1)(ii) of this section if it prohibits
the institution from disclosing or using the nonpublic personal
information except as necessary to carry out the joint marketing or
under an exception in Sec. 216.14 or 216.15 in the ordinary course of
business to carry out that joint marketing.
(b) Service may include joint marketing. The services a
nonaffiliated third party performs for you under paragraph (a) of this
section may include marketing of your own products or services or
marketing of financial products or services offered pursuant to joint
agreements between you and one or more financial institutions.
(c) Definition of joint agreement. For purposes of this section,
joint agreement means a written contract pursuant to which you and one
or more financial institutions jointly offer, endorse, or sponsor a
financial product or service.
Sec. 216.14 Exceptions to notice and opt out requirements for
processing and servicing transactions.
(a) Exceptions for processing transactions at consumer's request.
The requirements for initial notice in Sec. 216.4(a)(2), for the opt
out in Secs. 216.7 and 216.10, and for service providers and joint
marketing in Sec. 216.13 do not apply if you disclose nonpublic
personal information as necessary to effect, administer, or enforce a
transaction that a consumer requests or authorizes, or in connection
with:
(1) Servicing or processing a financial product or service that a
consumer requests or authorizes;
(2) Maintaining or servicing the consumer's account with you, or
with another entity as part of a private label credit card program or
other extension of credit on behalf of such entity; or
(3) A proposed or actual securitization, secondary market sale
(including sales of servicing rights), or similar transaction related
to a transaction of the consumer.
(b) Necessary to effect, administer, or enforce a transaction means
that the disclosure is:
(1) Required, or is one of the lawful or appropriate methods, to
enforce your rights or the rights of other persons engaged in carrying
out the financial transaction or providing the product or service; or
(2) Required, or is a usual, appropriate or acceptable method:
(i) To carry out the transaction or the product or service business
of which the transaction is a part, and record, service, or maintain
the consumer's account in the ordinary course of providing the
financial service or financial product;
(ii) To administer or service benefits or claims relating to the
transaction or the product or service business of which it is a part;
(iii) To provide a confirmation, statement, or other record of the
transaction, or information on the status or value of the financial
service or financial product to the consumer or the consumer's agent or
broker;
(iv) To accrue or recognize incentives or bonuses associated with
the transaction that are provided by you or any other party;
(v) To underwrite insurance at the consumer's request or for
reinsurance purposes, or for any of the following purposes as they
relate to a consumer's insurance: account administration, reporting,
investigating, or preventing fraud or material misrepresentation,
processing premium payments, processing insurance claims, administering
insurance benefits (including utilization review activities),
participating in research projects, or as otherwise required or
specifically permitted by Federal or State law; or
(vi) In connection with:
(A) The authorization, settlement, billing, processing, clearing,
transferring, reconciling or collection of
[[Page 35215]]
amounts charged, debited, or otherwise paid using a debit, credit, or
other payment card, check, or account number, or by other payment
means;
(B) The transfer of receivables, accounts, or interests therein; or
(C) The audit of debit, credit, or other payment information.
Sec. 216.15 Other exceptions to notice and opt out requirements.
(a) Exceptions to opt out requirements. The requirements for
initial notice in Sec. 216.4(a)(2), for the opt out in Secs. 216.7 and
216.10, and for service providers and joint marketing in Sec. 216.13 do
not apply when you disclose nonpublic personal information:
(1) With the consent or at the direction of the consumer, provided
that the consumer has not revoked the consent or direction;
(2)(i) To protect the confidentiality or security of your records
pertaining to the consumer, service, product, or transaction;
(ii) To protect against or prevent actual or potential fraud,
unauthorized transactions, claims, or other liability;
(iii) For required institutional risk control or for resolving
consumer disputes or inquiries;
(iv) To persons holding a legal or beneficial interest relating to
the consumer; or
(v) To persons acting in a fiduciary or representative capacity on
behalf of the consumer;
(3) To provide information to insurance rate advisory
organizations, guaranty funds or agencies, agencies that are rating
you, persons that are assessing your compliance with industry
standards, and your attorneys, accountants, and auditors;
(4) To the extent specifically permitted or required under other
provisions of law and in accordance with the Right to Financial Privacy
Act of 1978 (12 U.S.C. 3401 et seq.), to law enforcement agencies
(including a federal functional regulator, the Secretary of the
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records
and Reports on Monetary Instruments and Transactions) and 12 U.S.C.
Chapter 21 (Financial Recordkeeping), a State insurance authority, with
respect to any person domiciled in that insurance authority's State
that is engaged in providing insurance, and the Federal Trade
Commission), self-regulatory organizations, or for an investigation on
a matter related to public safety;
(5)(i) To a consumer reporting agency in accordance with the Fair
Credit Reporting Act (15 U.S.C. 1681 et seq.), or
(ii) From a consumer report reported by a consumer reporting
agency;
(6) In connection with a proposed or actual sale, merger, transfer,
or exchange of all or a portion of a business or operating unit if the
disclosure of nonpublic personal information concerns solely consumers
of such business or unit; or
(7)(i) To comply with Federal, State, or local laws, rules and
other applicable legal requirements;
(ii) To comply with a properly authorized civil, criminal, or
regulatory investigation, or subpoena or summons by Federal, State, or
local authorities; or
(iii) To respond to judicial process or government regulatory
authorities having jurisdiction over you for examination, compliance,
or other purposes as authorized by law.
(b) Examples of consent and revocation of consent. (1) A consumer
may specifically consent to your disclosure to a nonaffiliated
insurance company of the fact that the consumer has applied to you for
a mortgage so that the insurance company can offer homeowner's
insurance to the consumer.
(2) A consumer may revoke consent by subsequently exercising the
right to opt out of future disclosures of nonpublic personal
information as permitted under Sec. 216.7(f).
Subpart D--Relation to Other Laws; Effective Date
Sec. 216.16 Protection of Fair Credit Reporting Act.
Nothing in this part shall be construed to modify, limit, or
supersede the operation of the Fair Credit Reporting Act (15 U.S.C.
1681 et seq.), and no inference shall be drawn on the basis of the
provisions of this part regarding whether information is transaction or
experience information under section 603 of that Act.
Sec. 216.17 Relation to State laws.
(a) In general. This part shall not be construed as superseding,
altering, or affecting any statute, regulation, order, or
interpretation in effect in any State, except to the extent that such
State statute, regulation, order, or interpretation is inconsistent
with the provisions of this part, and then only to the extent of the
inconsistency.
(b) Greater protection under State law. For purposes of this
section, a State statute, regulation, order, or interpretation is not
inconsistent with the provisions of this part if the protection such
statute, regulation, order, or interpretation affords any consumer is
greater than the protection provided under this part, as determined by
the Federal Trade Commission, after consultation with the Board, on the
Federal Trade Commission's own motion, or upon the petition of any
interested party.
Sec. 216.18 Effective date; transition rule.
(a) Effective date. This part is effective November 13, 2000. In
order to provide sufficient time for you to establish policies and
systems to comply with the requirements of this part, the Board has
extended the time for compliance with this part until July 1, 2001.
(b)(1) Notice requirement for consumers who are your customers on
the compliance date. By July 1, 2001, you must have provided an initial
notice, as required by Sec. 216.4, to consumers who are your customers
on July 1, 2001.
(2) Example. You provide an initial notice to consumers who are
your customers on July 1, 2001, if, by that date, you have established
a system for providing an initial notice to all new customers and have
mailed the initial notice to all your existing customers.
(c) Two-year grandfathering of service agreements. Until July 1,
2002, a contract that you have entered into with a nonaffiliated third
party to perform services for you or functions on your behalf satisfies
the provisions of Sec. 216.13(a)(1)(ii) of this part, even if the
contract does not include a requirement that the third party maintain
the confidentiality of nonpublic personal information, as long as you
entered into the contract on or before July 1, 2000.
Appendix A to Part 216--Sample Clauses
Financial institutions, including a group of financial holding
company affiliates that use a common privacy notice, may use the
following sample clauses, if the clause is accurate for each
institution that uses the notice. (Note that disclosure of certain
information, such as assets, income, and information from a consumer
reporting agency, may give rise to obligations under the Fair Credit
Reporting Act, such as a requirement to permit a consumer to opt out
of disclosures to affiliates or designation as a consumer reporting
agency if disclosures are made to nonaffiliated third parties.)
A-1--Categories of information you collect (all institutions)
You may use this clause, as applicable, to meet the requirement
of Sec. 216.6(a)(1) to describe the categories of nonpublic personal
information you collect.
Sample Clause A-1:
We collect nonpublic personal information about you from the
following sources:
Information we receive from you on applications or
other forms;
Information about your transactions with us, our
affiliates, or others; and
[[Page 35216]]
Information we receive from a consumer reporting
agency.
A-2--Categories of information you disclose (institutions that disclose
outside of the exceptions)
You may use one of these clauses, as applicable, to meet the
requirement of Sec. 216.6(a)(2) to describe the categories of
nonpublic personal information you disclose. You may use these
clauses if you disclose nonpublic personal information other than as
permitted by the exceptions in Secs. 216.13, 216.14, and 216.15.
Sample Clause A-2, Alternative 1:
We may disclose the following kinds of nonpublic personal
information about you:
Information we receive from you on applications or
other forms, such as [provide illustrative examples, such as ``your
name, address, social security number, assets, and income''];
Information about your transactions with us, our
affiliates, or others, such as [provide illustrative examples, such
as ``your account balance, payment history, parties to transactions,
and credit card usage'']; and
Information we receive from a consumer reporting
agency, such as [provide illustrative examples, such as ``your
creditworthiness and credit history''].
Sample Clause A-2, Alternative 2:
We may disclose all of the information that we collect, as
described [describe location in the notice, such as ``above'' or
``below''].
A-3--Categories of information you disclose and parties to whom you
disclose (institutions that do not disclose outside of the exceptions)
You may use this clause, as applicable, to meet the requirements
of Secs. 216.6(a)(2), (3), and (4) to describe the categories of
nonpublic personal information about customers and former customers
that you disclose and the categories of affiliates and nonaffiliated
third parties to whom you disclose. You may use this clause if you
do not disclose nonpublic personal information to any party, other
than as permitted by the exceptions in Secs. 216.14, and 216.15.
Sample Clause A-3:
We do not disclose any nonpublic personal information about our
customers or former customers to anyone, except as permitted by law.
A-4--Categories of parties to whom you disclose (institutions that
disclose outside of the exceptions)
You may use this clause, as applicable, to meet the requirement
of Sec. 216.6(a)(3) to describe the categories of affiliates and
nonaffiliated third parties to whom you disclose nonpublic personal
information. You may use this clause if you disclose nonpublic
personal information other than as permitted by the exceptions in
Secs. 216.13, 216.14, and 216.15, as well as when permitted by the
exceptions in Secs. 216.14, and 216.15.
Sample Clause A-4:
We may disclose nonpublic personal information about you to the
following types of third parties:
Financial service providers, such as [provide
illustrative examples, such as ``mortgage bankers, securities
broker-dealers, and insurance agents''];
Non-financial companies, such as [provide illustrative
examples, such as ``retailers, direct marketers, airlines, and
publishers'']; and
Others, such as [provide illustrative examples, such as
``non-profit organizations''].
We may also disclose nonpublic personal information about you to
nonaffiliated third parties as permitted by law.
A-5--Service provider/joint marketing exception
You may use one of these clauses, as applicable, to meet the
requirements of Sec. 216.6(a)(5) related to the exception for
service providers and joint marketers in Sec. 216.13. If you
disclose nonpublic personal information under this exception, you
must describe the categories of nonpublic personal information you
disclose and the categories of third parties with whom you have
contracted.
Sample Clause A-5, Alternative 1:
We may disclose the following information to companies that
perform marketing services on our behalf or to other financial
institutions with whom we have joint marketing agreements:
Information we receive from you on applications or
other forms, such as [provide illustrative examples, such as ``your
name, address, social security number, assets, and income''];
Information about your transactions with us, our
affiliates, or others, such as [provide illustrative examples, such
as ``your account balance, payment history, parties to transactions,
and credit card usage'']; and
Information we receive from a consumer reporting
agency, such as [provide illustrative examples, such as ``your
creditworthiness and credit history''].
Sample Clause A-5, Alternative 2:
We may disclose all of the information we collect, as described
[describe location in the notice, such as ``above'' or ``below''] to
companies that perform marketing services on our behalf or to other
financial institutions with whom we have joint marketing agreements.
A-6--Explanation of opt out right (institutions that disclose outside
of the exceptions)
You may use this clause, as applicable, to meet the requirement
of Sec. 216.6(a)(6) to provide an explanation of the consumer's
right to opt out of the disclosure of nonpublic personal information
to nonaffiliated third parties, including the method(s) by which the
consumer may exercise that right. You may use this clause if you
disclose nonpublic personal information other than as permitted by
the exceptions in Secs. 216.13, 216.14, and 216.15.
Sample Clause A-6:
If you prefer that we not disclose nonpublic personal
information about you to nonaffiliated third parties, you may opt
out of those disclosures, that is, you may direct us not to make
those disclosures (other than disclosures permitted by law). If you
wish to opt out of disclosures to nonaffiliated third parties, you
may [describe a reasonable means of opting out, such as ``call the
following toll-free number: (insert number)''].
A-7--Confidentiality and security (all institutions)
You may use this clause, as applicable, to meet the requirement
of Sec. 216.6(a)(8) to describe your policies and practices with
respect to protecting the confidentiality and security of nonpublic
personal information.
Sample Clause A-7:
We restrict access to nonpublic personal information about you
to [provide an appropriate description, such as ``those employees
who need to know that information to provide products or services to
you'']. We maintain physical, electronic, and procedural safeguards
that comply with federal standards to guard your nonpublic personal
information.
By order of the Board of Governors of the Federal Reserve
System, May 17, 2000.
Jennifer J. Johnson,
Secretary of the Board.
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority and Issuance
For the reasons set out in the joint preamble, the Federal Deposit
Insurance Corporation amends Title 12, Chapter III of the Code of
Federal Regulations by adding a new part 332 to read as follows.
PART 332--PRIVACY OF CONSUMER FINANCIAL INFORMATION
Sec.
332.1 Purpose and scope.
332.2 Rule of construction.
332.3 Definitions.
Subpart A--Privacy and Opt Out Notices
332.4 Initial privacy notice to consumers required.
332.5 Annual privacy notice to customers required.
332.6 Information to be included in privacy notices.
332.7 Form of opt out notice to consumers; opt out methods.
332.8 Revised privacy notices.
332.9 Delivering privacy and opt out notices.
Subpart B--Limits on Disclosures
332.10 Limitation on disclosure of nonpublic personal information
to nonaffiliated third parties.
332.11 Limits on redisclosure and reuse of information.
332.12 Limits on sharing account number information for marketing
purposes.
Subpart C--Exceptions
332.13 Exception to opt out requirements for service providers and
joint marketing.
332.14 Exceptions to notice and opt out requirements for
processing and servicing transactions.
332.15 Other exceptions to notice and opt out requirements.
[[Page 35217]]
Subpart D--Relation to Other Laws; Effective Date
332.16 Protection of Fair Credit Reporting Act.
332.17 Relation to State laws.
332.18 Effective date; transition rule.
Appendix A to Part 332--Sample Clauses
Authority: 12 U.S.C. 1819 (Seventh and Tenth); 15 U.S.C. 6801 et
seq.
Sec. 332.1 Purpose and scope.
(a) Purpose. This part governs the treatment of nonpublic personal
information about consumers by the financial institutions listed in
paragraph (b) of this section. This part:
(1) Requires a financial institution to provide notice to customers
about its privacy policies and practices;
(2) Describes the conditions under which a financial institution
may disclose nonpublic personal information about consumers to
nonaffiliated third parties; and
(3) Provides a method for consumers to prevent a financial
institution from disclosing that information to most nonaffiliated
third parties by ``opting out'' of that disclosure, subject to the
exceptions in Secs. 332.13, 332.14, and 332.15.
(b) Scope. (1) This part applies only to nonpublic personal
information about individuals who obtain financial products or services
primarily for personal, family, or household purposes from the
institutions listed below. This part does not apply to information
about companies or about individuals who obtain financial products or
services for business, commercial, or agricultural purposes. This part
applies to the United States offices of entities for which the Federal
Deposit Insurance Corporation (FDIC) has primary federal supervisory
authority. They are referred to in this part as ``you.'' These are:
banks insured by the FDIC (other than members of the Federal Reserve
System), insured state branches of foreign banks, and certain
subsidiaries of such entities.
(2) Nothing in this part modifies, limits, or supersedes the
standards governing individually identifiable health information
promulgated by the Secretary of Health and Human Services under the
authority of sections 262 and 264 of the Health Insurance Portability
and Accountability Act of 1996 (42 U.S.C. 1320d-1320d-8).
Sec. 332.2 Rule of construction.
The examples in this part and the sample clauses in Appendix A of
this part are not exclusive. Compliance with an example or use of a
sample clause, to the extent applicable, constitutes compliance with
this part.
Sec. 332.3 Definitions.
As used in this part, unless the context requires otherwise:
(a) Affiliate means any company that controls, is controlled by, or
is under common control with another company.
(b)(1) Clear and conspicuous means that a notice is reasonably
understandable and designed to call attention to the nature and
significance of the information in the notice.
(2) Examples--(i) Reasonably understandable. You make your notice
reasonably understandable if you:
(A) Present the information in the notice in clear, concise
sentences, paragraphs, and sections;
(B) Use short explanatory sentences or bullet lists whenever
possible;
(C) Use definite, concrete, everyday words and active voice
whenever possible;
(D) Avoid multiple negatives;
(E) Avoid legal and highly technical business terminology whenever
possible; and
(F) Avoid explanations that are imprecise and readily subject to
different interpretations.
(ii) Designed to call attention. You design your notice to call
attention to the nature and significance of the information in it if
you:
(A) Use a plain-language heading to call attention to the notice;
(B) Use a typeface and type size that are easy to read;
(C) Provide wide margins and ample line spacing;
(D) Use boldface or italics for key words; and
(E) In a form that combines your notice with other information, use
distinctive type size, style, and graphic devices, such as shading or
sidebars, when you combine your notice with other information.
(iii) Notices on web sites. If you provide a notice on a web page,
you design your notice to call attention to the nature and significance
of the information in it if you use text or visual cues to encourage
scrolling down the page if necessary to view the entire notice and
ensure that other elements on the web site (such as text, graphics,
hyperlinks, or sound) do not distract attention from the notice, and
you either:
(A) Place the notice on a screen that consumers frequently access,
such as a page on which transactions are conducted; or
(B) Place a link on a screen that consumers frequently access, such
as a page on which transactions are conducted, that connects directly
to the notice and is labeled appropriately to convey the importance,
nature, and relevance of the notice.
(c) Collect means to obtain information that you organize or can
retrieve by the name of an individual or by identifying number, symbol,
or other identifying particular assigned to the individual,
irrespective of the source of the underlying information.
(d) Company means any corporation, limited liability company,
business trust, general or limited partnership, association, or similar
organization.
(e)(1) Consumer means an individual who obtains or has obtained a
financial product or service from you that is to be used primarily for
personal, family, or household purposes, or that individual's legal
representative.
(2) Examples--(i) An individual who applies to you for credit for
personal, family, or household purposes is a consumer of a financial
service, regardless of whether the credit is extended.
(ii) An individual who provides nonpublic personal information to
you in order to obtain a determination about whether he or she may
qualify for a loan to be used primarily for personal, family, or
household purposes is a consumer of a financial service, regardless of
whether the loan is extended.
(iii) An individual who provides nonpublic personal information to
you in connection with obtaining or seeking to obtain financial,
investment, or economic advisory services is a consumer regardless of
whether you establish a continuing advisory relationship.
(iv) If you hold ownership or servicing rights to an individual's
loan that is used primarily for personal, family, or household
purposes, the individual is your consumer, even if you hold those
rights in conjunction with one or more other institutions. (The
individual is also a consumer with respect to the other financial
institutions involved.) An individual who has a loan in which you have
ownership or servicing rights is your consumer, even if you, or another
institution with those rights, hire an agent to collect on the loan.
(v) An individual who is a consumer of another financial
institution is not your consumer solely because you act as agent for,
or provide processing or other services to, that financial institution.
(vi) An individual is not your consumer solely because he or she
has designated you as trustee for a trust.
(vii) An individual is not your consumer solely because he or she
is a beneficiary of a trust for which you are a trustee.
(viii) An individual is not your consumer solely because he or she
is a
[[Page 35218]]
participant or a beneficiary of an employee benefit plan that you
sponsor or for which you act as a trustee or fiduciary.
(f) Consumer reporting agency has the same meaning as in section
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
(g) Control of a company means:
(1) Ownership, control, or power to vote 25 percent or more of the
outstanding shares of any class of voting security of the company,
directly or indirectly, or acting through one or more other persons;
(2) Control in any manner over the election of a majority of the
directors, trustees, or general partners (or individuals exercising
similar functions) of the company; or
(3) The power to exercise, directly or indirectly, a controlling
influence over the management or policies of the company, as the FDIC
determines.
(h) Customer means a consumer who has a customer relationship with
you.
(i)(1) Customer relationship means a continuing relationship
between a consumer and you under which you provide one or more
financial products or services to the consumer that are to be used
primarily for personal, family, or household purposes.
(2) Examples--(i) Continuing relationship. A consumer has a
continuing relationship with you if the consumer:
(A) Has a deposit or investment account with you;
(B) Obtains a loan from you;
(C) Has a loan for which you own the servicing rights;
(D) Purchases an insurance product from you;
(E) Holds an investment product through you, such as when you act
as a custodian for securities or for assets in an Individual Retirement
Arrangement;
(F) Enters into an agreement or understanding with you whereby you
undertake to arrange or broker a home mortgage loan for the consumer;
(G) Enters into a lease of personal property with you; or
(H) Obtains financial, investment, or economic advisory services
from you for a fee.
(ii) No continuing relationship. A consumer does not, however, have
a continuing relationship with you if:
(A) The consumer obtains a financial product or service only in
isolated transactions, such as using your ATM to withdraw cash from an
account at another financial institution or purchasing a cashier's
check or money order;
(B) You sell the consumer's loan and do not retain the rights to
service that loan; or
(C) You sell the consumer airline tickets, travel insurance, or
traveler's checks in isolated transactions.
(j) Federal functional regulator means:
(1) The Board of Governors of the Federal Reserve System;
(2) The Office of the Comptroller of the Currency;
(3) The Board of Directors of the Federal Deposit Insurance
Corporation;
(4) The Director of the Office of Thrift Supervision;
(5) The National Credit Union Administration Board; and
(6) The Securities and Exchange Commission.
(k)(1) Financial institution means any institution the business of
which is engaging in activities that are financial in nature or
incidental to such financial activities as described in section 4(k) of
the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
(2) Financial institution does not include:
(i) Any person or entity with respect to any financial activity
that is subject to the jurisdiction of the Commodity Futures Trading
Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.);
(ii) The Federal Agricultural Mortgage Corporation or any entity
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C.
2001 et seq.); or
(iii) Institutions chartered by Congress specifically to engage in
securitizations, secondary market sales (including sales of servicing
rights), or similar transactions related to a transaction of a
consumer, as long as such institutions do not sell or transfer
nonpublic personal information to a nonaffiliated third party.
(l)(1) Financial product or service means any product or service
that a financial holding company could offer by engaging in an activity
that is financial in nature or incidental to such a financial activity
under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(k)).
(2) Financial service includes your evaluation or brokerage of
information that you collect in connection with a request or an
application from a consumer for a financial product or service.
(m)(1) Nonaffiliated third party means any person except:
(i) Your affiliate; or
(ii) A person employed jointly by you and any company that is not
your affiliate (but nonaffiliated third party includes the other
company that jointly employs the person).
(2) Nonaffiliated third party includes any company that is an
affiliate solely by virtue of your or your affiliate's direct or
indirect ownership or control of the company in conducting merchant
banking or investment banking activities of the type described in
section 4(k)(4)(H) or insurance company investment activities of the
type described in section 4(k)(4)(I) of the Bank Holding Company Act of
1956 (12 U.S.C. 1843(k)(4)(H) and (I)).
(n)(1) Nonpublic personal information means:
(i) Personally identifiable financial information; and
(ii) Any list, description, or other grouping of consumers (and
publicly available information pertaining to them) that is derived
using any personally identifiable financial information that is not
publicly available.
(2) Nonpublic personal information does not include:
(i) Publicly available information, except as included on a list
described in paragraph (n)(1)(ii) of this section; or
(ii) Any list, description, or other grouping of consumers (and
publicly available information pertaining to them) that is derived
without using any personally identifiable financial information that is
not publicly available.
(3) Examples of lists--(i) Nonpublic personal information includes
any list of individuals' names and street addresses that is derived in
whole or in part using personally identifiable financial information
that is not publicly available, such as account numbers.
(ii) Nonpublic personal information does not include any list of
individuals' names and addresses that contains only publicly available
information, is not derived in whole or in part using personally
identifiable financial information that is not publicly available, and
is not disclosed in a manner that indicates that any of the individuals
on the list is a consumer of a financial institution.
(o)(1) Personally identifiable financial information means any
information:
(i) A consumer provides to you to obtain a financial product or
service from you;
(ii) About a consumer resulting from any transaction involving a
financial product or service between you and a consumer; or
(iii) You otherwise obtain about a consumer in connection with
providing a financial product or service to that consumer.
(2) Examples--(i) Information included. Personally identifiable
financial information includes:
(A) Information a consumer provides to you on an application to
obtain a
[[Page 35219]]
loan, credit card, or other financial product or service;
(B) Account balance information, payment history, overdraft
history, and credit or debit card purchase information;
(C) The fact that an individual is or has been one of your
customers or has obtained a financial product or service from you;
(D) Any information about your consumer if it is disclosed in a
manner that indicates that the individual is or has been your consumer;
(E) Any information that a consumer provides to you or that you or
your agent otherwise obtain in connection with collecting on a loan or
servicing a loan;
(F) Any information you collect through an Internet ``cookie'' (an
information collecting device from a web server); and
(G) Information from a consumer report.
(ii) Information not included. Personally identifiable financial
information does not include:
(A) A list of names and addresses of customers of an entity that is
not a financial institution; and
(B) Information that does not identify a consumer, such as
aggregate information or blind data that does not contain personal
identifiers such as account numbers, names, or addresses.
(p)(1) Publicly available information means any information that
you have a reasonable basis to believe is lawfully made available to
the general public from:
(i) Federal, State, or local government records;
(ii) Widely distributed media; or
(iii) Disclosures to the general public that are required to be
made by Federal, State, or local law.
(2) Reasonable basis. You have a reasonable basis to believe that
information is lawfully made available to the general public if you
have taken steps to determine:
(i) That the information is of the type that is available to the
general public; and
(ii) Whether an individual can direct that the information not be
made available to the general public and, if so, that your consumer has
not done so.
(3) Examples--(i) Government records. Publicly available
information in government records includes information in government
real estate records and security interest filings.
(ii) Widely distributed media. Publicly available information from
widely distributed media includes information from a telephone book, a
television or radio program, a newspaper, or a web site that is
available to the general public on an unrestricted basis. A web site is
not restricted merely because an Internet service provider or a site
operator requires a fee or a password, so long as access is available
to the general public.
(iii) Reasonable basis-- (A) You have a reasonable basis to believe
that mortgage information is lawfully made available to the general
public if you have determined that the information is of the type
included on the public record in the jurisdiction where the mortgage
would be recorded.
(B) You have a reasonable basis to believe that an individual's
telephone number is lawfully made available to the general public if
you have located the telephone number in the telephone book or the
consumer has informed you that the telephone number is not unlisted.
(q) You means:
(1) A bank insured by the FDIC (other than a member of the Federal
Reserve System);
(2) An insured state branch of a foreign bank; and
(3) A subsidiary of either such entity except:
(i) A broker or dealer that is registered under the Securities and
Exchange Act of 1934 (15 U.S.C. 78a et seq.);
(ii) A registered investment adviser, properly registered by or on
behalf of either the Securities Exchange Commission or any State, with
respect to its investment advisory activities and its activities
incidental to those investment advisory activities;
(iii) An investment company that is registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.); or
(iv) An insurance company, with respect to its insurance activities
and its activities incidental to those insurance activities, that is
subject to supervision by a State insurance regulator.
Subpart A--Privacy and Opt Out Notices
Sec. 332.4 Initial privacy notice to consumers required.
(a) Initial notice requirement. You must provide a clear and
conspicuous notice that accurately reflects your privacy policies and
practices to:
(1) Customer. An individual who becomes your customer, not later
than when you establish a customer relationship, except as provided in
paragraph (e) of this section; and
(2) Consumer. A consumer, before you disclose any nonpublic
personal information about the consumer to any nonaffiliated third
party, if you make such a disclosure other than as authorized by
Secs. 332.14 and 332.15.
(b) When initial notice to a consumer is not required. You are not
required to provide an initial notice to a consumer under paragraph (a)
of this section if:
(1) You do not disclose any nonpublic personal information about
the consumer to any nonaffiliated third party, other than as authorized
by Secs. 332.14 and 332.15; and
(2) You do not have a customer relationship with the consumer.
(c) When you establish a customer relationship--(1) General rule.
You establish a customer relationship when you and the consumer enter
into a continuing relationship.
(2) Special rule for loans.--You establish a customer relationship
with a consumer when you originate a loan to the consumer for personal,
family, or household purposes. If you subsequently transfer the
servicing rights to that loan to another financial institution, the
customer relationship transfers with the servicing rights.
(3)(i) Examples of establishing customer relationship. You
establish a customer relationship when the consumer:
(A) Opens a credit card account with you;
(B) Executes the contract to open a deposit account with you,
obtains credit from you, or purchases insurance from you;
(C) Agrees to obtain financial, economic, or investment advisory
services from you for a fee; or
(D) Becomes your client for the purpose of your providing credit
counseling or tax preparation services.
(ii) Examples of loan rule. You establish a customer relationship
with a consumer who obtains a loan for personal, family, or household
purposes when you:
(A) Originate the loan to the consumer; or
(B) Purchase the servicing rights to the consumer's loan.
(d) Existing customers. When an existing customer obtains a new
financial product or service from you that is to be used primarily for
personal, family, or household purposes, you satisfy the initial notice
requirements of paragraph (a) of this section as follows:
(1) You may provide a revised privacy notice, under Sec. 332.8,
that covers the customer's new financial product or service; or
(2) If the initial, revised, or annual notice that you most
recently provided to that customer was accurate with respect to the new
financial product or service, you do not need to provide a new privacy
notice under paragraph (a) of this section.
[[Page 35220]]
(e) Exceptions to allow subsequent delivery of notice. (1) You may
provide the initial notice required by paragraph (a)(1) of this section
within a reasonable time after you establish a customer relationship
if:
(i) Establishing the customer relationship is not at the customer's
election; or
(ii) Providing notice not later than when you establish a customer
relationship would substantially delay the customer's transaction and
the customer agrees to receive the notice at a later time.
(2) Examples of exceptions--(i) Not at customer's election.
Establishing a customer relationship is not at the customer's election
if you acquire a customer's deposit liability or the servicing rights
to a customer's loan from another financial institution and the
customer does not have a choice about your acquisition.
(ii) Substantial delay of customer's transaction. Providing notice
not later than when you establish a customer relationship would
substantially delay the customer's transaction when:
(A) You and the individual agree over the telephone to enter into a
customer relationship involving prompt delivery of the financial
product or service; or
(B) You establish a customer relationship with an individual under
a program authorized by Title IV of the Higher Education Act of 1965
(20 U.S.C. 1070 et seq.) or similar student loan programs where loan
proceeds are disbursed promptly without prior communication between you
and the customer.
(iii) No substantial delay of customer's transaction. Providing
notice not later than when you establish a customer relationship would
not substantially delay the customer's transaction when the
relationship is initiated in person at your office or through other
means by which the customer may view the notice, such as on a web site.
(f) Delivery. When you are required to deliver an initial privacy
notice by this section, you must deliver it according to Sec. 332.9. If
you use a short-form initial notice for non-customers according to
Sec. 332.6(d), you may deliver your privacy notice according to
Sec. 332.6(d)(3).
Sec. 332.5 Annual privacy notice to customers required.
(a)(1) General rule. You must provide a clear and conspicuous
notice to customers that accurately reflects your privacy policies and
practices not less than annually during the continuation of the
customer relationship. Annually means at least once in any period of 12
consecutive months during which that relationship exists. You may
define the 12-consecutive-month period, but you must apply it to the
customer on a consistent basis.
(2) Example. You provide a notice annually if you define the 12-
consecutive-month period as a calendar year and provide the annual
notice to the customer once in each calendar year following the
calendar year in which you provided the initial notice. For example, if
a customer opens an account on any day of year 1, you must provide an
annual notice to that customer by December 31 of year 2.
(b)(1) Termination of customer relationship. You are not required
to provide an annual notice to a former customer.
(2) Examples. Your customer becomes a former customer when:
(i) In the case of a deposit account, the account is inactive under
your policies;
(ii) In the case of a closed-end loan, the customer pays the loan
in full, you charge off the loan, or you sell the loan without
retaining servicing rights;
(iii) In the case of a credit card relationship or other open-end
credit relationship, you no longer provide any statements or notices to
the customer concerning that relationship or you sell the credit card
receivables without retaining servicing rights; or
(iv) You have not communicated with the customer about the
relationship for a period of 12 consecutive months, other than to
provide annual privacy notices or promotional material.
(c) Special rule for loans. If you do not have a customer
relationship with a consumer under the special rule for loans in
Sec. 332.4(c)(2), then you need not provide an annual notice to that
consumer under this section.
(d) Delivery. When you are required to deliver an annual privacy
notice by this section, you must deliver it according to Sec. 332.9.
Sec. 332.6 Information to be included in privacy notices.
(a) General rule. The initial, annual and revised privacy notices
that you provide under Secs. 332.4, 332.5, and 332.8 must include each
of the following items of information, in addition to any other
information you wish to provide, that applies to you and to the
consumers to whom you send your privacy notice:
(1) The categories of nonpublic personal information that you
collect;
(2) The categories of nonpublic personal information that you
disclose;
(3) The categories of affiliates and nonaffiliated third parties to
whom you disclose nonpublic personal information, other than those
parties to whom you disclose information under Secs. 332.14 and 332.15;
(4) The categories of nonpublic personal information about your
former customers that you disclose and the categories of affiliates and
nonaffiliated third parties to whom you disclose nonpublic personal
information about your former customers, other than those parties to
whom you disclose information under Secs. 332.14 and 332.15;
(5) If you disclose nonpublic personal information to a
nonaffiliated third party under Sec. 332.13 (and no other exception in
Sec. 332.14 or 332.15 applies to that disclosure), a separate statement
of the categories of information you disclose and the categories of
third parties with whom you have contracted;
(6) An explanation of the consumer's right under Sec. 332.10(a) to
opt out of the disclosure of nonpublic personal information to
nonaffiliated third parties, including the method(s) by which the
consumer may exercise that right at that time;
(7) Any disclosures that you make under section 603(d)(2)(A)(iii)
of the Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) (that
is, notices regarding the ability to opt out of disclosures of
information among affiliates);
(8) Your policies and practices with respect to protecting the
confidentiality and security of nonpublic personal information; and
(9) Any disclosure that you make under paragraph (b) of this
section.
(b) Description of nonaffiliated third parties subject to
exceptions. If you disclose nonpublic personal information to third
parties as authorized under Secs. 332.14 and 332.15, you are not
required to list those exceptions in the initial or annual privacy
notices required by Secs. 332.4 and 332.5. When describing the
categories with respect to those parties, you are required to state
only that you make disclosures to other nonaffiliated third parties as
permitted by law.
(c) Examples--(1) Categories of nonpublic personal information that
you collect. You satisfy the requirement to categorize the nonpublic
personal information that you collect if you list the following
categories, as applicable:
(i) Information from the consumer;
(ii) Information about the consumer's transactions with you or your
affiliates;
(iii) Information about the consumer's transactions with
nonaffiliated third parties; and
(iv) Information from a consumer reporting agency.
(2) Categories of nonpublic personal information you disclose--(i)
You
[[Page 35221]]
satisfy the requirement to categorize the nonpublic personal
information that you disclose if you list the categories described in
paragraph (c)(1) of this section, as applicable, and a few examples to
illustrate the types of information in each category.
(ii) If you reserve the right to disclose all of the nonpublic
personal information about consumers that you collect, you may simply
state that fact without describing the categories or examples of the
nonpublic personal information you disclose.
(3) Categories of affiliates and nonaffiliated third parties to
whom you disclose. You satisfy the requirement to categorize the
affiliates and nonaffiliated third parties to whom you disclose
nonpublic personal information if you list the following categories, as
applicable, and a few examples to illustrate the types of third parties
in each category.
(i) Financial service providers;
(ii) Non-financial companies; and
(iii) Others.
(4) Disclosures under exception for service providers and joint
marketers. If you disclose nonpublic personal information under the
exception in Sec. 332.13 to a nonaffiliated third party to market
products or services that you offer alone or jointly with another
financial institution, you satisfy the disclosure requirement of
paragraph (a)(5) of this section if you:
(i) List the categories of nonpublic personal information you
disclose, using the same categories and examples you used to meet the
requirements of paragraph (a)(2) of this section, as applicable; and
(ii) State whether the third party is:
(A) A service provider that performs marketing services on your
behalf or on behalf of you and another financial institution; or
(B) A financial institution with whom you have a joint marketing
agreement.
(5) Simplified notices. If you do not disclose, and do not wish to
reserve the right to disclose, nonpublic personal information about
customers or former customers to affiliates or nonaffiliated third
parties except as authorized under Secs. 332.14 and 332.15, you may
simply state that fact, in addition to the information you must provide
under paragraphs (a)(1), (a)(8), (a)(9), and (b) of this section.
(6) Confidentiality and security. You describe your policies and
practices with respect to protecting the confidentiality and security
of nonpublic personal information if you do both of the following:
(i) Describe in general terms who is authorized to have access to
the information; and
(ii) State whether you have security practices and procedures in
place to ensure the confidentiality of the information in accordance
with your policy. You are not required to describe technical
information about the safeguards you use.
(d) Short-form initial notice with opt out notice for non-
customers--(1) You may satisfy the initial notice requirements in
Secs. 332.4(a)(2), 332.7(b), and 332.7(c) for a consumer who is not a
customer by providing a short-form initial notice at the same time as
you deliver an opt out notice as required in Sec. 332.7.
(2) A short-form initial notice must:
(i) Be clear and conspicuous;
(ii) State that your privacy notice is available upon request; and
(iii) Explain a reasonable means by which the consumer may obtain
that notice.
(3) You must deliver your short-form initial notice according to
Sec. 332.9. You are not required to deliver your privacy notice with
your short-form initial notice. You instead may simply provide the
consumer a reasonable means to obtain your privacy notice. If a
consumer who receives your short-form notice requests your privacy
notice, you must deliver your privacy notice according to Sec. 332.9.
(4) Examples of obtaining privacy notice. You provide a reasonable
means by which a consumer may obtain a copy of your privacy notice if
you:
(i) Provide a toll-free telephone number that the consumer may call
to request the notice; or
(ii) For a consumer who conducts business in person at your office,
maintain copies of the notice on hand that you provide to the consumer
immediately upon request.
(e) Future disclosures. Your notice may include:
(1) Categories of nonpublic personal information that you reserve
the right to disclose in the future, but do not currently disclose; and
(2) Categories of affiliates or nonaffiliated third parties to whom
you reserve the right in the future to disclose, but to whom you do not
currently disclose, nonpublic personal information.
(f) Sample clauses. Sample clauses illustrating some of the notice
content required by this section are included in appendix A of this
part.
Sec. 332.7 Form of opt out notice to consumers; opt out methods.
(a) (1) Form of opt out notice. If you are required to provide an
opt out notice under Sec. 332.10(a), you must provide a clear and
conspicuous notice to each of your consumers that accurately explains
the right to opt out under that section. The notice must state:
(i) That you disclose or reserve the right to disclose nonpublic
personal information about your consumer to a nonaffiliated third
party;
(ii) That the consumer has the right to opt out of that disclosure;
and
(iii) A reasonable means by which the consumer may exercise the opt
out right.
(2) Examples--(i) Adequate opt out notice. You provide adequate
notice that the consumer can opt out of the disclosure of nonpublic
personal information to a nonaffiliated third party if you:
(A) Identify all of the categories of nonpublic personal
information that you disclose or reserve the right to disclose, and all
of the categories of nonaffiliated third parties to which you disclose
the information, as described in Sec. 332.6(a)(2) and (3), and state
that the consumer can opt out of the disclosure of that information;
and
(B) Identify the financial products or services that the consumer
obtains from you, either singly or jointly, to which the opt out
direction would apply.
(ii) Reasonable opt out means. You provide a reasonable means to
exercise an opt out right if you:
(A) Designate check-off boxes in a prominent position on the
relevant forms with the opt out notice;
(B) Include a reply form together with the opt out notice;
(C) Provide an electronic means to opt out, such as a form that can
be sent via electronic mail or a process at your web site, if the
consumer agrees to the electronic delivery of information; or
(D) Provide a toll-free telephone number that consumers may call to
opt out.
(iii) Unreasonable opt out means. You do not provide a reasonable
means of opting out if:
(A) The only means of opting out is for the consumer to write his
or her own letter to exercise that opt out right; or
(B) The only means of opting out as described in any notice
subsequent to the initial notice is to use a check-off box that you
provide with the initial notice but did not include with the subsequent
notice.
(iv) Specific opt out means. You may require each consumer to opt
out through a specific means, as long as that means is reasonable for
that consumer.
(b) Same form as initial notice permitted. You may provide the opt
out notice together with or on the same written or electronic form as
the initial
[[Page 35222]]
notice you provide in accordance with Sec. 332.4.
(c) Initial notice required when opt out notice delivered
subsequent to initial notice. If you provide the opt out notice later
than required for the initial notice in accordance with Sec. 332.4, you
must also include a copy of the initial notice with the opt out notice
in writing or, if the consumer agrees, electronically.
(d) Joint relationships--(1) If two or more consumers jointly
obtain a financial product or service from you, you may provide a
single opt out notice. Your opt out notice must explain how you will
treat an opt out direction by a joint consumer (as explained in
paragraph (d)(5) of this section).
(2) Any of the joint consumers may exercise the right to opt out.
You may either:
(i) Treat an opt out direction by a joint consumer as applying to
all of the associated joint consumers; or
(ii) Permit each joint consumer to opt out separately.
(3) If you permit each joint consumer to opt out separately, you
must permit one of the joint consumers to opt out on behalf of all of
the joint consumers.
(4) You may not require all joint consumers to opt out before you
implement any opt out direction.
(5) Example. If John and Mary have a joint checking account with
you and arrange for you to send statements to John's address, you may
do any of the following, but you must explain in your opt out notice
which opt out policy you will follow:
(i) Send a single opt out notice to John's address, but you must
accept an opt out direction from either John or Mary.
(ii) Treat an opt out direction by either John or Mary as applying
to the entire account. If you do so, and John opts out, you may not
require Mary to opt out as well before implementing John's opt out
direction.
(iii) Permit John and Mary to make different opt out directions. If
you do so:
(A) You must permit John and Mary to opt out for each other;
(B) If both opt out, you must permit both to notify you in a single
response (such as on a form or through a telephone call); and
(C) If John opts out and Mary does not, you may only disclose
nonpublic personal information about Mary, but not about John and not
about John and Mary jointly.
(e) Time to comply with opt out. You must comply with a consumer's
opt out direction as soon as reasonably practicable after you receive
it.
(f) Continuing right to opt out. A consumer may exercise the right
to opt out at any time.
(g) Duration of consumer's opt out direction--(1) A consumer's
direction to opt out under this section is effective until the consumer
revokes it in writing or, if the consumer agrees, electronically.
(2) When a customer relationship terminates, the customer's opt out
direction continues to apply to the nonpublic personal information that
you collected during or related to that relationship. If the individual
subsequently establishes a new customer relationship with you, the opt
out direction that applied to the former relationship does not apply to
the new relationship.
(h) Delivery. When you are required to deliver an opt out notice by
this section, you must deliver it according to Sec. 332.9.
Sec. 332.8 Revised privacy notices.
(a) General rule. Except as otherwise authorized in this part, you
must not, directly or through any affiliate, disclose any nonpublic
personal information about a consumer to a nonaffiliated third party
other than as described in the initial notice that you provided to that
consumer under Sec. 332.4, unless:
(1) You have provided to the consumer a clear and conspicuous
revised notice that accurately describes your policies and practices;
(2) You have provided to the consumer a new opt out notice;
(3) You have given the consumer a reasonable opportunity, before
you disclose the information to the nonaffiliated third party, to opt
out of the disclosure; and
(4) The consumer does not opt out.
(b) Examples--(1) Except as otherwise permitted by Secs. 332.13,
332.14, and 332.15, you must provide a revised notice before you:
(i) Disclose a new category of nonpublic personal information to
any nonaffiliated third party;
(ii) Disclose nonpublic personal information to a new category of
nonaffiliated third party; or
(iii) Disclose nonpublic personal information about a former
customer to a nonaffiliated third party, if that former customer has
not had the opportunity to exercise an opt out right regarding that
disclosure.
(2) A revised notice is not required if you disclose nonpublic
personal information to a new nonaffiliated third party that you
adequately described in your prior notice.
(c) Delivery. When you are required to deliver a revised privacy
notice by this section, you must deliver it according to Sec. 332.9.
Sec. 332.9 Delivering privacy and opt out notices.
(a) How to provide notices. You must provide any privacy notices
and opt out notices, including short-form initial notices, that this
part requires so that each consumer can reasonably be expected to
receive actual notice in writing or, if the consumer agrees,
electronically.
(b) (1) Examples of reasonable expectation of actual notice. You
may reasonably expect that a consumer will receive actual notice if
you:
(i) Hand-deliver a printed copy of the notice to the consumer;
(ii) Mail a printed copy of the notice to the last known address of
the consumer;
(iii) For the consumer who conducts transactions electronically,
post the notice on the electronic site and require the consumer to
acknowledge receipt of the notice as a necessary step to obtaining a
particular financial product or service; or
(iv) For an isolated transaction with the consumer, such as an ATM
transaction, post the notice on the ATM screen and require the consumer
to acknowledge receipt of the notice as a necessary step to obtaining
the particular financial product or service.
(2) Examples of unreasonable expectation of actual notice. You may
not, however, reasonably expect that a consumer will receive actual
notice of your privacy policies and practices if you:
(i) Only post a sign in your branch or office or generally publish
advertisements of your privacy policies and practices; or
(ii) Send the notice via electronic mail to a consumer who does not
obtain a financial product or service from you electronically.
(c) Annual notices only. You may reasonably expect that a customer
will receive actual notice of your annual privacy notice if:
(1) The customer uses your web site to access financial products
and services electronically and agrees to receive notices at the web
site, and you post your current privacy notice continuously in a clear
and conspicuous manner on the web site; or
(2) The customer has requested that you refrain from sending any
information regarding the customer relationship, and your current
privacy notice remains available to the customer upon request.
(d) Oral description of notice insufficient. You may not provide
any notice required by this part solely by orally explaining the
notice, either in person or over the telephone.
[[Page 35223]]
(e) Retention or accessibility of notices for customers--(1) For
customers only, you must provide the initial notice required by
Sec. 332.4(a)(1), the annual notice required by Sec. 332.5(a), and the
revised notice required by Sec. 332.8 so that the customer can retain
them or obtain them later in writing or, if the customer agrees,
electronically.
(2) Examples of retention or accessibility. You provide a privacy
notice to the customer so that the customer can retain it or obtain it
later if you:
(i) Hand-deliver a printed copy of the notice to the customer;
(ii) Mail a printed copy of the notice to the last known address of
the customer; or
(iii) Make your current privacy notice available on a web site (or
a link to another web site) for the customer who obtains a financial
product or service electronically and agrees to receive the notice at
the web site.
(f) Joint notice with other financial institutions. You may provide
a joint notice from you and one or more of your affiliates or other
financial institutions, as identified in the notice, as long as the
notice is accurate with respect to you and the other institutions.
(g) Joint relationships. If two or more consumers jointly obtain a
financial product or service from you, you may satisfy the initial,
annual, and revised notice requirements of Secs. 332.4(a), 332.5(a),
and 332.8(a), respectively, by providing one notice to those consumers
jointly.
Subpart B--Limits on Disclosures
Sec. 332.10 Limits on disclosure of non-public personal information to
nonaffiliated third parties.
(a) (1) Conditions for disclosure. Except as otherwise authorized
in this part, you may not, directly or through any affiliate, disclose
any nonpublic personal information about a consumer to a nonaffiliated
third party unless:
(i) You have provided to the consumer an initial notice as required
under Sec. 332.4;
(ii) You have provided to the consumer an opt out notice as
required in Sec. 332.7;
(iii) You have given the consumer a reasonable opportunity, before
you disclose the information to the nonaffiliated third party, to opt
out of the disclosure; and
(iv) The consumer does not opt out.
(2) Opt out definition. Opt out means a direction by the consumer
that you not disclose nonpublic personal information about that
consumer to a nonaffiliated third party, other than as permitted by
Secs. 332.13, 332.14, and 332.15.
(3) Examples of reasonable opportunity to opt out. You provide a
consumer with a reasonable opportunity to opt out if:
(i) By mail. You mail the notices required in paragraph (a)(1) of
this section to the consumer and allow the consumer to opt out by
mailing a form, calling a toll-free telephone number, or any other
reasonable means within 30 days from the date you mailed the notices.
(ii) By electronic means. A customer opens an on-line account with
you and agrees to receive the notices required in paragraph (a)(1) of
this section electronically, and you allow the customer to opt out by
any reasonable means within 30 days after the date that the customer
acknowledges receipt of the notices in conjunction with opening the
account.
(iii) Isolated transaction with consumer. For an isolated
transaction, such as the purchase of a cashier's check by a consumer,
you provide the consumer with a reasonable opportunity to opt out if
you provide the notices required in paragraph (a)(1) of this section at
the time of the transaction and request that the consumer decide, as a
necessary part of the transaction, whether to opt out before completing
the transaction.
(b) Application of opt out to all consumers and all nonpublic
personal information--(1) You must comply with this section, regardless
of whether you and the consumer have established a customer
relationship.
(2) Unless you comply with this section, you may not, directly or
through any affiliate, disclose any nonpublic personal information
about a consumer that you have collected, regardless of whether you
collected it before or after receiving the direction to opt out from
the consumer.
(c) Partial opt out. You may allow a consumer to select certain
nonpublic personal information or certain nonaffiliated third parties
with respect to which the consumer wishes to opt out.
Sec. 332.11 Limits on redisclosure and reuse of information.
(a)(1) Information you receive under an exception. If you receive
nonpublic personal information from a nonaffiliated financial
institution under an exception in Sec. 332.14 or 332.15 of this part,
your disclosure and use of that information is limited as follows:
(i) You may disclose the information to the affiliates of the
financial institution from which you received the information;
(ii) You may disclose the information to your affiliates, but your
affiliates may, in turn, disclose and use the information only to the
extent that you may disclose and use the information; and
(iii) You may disclose and use the information pursuant to an
exception in Sec. 332.14 or 332.15 in the ordinary course of business
to carry out the activity covered by the exception under which you
received the information.
(2) Example. If you receive a customer list from a nonaffiliated
financial institution in order to provide account processing services
under the exception in Sec. 332.14(a), you may disclose that
information under any exception in Sec. 332.14 or 332.15 in the
ordinary course of business in order to provide those services. For
example, you could disclose the information in response to a properly
authorized subpoena or to your attorneys, accountants, and auditors.
You could not disclose that information to a third party for marketing
purposes or use that information for your own marketing purposes.
(b)(1) Information you receive outside of an exception. If you
receive nonpublic personal information from a nonaffiliated financial
institution other than under an exception in Sec. 332.14 or 332.15 of
this part, you may disclose the information only:
(i) To the affiliates of the financial institution from which you
received the information;
(ii) To your affiliates, but your affiliates may, in turn, disclose
the information only to the extent that you can disclose the
information; and
(iii) To any other person, if the disclosure would be lawful if
made directly to that person by the financial institution from which
you received the information.
(2) Example. If you obtain a customer list from a nonaffiliated
financial institution outside of the exceptions in Sec. 332.14 and
332.15:
(i) You may use that list for your own purposes; and
(ii) You may disclose that list to another nonaffiliated third
party only if the financial institution from which you purchased the
list could have lawfully disclosed the list to that third party. That
is, you may disclose the list in accordance with the privacy policy of
the financial institution from which you received the list, as limited
by the opt out direction of each consumer whose nonpublic personal
information you intend to disclose, and you may disclose the list in
accordance with an exception in Sec. 332.14 or 332.15, such as to your
attorneys or accountants.
[[Page 35224]]
(c) Information you disclose under an exception. If you disclose
nonpublic personal information to a nonaffiliated third party under an
exception in Sec. 332.14 or 332.15 of this part, the third party may
disclose and use that information only as follows:
(1) The third party may disclose the information to your
affiliates;
(2) The third party may disclose the information to its affiliates,
but its affiliates may, in turn, disclose and use the information only
to the extent that the third party may disclose and use the
information; and
(3) The third party may disclose and use the information pursuant
to an exception in Sec. 332.14 or 332.15 in the ordinary course of
business to carry out the activity covered by the exception under which
it received the information.
(d) Information you disclose outside of an exception. If you
disclose nonpublic personal information to a nonaffiliated third party
other than under an exception in Sec. 332.14 or 332.15 of this part,
the third party may disclose the information only:
(1) To your affiliates;
(2) To its affiliates, but its affiliates, in turn, may disclose
the information only to the extent the third party can disclose the
information; and
(3) To any other person, if the disclosure would be lawful if you
made it directly to that person.
Sec. 332.12 Limits on sharing account number information for marketing
purposes.
(a) General prohibition on disclosure of account numbers. You must
not, directly or through an affiliate, disclose, other than to a
consumer reporting agency, an account number or similar form of access
number or access code for a consumer's credit card account, deposit
account, or transaction account to any nonaffiliated third party for
use in telemarketing, direct mail marketing, or other marketing through
electronic mail to the consumer.
(b) Exceptions. Paragraph (a) of this section does not apply if you
disclose an account number or similar form of access number or access
code:
(1) To your agent or service provider solely in order to perform
marketing for your own products or services, as long as the agent or
service provider is not authorized to directly initiate charges to the
account; or
(2) To a participant in a private label credit card program or an
affinity or similar program where the participants in the program are
identified to the customer when the customer enters into the program.
(c) Examples--(1) Account number. An account number, or similar
form of access number or access code, does not include a number or code
in an encrypted form, as long as you do not provide the recipient with
a means to decode the number or code.
(2) Transaction account. A transaction account is an account other
than a deposit account or a credit card account. A transaction account
does not include an account to which third parties cannot initiate
charges.
Subpart C--Exceptions
Sec. 332.13 Exception to opt out requirements for service providers
and joint marketing.
(a) General rule. (1) The opt out requirements in Secs. 332.7 and
332.10 do not apply when you provide nonpublic personal information to
a nonaffiliated third party to perform services for you or functions on
your behalf, if you:
(i) Provide the initial notice in accordance with Sec. 332.4; and
(ii) Enter into a contractual agreement with the third party that
prohibits the third party from disclosing or using the information
other than to carry out the purposes for which you disclosed the
information, including use under an exception in Sec. 332.14 or 332.15
in the ordinary course of business to carry out those purposes.
(2) Example. If you disclose nonpublic personal information under
this section to a financial institution with which you perform joint
marketing, your contractual agreement with that institution meets the
requirements of paragraph (a)(1)(ii) of this section if it prohibits
the institution from disclosing or using the nonpublic personal
information except as necessary to carry out the joint marketing or
under an exception in Sec. 332.14 or 332.15 in the ordinary course of
business to carry out that joint marketing.
(b) Service may include joint marketing. The services a
nonaffiliated third party performs for you under paragraph (a) of this
section may include marketing of your own products or services or
marketing of financial products or services offered pursuant to joint
agreements between you and one or more financial institutions.
(c) Definition of joint agreement. For purposes of this section,
joint agreement means a written contract pursuant to which you and one
or more financial institutions jointly offer, endorse, or sponsor a
financial product or service.
Sec. 332.14 Exceptions to notice and opt out requirements for
processing and servicing transactions.
(a) Exceptions for processing transactions at consumer's request.
The requirements for initial notice in Sec. 332.4(a)(2), for the opt
out in Secs. 332.7 and 332.10 and for service providers and joint
marketing in Sec. 332.13 do not apply if you disclose nonpublic
personal information as necessary to effect, administer, or enforce a
transaction that a consumer requests or authorizes, or in connection
with:
(1) Servicing or processing a financial product or service that a
consumer requests or authorizes;
(2) Maintaining or servicing the consumer's account with you, or
with another entity as part of a private label credit card program or
other extension of credit on behalf of such entity; or
(3) A proposed or actual securitization, secondary market sale
(including sales of servicing rights), or similar transaction related
to a transaction of the consumer.
(b) Necessary to effect, administer, or enforce a transaction means
that the disclosure is:
(1) Required, or is one of the lawful or appropriate methods, to
enforce your rights or the rights of other persons engaged in carrying
out the financial transaction or providing the product or service; or
(2) Required, or is a usual, appropriate or acceptable method:
(i) To carry out the transaction or the product or service business
of which the transaction is a part, and record, service, or maintain
the consumer's account in the ordinary course of providing the
financial service or financial product;
(ii) To administer or service benefits or claims relating to the
transaction or the product or service business of which it is a part;
(iii) To provide a confirmation, statement, or other record of the
transaction, or information on the status or value of the financial
service or financial product to the consumer or the consumer's agent or
broker;
(iv) To accrue or recognize incentives or bonuses associated with
the transaction that are provided by you or any other party;
(v) To underwrite insurance at the consumer's request or for
reinsurance purposes, or for any of the following purposes as they
relate to a consumer's insurance: account administration, reporting,
investigating, or preventing fraud or material misrepresentation,
processing premium payments, processing insurance claims, administering
insurance benefits (including utilization review activities),
[[Page 35225]]
participating in research projects, or as otherwise required or
specifically permitted by Federal or State law; or
(vi) In connection with:
(A) The authorization, settlement, billing, processing, clearing,
transferring, reconciling or collection of amounts charged, debited, or
otherwise paid using a debit, credit, or other payment card, check, or
account number, or by other payment means;
(B) The transfer of receivables, accounts, or interests therein; or
(C) The audit of debit, credit, or other payment information.
Sec. 332.15 Other exceptions to notice and opt out requirements.
(a) Exceptions to opt out requirements. The requirements for
initial notice in Sec. 332.4(a)(2), for the opt out in Secs. 332.7 and
332.10, and for service providers and joint marketing in Sec. 332.13 do
not apply when you disclose nonpublic personal information:
(1) With the consent or at the direction of the consumer, provided
that the consumer has not revoked the consent or direction;
(2) (i) To protect the confidentiality or security of your records
pertaining to the consumer, service, product, or transaction;
(ii) To protect against or prevent actual or potential fraud,
unauthorized transactions, claims, or other liability;
(iii) For required institutional risk control or for resolving
consumer disputes or inquiries;
(iv) To persons holding a legal or beneficial interest relating to
the consumer; or
(v) To persons acting in a fiduciary or representative capacity on
behalf of the consumer;
(3) To provide information to insurance rate advisory
organizations, guaranty funds or agencies, agencies that are rating
you, persons that are assessing your compliance with industry
standards, and your attorneys, accountants, and auditors;
(4) To the extent specifically permitted or required under other
provisions of law and in accordance with the Right to Financial Privacy
Act of 1978 (12 U.S.C. 3401 et seq.), to law enforcement agencies
(including a federal functional regulator, the Secretary of the
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records
and Reports on Monetary Instruments and Transactions) and 12 U.S.C.
Chapter 21 (Financial Recordkeeping), a State insurance authority, with
respect to any person domiciled in that insurance authority's State
that is engaged in providing insurance, and the Federal Trade
Commission), self-regulatory organizations, or for an investigation on
a matter related to public safety;
(5) (i) To a consumer reporting agency in accordance with the Fair
Credit Reporting Act (15 U.S.C. 1681 et seq.), or
(ii) From a consumer report reported by a consumer reporting
agency;
(6) In connection with a proposed or actual sale, merger, transfer,
or exchange of all or a portion of a business or operating unit if the
disclosure of nonpublic personal information concerns solely consumers
of such business or unit; or
(7) (i) To comply with Federal, State, or local laws, rules and
other applicable legal requirements;
(ii) To comply with a properly authorized civil, criminal, or
regulatory investigation, or subpoena or summons by Federal, State, or
local authorities; or
(iii) To respond to judicial process or government regulatory
authorities having jurisdiction over you for examination, compliance,
or other purposes as authorized by law.
(b) Examples of consent and revocation of consent. (1) A consumer
may specifically consent to your disclosure to a nonaffiliated
insurance company of the fact that the consumer has applied to you for
a mortgage so that the insurance company can offer homeowner's
insurance to the consumer.
(2) A consumer may revoke consent by subsequently exercising the
right to opt out of future disclosures of nonpublic personal
information as permitted under Sec. 332.7(f).
Subpart D--Relation to Other Laws; Effective Date
Sec. 332.16 Protection of Fair Credit Reporting Act.
Nothing in this part shall be construed to modify, limit, or
supersede the operation of the Fair Credit Reporting Act (15 U.S.C.
1681 et seq.), and no inference shall be drawn on the basis of the
provisions of this part regarding whether information is transaction or
experience information under section 603 of that Act.
Sec. 332.17 Relation to State laws.
(a) In general. This part shall not be construed as superseding,
altering, or affecting any statute, regulation, order, or
interpretation in effect in any State, except to the extent that such
State statute, regulation, order, or interpretation is inconsistent
with the provisions of this part, and then only to the extent of the
inconsistency.
(b) Greater protection under State law. For purposes of this
section, a State statute, regulation, order, or interpretation is not
inconsistent with the provisions of this part if the protection such
statute, regulation, order, or interpretation affords any consumer is
greater than the protection provided under this part, as determined by
the Federal Trade Commission, after consultation with the FDIC, on the
Federal Trade Commission's own motion, or upon the petition of any
interested party.
Sec. 332.18 Effective date; transition rule.
(a) Effective date. This part is effective November 13, 2000. In
order to provide sufficient time for you to establish policies and
systems to comply with the requirements of this part, the FDIC has
extended the time for compliance with this part until July 1, 2001.
(b)(1) Notice requirement for consumers who are your customers on
the compliance date. By July 1, 2001, you must have provided an initial
notice, as required by Sec. 332.4, to consumers who are your customers
on July 1, 2001.
(2) Example. You provide an initial notice to consumers who are
your customers on July 1, 2001, if, by that date, you have established
a system for providing an initial notice to all new customers and have
mailed the initial notice to all your existing customers.
(c) Two-year grandfathering of service agreements. Until July 1,
2002, a contract that you have entered into with a nonaffiliated third
party to perform services for you or functions on your behalf satisfies
the provisions of Sec. 332.13(a)(1)(ii) of this part, even if the
contract does not include a requirement that the third party maintain
the confidentiality of nonpublic personal information, as long as you
entered into the contract on or before July 1, 2000.
Appendix A to Part 332--Sample Clauses
Financial institutions, including a group of financial holding
company affiliates that use a common privacy notice, may use the
following sample clauses, if the clause is accurate for each
institution that uses the notice. (Note that disclosure of certain
information, such as assets and income, and information from a
consumer reporting agency, may give rise to obligations under the
Fair Credit Reporting Act, such as a requirement to permit a
consumer to opt out of disclosures to affiliates or designation as a
consumer reporting agency if disclosures are made to nonaffiliated
third parties.)
A-1--Categories of information you collect (all institutions)
You may use this clause, as applicable, to meet the requirement
of Sec. 332.6(a)(1) to
[[Page 35226]]
describe the categories of nonpublic personal information you
collect.
Sample Clause A-1:
We collect nonpublic personal information about you from the
following sources:
Information we receive from you on applications or
other forms;
Information about your transactions with us, our
affiliates, or others; and
Information we receive from a consumer reporting
agency.
A-2--Categories of information you disclose (institutions that disclose
outside of the exceptions)
You may use one of these clauses, as applicable, to meet the
requirement of Sec. 332.6(a)(2) to describe the categories of
nonpublic personal information you disclose. You may use these
clauses if you disclose nonpublic personal information other than as
permitted by the exceptions in Secs. 332.13, 332.14, and 332.15.
Sample Clause A-2, Alternative 1:
We may disclose the following kinds of nonpublic personal
information about you:
Information we receive from you on applications or
other forms, such as [provide illustrative examples, such as ``your
name, address, social security number, assets, and income''];
Information about your transactions with us, our
affiliates, or others, such as [provide illustrative examples, such
as ``your account balance, payment history, parties to transactions,
and credit card usage'']; and
Information we receive from a consumer reporting
agency, such as [provide illustrative examples, such as ``your
creditworthiness and credit history''].
Sample Clause A-2, Alternative 2:
We may disclose all of the information that we collect, as
described [describe location in the notice, such as ``above'' or
``below''].
A-3--Categories of information you disclose and parties to whom you
disclose (institutions that do not disclose outside of the exceptions)
You may use this clause, as applicable, to meet the requirements
of Secs. 332.6(a) (2), (3), and (4) to describe the categories of
nonpublic personal information about customers and former customers
that you disclose and the categories of affiliates and nonaffiliated
third parties to whom you disclose. You may use this clause if you
do not disclose nonpublic personal information to any party, other
than as permitted by the exceptions in Secs. 332.14 and 332.15.
Sample Clause A-3:
We do not disclose any nonpublic personal information about our
customers or former customers to anyone, except as permitted by law.
A-4--Categories of parties to whom you disclose (institutions that
disclose outside of the exceptions)
You may use this clause, as applicable, to meet the requirement
of Sec. 332.6(a)(3) to describe the categories of affiliates and
nonaffiliated third parties to whom you disclose nonpublic personal
information. You may use this clause if you disclose nonpublic
personal information other than as permitted by the exceptions in
Secs. 332.13, 332.14, and 332.15, as well as when permitted by the
exceptions in Secs. 332.14 and 332.15.
Sample Clause A-4:
We may disclose nonpublic personal information about you to the
following types of third parties:
Financial service providers, such as [provide
illustrative examples, such as ``mortgage bankers, securities
broker-dealers, and insurance agents''];
Non-financial companies, such as [provide illustrative
examples, such as ``retailers, direct marketers, airlines, and
publishers'']; and
Others, such as [provide illustrative examples, such as
``non-profit organizations''].
We may also disclose nonpublic personal information about you to
nonaffiliated third parties as permitted by law.
A-5--Service provider/joint marketing exception
You may use one of these clauses, as applicable, to meet the
requirements of Sec. 332.6(a)(5) related to the exception for
service providers and joint marketers in Sec. 332.13. If you
disclose nonpublic personal information under this exception, you
must describe the categories of nonpublic personal information you
disclose and the categories of third parties with whom you have
contracted.
Sample Clause A-5, Alternative 1:
We may disclose the following information to companies that
perform marketing services on our behalf or to other financial
institutions with whom we have joint marketing agreements:
Information we receive from you on applications or
other forms, such as [provide illustrative examples, such as ``your
name, address, social security number, assets, and income''];
Information about your transactions with us, our
affiliates, or others, such as [provide illustrative examples, such
as ``your account balance, payment history, parties to transactions,
and credit card usage'']; and
Information we receive from a consumer reporting
agency, such as [provide illustrative examples, such as ``your
creditworthiness and credit history''].
Sample Clause A-5, Alternative 2:
We may disclose all of the information we collect, as described
[describe location in the notice, such as ``above'' or ``below''] to
companies that perform marketing services on our behalf or to other
financial institutions with whom we have joint marketing agreements.
A-6--Explanation of opt out right (institutions that disclose outside
of the exceptions)
You may use this clause, as applicable, to meet the requirement
of Sec. 332.6(a)(6) to provide an explanation of the consumer's
right to opt out of the disclosure of nonpublic personal information
to nonaffiliated third parties, including the method(s) by which the
consumer may exercise that right. You may use this clause if you
disclose nonpublic personal information other than as permitted by
the exceptions in Secs. 332.13, 332.14, and 332.15.
Sample Clause A-6:
If you prefer that we not disclose nonpublic personal
information about you to nonaffiliated third parties, you may opt
out of those disclosures, that is, you may direct us not to make
those disclosures (other than disclosures permitted by law). If you
wish to opt out of disclosures to nonaffiliated third parties, you
may [describe a reasonable means of opting out, such as ``call the
following toll-free number: (insert number)].
A-7--Confidentiality and security (all institutions)
You may use this clause, as applicable, to meet the requirement
of Sec. 332.6(a)(8) to describe your policies and practices with
respect to protecting the confidentiality and security of nonpublic
personal information.
Sample Clause A-7:
We restrict access to nonpublic personal information about you
to [provide an appropriate description, such as ``those employees
who need to know that information to provide products or services to
you'']. We maintain physical, electronic, and procedural safeguards
that comply with federal standards to guard your nonpublic personal
information.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Dated at Washington, DC, this 10th day of May, 2000.
Robert E. Feldman,
Executive Secretary.
Office of Thrift Supervision
12 CFR Chapter V
For the reasons set out in the joint preamble, OTS amends Chapter
V, Title 12 of the Code of Federal Regulations by adding part 573 to
read as follows:
PART 573--PRIVACY OF CONSUMER FINANCIAL INFORMATION
Sec.
573.1 Purpose and scope.
573.2 Rule of construction.
573.3 Definitions.
Subpart A--Privacy and Opt Out Notices
573.4 Initial privacy notice to consumers required.
573.5 Annual privacy notice to customers required.
573.6 Information to be included in privacy notices.
573.7 Form of opt out notice to consumers; opt out methods.
573.8 Revised privacy notices.
573.9 Delivering privacy and opt out notices.
Subpart B--Limits on Disclosures
573.10 Limitation on disclosure of nonpublic personal information
to nonaffiliated third parties.
573.11 Limits on redisclosure and reuse of information.
573.12 Limits on sharing account number information for marketing
purposes.
[[Page 35227]]
Subpart C--Exceptions
573.13 Exception to opt out requirements for service providers and
joint marketing.
573.14 Exceptions to notice and opt out requirements for
processing and servicing transactions.
573.15 Other exceptions to notice and opt out requirements.
Subpart D--Relation to Other Laws; Effective Date
573.16 Protection of Fair Credit Reporting Act.
573.17 Relation to State laws.
573.18 Effective date; transition rule.
Appendix A to Part 573--Sample Clauses
Authority: 12 U.S.C. 1462a, 1463, 1464, 1828; 15 U.S.C. 6801 et
seq.
Sec. 573.1 Purpose and scope.
(a) Purpose. This part governs the treatment of nonpublic personal
information about consumers by the financial institutions listed in
paragraph (b) of this section. This part:
(1) Requires a financial institution to provide notice to customers
about its privacy policies and practices;
(2) Describes the conditions under which a financial institution
may disclose nonpublic personal information about consumers to
nonaffiliated third parties; and
(3) Provides a method for consumers to prevent a financial
institution from disclosing that information to most nonaffiliated
third parties by ``opting out'' of that disclosure, subject to the
exceptions in Secs. 573.13, 573.14, and 573.15.
(b) Scope. (1) This part applies only to nonpublic personal
information about individuals who obtain financial products or services
primarily for personal, family, or household purposes from the
institutions listed below. This part does not apply to information
about companies or about individuals who obtain financial products or
services for business, commercial, or agricultural purposes. This part
applies to savings associations whose deposits are insured by the
Federal Deposit Insurance Corporation, and any subsidiaries of such
savings associations, but not subsidiaries that are brokers, dealers,
persons providing insurance, investment companies, or investment
advisers. This part refers to these entities as ``you.''
(2) Nothing in this part modifies, limits, or supersedes the
standards governing individually identifiable health information
promulgated by the Secretary of Health and Human Services under the
authority of sections 262 and 264 of the Health Insurance Portability
and Accountability Act of 1996 (42 U.S.C. 1320d-1320d-8).
Sec. 573.2 Rule of construction.
The examples in this part and the sample clauses in appendix A of
this part are not exclusive. Compliance with an example or use of a
sample clause, to the extent applicable, constitutes compliance with
this part.
Sec. 573.3 Definitions.
As used in this part, unless the context requires otherwise:
(a) Affiliate means any company that controls, is controlled by, or
is under common control with another company.
(b)(1) Clear and conspicuous means that a notice is reasonably
understandable and designed to call attention to the nature and
significance of the information in the notice.
(2) Examples--(i) Reasonably understandable. You make your notice
reasonably understandable if you:
(A) Present the information in the notice in clear, concise
sentences, paragraphs, and sections;
(B) Use short explanatory sentences or bullet lists whenever
possible;
(C) Use definite, concrete, everyday words and active voice
whenever possible;
(D) Avoid multiple negatives;
(E) Avoid legal and highly technical business terminology whenever
possible; and
(F) Avoid explanations that are imprecise and readily subject to
different interpretations.
(ii) Designed to call attention. You design your notice to call
attention to the nature and significance of the information in it if
you:
(A) Use a plain-language heading to call attention to the notice;
(B) Use a typeface and type size that are easy to read;
(C) Provide wide margins and ample line spacing;
(D) Use boldface or italics for key words; and
(E) In a form that combines your notice with other information, use
distinctive type size, style, and graphic devices, such as shading or
sidebars, when you combine your notice with other information.
(iii) Notices on web sites. If you provide a notice on a web page,
you design your notice to call attention to the nature and significance
of the information in it if you use text or visual cues to encourage
scrolling down the page if necessary to view the entire notice and
ensure that other elements on the web site (such as text, graphics,
hyperlinks, or sound) do not distract attention from the notice, and
you either:
(A) Place the notice on a screen that consumers frequently access,
such as a page on which transactions are conducted; or
(B) Place a link on a screen that consumers frequently access, such
as a page on which transactions are conducted, that connects directly
to the notice and is labeled appropriately to convey the importance,
nature, and relevance of the notice.
(c) Collect means to obtain information that you organize or can
retrieve by the name of an individual or by identifying number, symbol,
or other identifying particular assigned to the individual,
irrespective of the source of the underlying information.
(d) Company means any corporation, limited liability company,
business trust, general or limited partnership, association, or similar
organization.
(e)(1) Consumer means an individual who obtains or has obtained a
financial product or service from you that is to be used primarily for
personal, family, or household purposes, or that individual's legal
representative.
(2) Examples--(i) An individual who applies to you for credit for
personal, family, or household purposes is a consumer of a financial
service, regardless of whether the credit is extended.
(ii) An individual who provides nonpublic personal information to
you in order to obtain a determination about whether he or she may
qualify for a loan to be used primarily for personal, family, or
household purposes is a consumer of a financial service, regardless of
whether the loan is extended.
(iii) An individual who provides nonpublic personal information to
you in connection with obtaining or seeking to obtain financial,
investment, or economic advisory services is a consumer regardless of
whether you establish a continuing advisory relationship.
(iv) If you hold ownership or servicing rights to an individual's
loan that is used primarily for personal, family, or household
purposes, the individual is your consumer, even if you hold those
rights in conjunction with one or more other institutions. (The
individual is also a consumer with respect to the other financial
institutions involved.) An individual who has a loan in which you have
ownership or servicing rights is your consumer, even if you, or another
institution with those rights, hire an agent to collect on the loan.
(v) An individual who is a consumer of another financial
institution is not your consumer solely because you act as agent for,
or provide processing or other services to, that financial institution.
[[Page 35228]]
(vi) An individual is not your consumer solely because he or she
has designated you as trustee for a trust.
(vii) An individual is not your consumer solely because he or she
is a beneficiary of a trust for which you are a trustee.
(viii) An individual is not your consumer solely because he or she
is a participant or a beneficiary of an employee benefit plan that you
sponsor or for which you act as a trustee or fiduciary.
(f) Consumer reporting agency has the same meaning as in section
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
(g) Control of a company means:
(1) Ownership, control, or power to vote 25 percent or more of the
outstanding shares of any class of voting security of the company,
directly or indirectly, or acting through one or more other persons;
(2) Control in any manner over the election of a majority of the
directors, trustees, or general partners (or individuals exercising
similar functions) of the company; or
(3) The power to exercise, directly or indirectly, a controlling
influence over the management or policies of the company, as the OTS
determines.
(h) Customer means a consumer who has a customer relationship with
you.
(i)(1) Customer relationship means a continuing relationship
between a consumer and you under which you provide one or more
financial products or services to the consumer that are to be used
primarily for personal, family, or household purposes.
(2) Examples--(i) Continuing relationship. A consumer has a
continuing relationship with you if the consumer:
(A) Has a deposit or investment account with you;
(B) Obtains a loan from you;
(C) Has a loan for which you own the servicing rights;
(D) Purchases an insurance product from you;
(E) Holds an investment product through you, such as when you act
as a custodian for securities or for assets in an Individual Retirement
Arrangement;
(F) Enters into an agreement or understanding with you whereby you
undertake to arrange or broker a home mortgage loan for the consumer;
(G) Enters into a lease of personal property with you; or
(H) Obtains financial, investment, or economic advisory services
from you for a fee.
(ii) No continuing relationship. A consumer does not, however, have
a continuing relationship with you if:
(A) The consumer obtains a financial product or service only in
isolated transactions, such as using your ATM to withdraw cash from an
account at another financial institution or purchasing a cashier's
check or money order;
(B) You sell the consumer's loan and do not retain the rights to
service that loan; or
(C) You sell the consumer airline tickets, travel insurance, or
traveler's checks in isolated transactions.
(j) Federal functional regulator means:
(1) The Board of Governors of the Federal Reserve System;
(2) The Office of the Comptroller of the Currency;
(3) The Board of Directors of the Federal Deposit Insurance
Corporation;
(4) The Director of the Office of Thrift Supervision;
(5) The National Credit Union Administration Board; and
(6) The Securities and Exchange Commission.
(k)(1) Financial institution means any institution the business of
which is engaging in activities that are financial in nature or
incidental to such financial activities as described in section 4(k) of
the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
(2) Financial institution does not include:
(i) Any person or entity with respect to any financial activity
that is subject to the jurisdiction of the Commodity Futures Trading
Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.);
(ii) The Federal Agricultural Mortgage Corporation or any entity
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C.
2001 et seq.); or
(iii) Institutions chartered by Congress specifically to engage in
securitizations, secondary market sales (including sales of servicing
rights), or similar transactions related to a transaction of a
consumer, as long as such institutions do not sell or transfer
nonpublic personal information to a nonaffiliated third party.
(l)(1) Financial product or service means any product or service
that a financial holding company could offer by engaging in an activity
that is financial in nature or incidental to such a financial activity
under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(k)).
(2) Financial service includes your evaluation or brokerage of
information that you collect in connection with a request or an
application from a consumer for a financial product or service.
(m)(1) Nonaffiliated third party means any person except:
(i) Your affiliate; or
(ii) A person employed jointly by you and any company that is not
your affiliate (but nonaffiliated third party includes the other
company that jointly employs the person).
(2) Nonaffiliated third party includes any company that is an
affiliate solely by virtue of your or your affiliate's direct or
indirect ownership or control of the company in conducting merchant
banking or investment banking activities of the type described in
section 4(k)(4)(H) or insurance company investment activities of the
type described in section 4(k)(4)(I) of the Bank Holding Company Act of
1956 (12 U.S.C. 1843(k)(4)(H) and (I)).
(n)(1) Nonpublic personal information means:
(i) Personally identifiable financial information; and
(ii) Any list, description, or other grouping of consumers (and
publicly available information pertaining to them) that is derived
using any personally identifiable financial information that is not
publicly available.
(2) Nonpublic personal information does not include:
(i) Publicly available information, except as included on a list
described in paragraph (n)(1)(ii) of this section; or
(ii) Any list, description, or other grouping of consumers (and
publicly available information pertaining to them) that is derived
without using any personally identifiable financial information that is
not publicly available.
(3) Examples of lists--(i) Nonpublic personal information includes
any list of individuals' names and street addresses that is derived in
whole or in part using personally identifiable financial information
that is not publicly available, such as account numbers.
(ii) Nonpublic personal information does not include any list of
individuals' names and addresses that contains only publicly available
information, is not derived in whole or in part using personally
identifiable financial information that is not publicly available, and
is not disclosed in a manner that indicates that any of the individuals
on the list is a consumer of a financial institution.
(o)(1) Personally identifiable financial information means any
information:
(i) A consumer provides to you to obtain a financial product or
service from you;
(ii) About a consumer resulting from any transaction involving a
financial product or service between you and a consumer; or
[[Page 35229]]
(iii) You otherwise obtain about a consumer in connection with
providing a financial product or service to that consumer.
(2) Examples--(i) Information included. Personally identifiable
financial information includes:
(A) Information a consumer provides to you on an application to
obtain a loan, credit card, or other financial product or service;
(B) Account balance information, payment history, overdraft
history, and credit or debit card purchase information;
(C) The fact that an individual is or has been one of your
customers or has obtained a financial product or service from you;
(D) Any information about your consumer if it is disclosed in a
manner that indicates that the individual is or has been your consumer;
(E) Any information that a consumer provides to you or that you or
your agent otherwise obtain in connection with collecting on a loan or
servicing a loan;
(F) Any information you collect through an Internet ``cookie'' (an
information collecting device from a web server); and
(G) Information from a consumer report.
(ii) Information not included. Personally identifiable financial
information does not include:
(A) A list of names and addresses of customers of an entity that is
not a financial institution; and
(B) Information that does not identify a consumer, such as
aggregate information or blind data that does not contain personal
identifiers such as account numbers, names, or addresses.
(p)(1) Publicly available information means any information that
you have a reasonable basis to believe is lawfully made available to
the general public from:
(i) Federal, State, or local government records;
(ii) Widely distributed media; or
(iii) Disclosures to the general public that are required to be
made by Federal, State, or local law.
(2) Reasonable basis. You have a reasonable basis to believe that
information is lawfully made available to the general public if you
have taken steps to determine:
(i) That the information is of the type that is available to the
general public; and
(ii) Whether an individual can direct that the information not be
made available to the general public and, if so, that your consumer has
not done so.
(3) Examples--(i) Government records. Publicly available
information in government records includes information in government
real estate records and security interest filings.
(ii) Widely distributed media. Publicly available information from
widely distributed media includes information from a telephone book, a
television or radio program, a newspaper, or a web site that is
available to the general public on an unrestricted basis. A web site is
not restricted merely because an Internet service provider or a site
operator requires a fee or a password, so long as access is available
to the general public.
(iii) Reasonable basis--(A) You have a reasonable basis to believe
that mortgage information is lawfully made available to the general
public if you have determined that the information is of the type
included on the public record in the jurisdiction where the mortgage
would be recorded.
(B) You have a reasonable basis to believe that an individual's
telephone number is lawfully made available to the general public if
you have located the telephone number in the telephone book or the
consumer has informed you that the telephone number is not unlisted.
Subpart A--Privacy and Opt Out Notices
Sec. 573.4 Initial privacy notice to consumers required.
(a) Initial notice requirement. You must provide a clear and
conspicuous notice that accurately reflects your privacy policies and
practices to:
(1) Customer. An individual who becomes your customer, not later
than when you establish a customer relationship, except as provided in
paragraph (e) of this section; and
(2) Consumer. A consumer, before you disclose any nonpublic
personal information about the consumer to any nonaffiliated third
party, if you make such a disclosure other than as authorized by
Secs. 573.14 and 573.15.
(b) When initial notice to a consumer is not required. You are not
required to provide an initial notice to a consumer under paragraph (a)
of this section if:
(1) You do not disclose any nonpublic personal information about
the consumer to any nonaffiliated third party, other than as authorized
by Secs. 573.14 and 573.15; and
(2) You do not have a customer relationship with the consumer.
(c) When you establish a customer relationship--(1) General rule.
You establish a customer relationship when you and the consumer enter
into a continuing relationship.
(2) Special rule for loans.--You establish a customer relationship
with a consumer when you originate a loan to the consumer for personal,
family, or household purposes. If you subsequently transfer the
servicing rights to that loan to another financial institution, the
customer relationship transfers with the servicing rights.
(3)(i) Examples of establishing customer relationship. You
establish a customer relationship when the consumer:
(A) Opens a credit card account with you;
(B) Executes the contract to open a deposit account with you,
obtains credit from you, or purchases insurance from you;
(C) Agrees to obtain financial, economic, or investment advisory
services from you for a fee; or
(D) Becomes your client for the purpose of your providing credit
counseling or tax preparation services.
(ii) Examples of loan rule. You establish a customer relationship
with a consumer who obtains a loan for personal, family, or household
purposes when you:
(A) Originate the loan to the consumer; or
(B) Purchase the servicing rights to the consumer's loan.
(d) Existing customers. When an existing customer obtains a new
financial product or service from you that is to be used primarily for
personal, family, or household purposes, you satisfy the initial notice
requirements of paragraph (a) of this section as follows:
(1) You may provide a revised privacy notice, under Sec. 573.8,
that covers the customer's new financial product or service; or
(2) If the initial, revised, or annual notice that you most
recently provided to that customer was accurate with respect to the new
financial product or service, you do not need to provide a new privacy
notice under paragraph (a) of this section.
(e) Exceptions to allow subsequent delivery of notice. (1) You may
provide the initial notice required by paragraph (a)(1) of this section
within a reasonable time after you establish a customer relationship
if:
(i) Establishing the customer relationship is not at the customer's
election; or
(ii) Providing notice not later than when you establish a customer
relationship would substantially delay the customer's transaction and
the customer agrees to receive the notice at a later time.
(2) Examples of exceptions--(i) Not at customer's election.
Establishing a customer relationship is not at the customer's election
if you acquire a
[[Page 35230]]
customer's deposit liability or the servicing rights to a customer's
loan from another financial institution and the customer does not have
a choice about your acquisition.
(ii) Substantial delay of customer's transaction. Providing notice
not later than when you establish a customer relationship would
substantially delay the customer's transaction when:
(A) You and the individual agree over the telephone to enter into a
customer relationship involving prompt delivery of the financial
product or service; or
(B) You establish a customer relationship with an individual under
a program authorized by Title IV of the Higher Education Act of 1965
(20 U.S.C. 1070 et seq.) or similar student loan programs where loan
proceeds are disbursed promptly without prior communication between you
and the customer.
(iii) No substantial delay of customer's transaction. Providing
notice not later than when you establish a customer relationship would
not substantially delay the customer's transaction when the
relationship is initiated in person at your office or through other
means by which the customer may view the notice, such as on a web site.
(f) Delivery. When you are required to deliver an initial privacy
notice by this section, you must deliver it according to Sec. 573.9. If
you use a short-form initial notice for non-customers according to
Sec. 573.6(d), you may deliver your privacy notice according to
Sec. 573.6(d)(3).
Sec. 573.5 Annual privacy notice to customers required.
(a)(1) General rule. You must provide a clear and conspicuous
notice to customers that accurately reflects your privacy policies and
practices not less than annually during the continuation of the
customer relationship. Annually means at least once in any period of 12
consecutive months during which that relationship exists. You may
define the 12-consecutive-month period, but you must apply it to the
customer on a consistent basis.
(2) Example. You provide a notice annually if you define the 12-
consecutive-month period as a calendar year and provide the annual
notice to the customer once in each calendar year following the
calendar year in which you provided the initial notice. For example, if
a customer opens an account on any day of year 1, you must provide an
annual notice to that customer by December 31 of year 2.
(b)(1) Termination of customer relationship. You are not required
to provide an annual notice to a former customer.
(2) Examples. Your customer becomes a former customer when:
(i) In the case of a deposit account, the account is inactive under
your policies;
(ii) In the case of a closed-end loan, the customer pays the loan
in full, you charge off the loan, or you sell the loan without
retaining servicing rights;
(iii) In the case of a credit card relationship or other open-end
credit relationship, you no longer provide any statements or notices to
the customer concerning that relationship or you sell the credit card
receivables without retaining servicing rights; or
(iv) You have not communicated with the customer about the
relationship for a period of 12 consecutive months, other than to
provide annual privacy notices or promotional material.
(c) Special rule for loans. If you do not have a customer
relationship with a consumer under the special rule for loans in
Sec. 573.4(c)(2), then you need not provide an annual notice to that
consumer under this section.
(d) Delivery. When you are required to deliver an annual privacy
notice by this section, you must deliver it according to Sec. 573.9.
Sec. 573.6 Information to be included privacy notices.
(a) General rule. The initial, annual, and revised privacy notices
that you provide under Secs. 573.4, 573.5, 573.8 must include each of
the following items of information, in addition to any other
information you wish to provide, that applies to you and to the
consumers to whom you send your privacy notice:
(1) The categories of nonpublic personal information that you
collect;
(2) The categories of nonpublic personal information that you
disclose;
(3) The categories of affiliates and nonaffiliated third parties to
whom you disclose nonpublic personal information, other than those
parties to whom you disclose information under Secs. 573.14 and 573.15;
(4) The categories of nonpublic personal information about your
former customers that you disclose and the categories of affiliates and
nonaffiliated third parties to whom you disclose nonpublic personal
information about your former customers, other than those parties to
whom you disclose information under Secs. 573.14 and 573.15;
(5) If you disclose nonpublic personal information to a
nonaffiliated third party under Sec. 573.13 (and no other exception in
Sec. 573.14 or 573.15 applies to that disclosure), a separate statement
of the categories of information you disclose and the categories of
third parties with whom you have contracted;
(6) An explanation of the consumer's right under Sec. 573.10(a) to
opt out of the disclosure of nonpublic personal information to
nonaffiliated third parties, including the method(s) by which the
consumer may exercise that right at that time;
(7) Any disclosures that you make under section 603(d)(2)(A)(iii)
of the Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) (that
is, notices regarding the ability to opt out of disclosures of
information among affiliates);
(8) Your policies and practices with respect to protecting the
confidentiality and security of nonpublic personal information; and
(9) Any disclosure that you make under paragraph (b) of this
section.
(b) Description of nonaffiliated third parties subject to
exceptions. If you disclose nonpublic personal information to third
parties as authorized under Secs. 573.14 and 573.15, you are not
required to list those exceptions in the initial or annual privacy
notices required by Secs. 573.4 and 573.5. When describing the
categories with respect to those parties, you are required to state
only that you make disclosures to other nonaffiliated third parties as
permitted by law.
(c) Examples--(1) Categories of nonpublic personal information that
you collect. You satisfy the requirement to categorize the nonpublic
personal information that you collect if you list the following
categories, as applicable:
(i) Information from the consumer;
(ii) Information about the consumer's transactions with you or your
affiliates;
(iii) Information about the consumer's transactions with
nonaffiliated third parties; and
(iv) Information from a consumer reporting agency.
(2) Categories of nonpublic personal information you disclose--(i)
You satisfy the requirement to categorize the nonpublic personal
information that you disclose if you list the categories described in
paragraph (c)(1) of this section, as applicable, and a few examples to
illustrate the types of information in each category.
(ii) If you reserve the right to disclose all of the nonpublic
personal information about consumers that you collect, you may simply
state that fact without describing the categories or examples of the
nonpublic personal information you disclose.
(3) Categories of affiliates and nonaffiliated third parties to
whom you disclose. You satisfy the requirement to categorize the
affiliates and nonaffiliated third parties to whom you disclose
nonpublic personal information
[[Page 35231]]
if you list the following categories, as applicable, and a few examples
to illustrate the types of third parties in each category.
(i) Financial service providers;
(ii) Non-financial companies; and
(iii) Others.
(4) Disclosures under exception for service providers and joint
marketers. If you disclose nonpublic personal information under the
exception in Sec. 573.13 to a nonaffiliated third party to market
products or services that you offer alone or jointly with another
financial institution, you satisfy the disclosure requirement of
paragraph (a)(5) of this section if you:
(i) List the categories of nonpublic personal information you
disclose, using the same categories and examples you used to meet the
requirements of paragraph (a)(2) of this section, as applicable; and
(ii) State whether the third party is:
(A) A service provider that performs marketing services on your
behalf or on behalf of you and another financial institution; or
(B) A financial institution with whom you have a joint marketing
agreement.
(5) Simplified notices. If you do not disclose, and do not wish to
reserve the right to disclose, nonpublic personal information about
customers or former customers to affiliates or nonaffiliated third
parties except as authorized under Secs. 573.14 and 573.15, you may
simply state that fact, in addition to the information you must provide
under paragraphs (a)(1), (a)(8), (a)(9), and (b) of this section.
(6) Confidentiality and security. You describe your policies and
practices with respect to protecting the confidentiality and security
of nonpublic personal information if you do both of the following:
(i) Describe in general terms who is authorized to have access to
the information; and
(ii) State whether you have security practices and procedures in
place to ensure the confidentiality of the information in accordance
with your policy. You are not required to describe technical
information about the safeguards you use.
(d) Short-form initial notice with opt out notice for non-
customers--(1) You may satisfy the initial notice requirements in
Secs. 573.4(a)(2), 573.7(b), and 573.7(c) for a consumer who is not a
customer by providing a short-form initial notice at the same time as
you deliver an opt out notice as required in Sec. 573.7.
(2) A short-form initial notice must:
(i) Be clear and conspicuous;
(ii) State that your privacy notice is available upon request; and
(iii) Explain a reasonable means by which the consumer may obtain
that notice.
(3) You must deliver your short-form initial notice according to
Sec. 573.9. You are not required to deliver your privacy notice with
your short-form initial notice. You instead may simply provide the
consumer a reasonable means to obtain your privacy notice. If a
consumer who receives your short-form notice requests your privacy
notice, you must deliver your privacy notice according to Sec. 573.9.
(4) Examples of obtaining privacy notice. You provide a reasonable
means by which a consumer may obtain a copy of your privacy notice if
you:
(i) Provide a toll-free telephone number that the consumer may call
to request the notice; or
(ii) For a consumer who conducts business in person at your office,
maintain copies of the notice on hand that you provide to the consumer
immediately upon request.
(e) Future disclosures. Your notice may include:
(1) Categories of nonpublic personal information that you reserve
the right to disclose in the future, but do not currently disclose; and
(2) Categories of affiliates or nonaffiliated third parties to whom
you reserve the right in the future to disclose, but to whom you do not
currently disclose, nonpublic personal information.
(f) Sample clauses. Sample clauses illustrating some of the notice
content required by this section are included in appendix A of this
part.
Sec. 573.7 Form of opt out notice to consumers; opt out methods.
(a)(1) Form of opt out notice. If you are required to provide an
opt out notice under Sec. 573.10(a), you must provide a clear and
conspicuous notice to each of your consumers that accurately explains
the right to opt out under that section. The notice must state:
(i) That you disclose or reserve the right to disclose nonpublic
personal information about your consumer to a nonaffiliated third
party;
(ii) That the consumer has the right to opt out of that disclosure;
and
(iii) A reasonable means by which the consumer may exercise the opt
out right.
(2) Examples--(i) Adequate opt out notice. You provide adequate
notice that the consumer can opt out of the disclosure of nonpublic
personal information to a nonaffiliated third party if you:
(A) Identify all of the categories of nonpublic personal
information that you disclose or reserve the right to disclose, and all
of the categories of nonaffiliated third parties to which you disclose
the information, as described in Sec. 573.6(a)(2) and (3), and state
that the consumer can opt out of the disclosure of that information;
and
(B) Identify the financial products or services that the consumer
obtains from you, either singly or jointly, to which the opt out
direction would apply.
(ii) Reasonable opt out means. You provide a reasonable means to
exercise an opt out right if you:
(A) Designate check-off boxes in a prominent position on the
relevant forms with the opt out notice;
(B) Include a reply form together with the opt out notice;
(C) Provide an electronic means to opt out, such as a form that can
be sent via electronic mail or a process at your web site, if the
consumer agrees to the electronic delivery of information; or
(D) Provide a toll-free telephone number that consumers may call to
opt out.
(iii) Unreasonable opt out means. You do not provide a reasonable
means of opting out if:
(A) The only means of opting out is for the consumer to write his
or her own letter to exercise that opt out right; or
(B) The only means of opting out as described in any notice
subsequent to the initial notice is to use a check-off box that you
provided with the initial notice but did not include with the
subsequent notice.
(iv) Specific opt out means. You may require each consumer to opt
out through a specific means, as long as that means is reasonable for
that consumer.
(b) Same form as initial notice permitted. You may provide the opt
out notice together with or on the same written or electronic form as
the initial notice you provide in accordance with Sec. 573.4.
(c) Initial notice required when opt out notice delivered
subsequent to initial notice. If you provide the opt out notice later
than required for the initial notice in accordance with Sec. 573.4, you
must also include a copy of the initial notice with the opt out notice
in writing or, if the consumer agrees, electronically.
(d) Joint relationships-(1) If two or more consumers jointly obtain
a financial product or service from you, you may provide a single opt
out notice. Your opt out notice must explain how you will treat an opt
out direction by a joint consumer (as explained in paragraph (d)(5) of
this section).
(2) Any of the joint consumers may exercise the right to opt out.
You may either:
[[Page 35232]]
(i) Treat an opt out direction by a joint consumer as applying to
all of the associated joint consumers; or
(ii) Permit each joint consumer to opt out separately.
(3) If you permit each joint consumer to opt out separately, you
must permit one of the joint consumers to opt out on behalf of all of
the joint consumers.
(4) You may not require all joint consumers to opt out before you
implement any opt out direction.
(5) Example. If John and Mary have a joint checking account with
you and arrange for you to send statements to John's address, you may
do any of the following, but you must explain in your opt out notice
which opt out policy you will follow:
(i) Send a single opt out notice to John's address, but you must
accept an opt out direction from either John or Mary.
(ii) Treat an opt out direction by either John or Mary as applying
to the entire account. If you do so, and John opts out, you may not
require Mary to opt out as well before implementing John's opt out
direction.
(iii) Permit John and Mary to make different opt out directions. If
you do so:
(A) You must permit John and Mary to opt out for each other;
(B) If both opt out, you must permit both to notify you in a single
response (such as on a form or through a telephone call); and
(C) If John opts out and Mary does not, you may only disclose
nonpublic personal information about Mary, but not about John and not
about John and Mary jointly.
(e) Time to comply with opt out. You must comply with a consumer's
opt out direction as soon as reasonably practicable after you receive
it.
(f) Continuing right to opt out. A consumer may exercise the right
to opt out at any time.
(g) Duration of consumer's opt out direction-(1) A consumer's
direction to opt out under this section is effective until the consumer
revokes it in writing or, if the consumer agrees, electronically.
(2) When a customer relationship terminates, the customer's opt out
direction continues to apply to the nonpublic personal information that
you collected during or related to that relationship. If the individual
subsequently establishes a new customer relationship with you, the opt
out direction that applied to the former relationship does not apply to
the new relationship.
(h) Delivery. When you are required to deliver an opt out notice by
this section, you must deliver it according to Sec. 573.9.
Sec. 573.8 Revised privacy notices.
(a) General rule. Except as otherwise authorized in this part, you
must not, directly or through any affiliate, disclose any nonpublic
personal information about a consumer to a nonaffiliated third party
other than as described in the initial notice that you provided to that
consumer under Sec. 573.4, unless:
(1) You have provided to the consumer a clear and conspicuous
revised notice that accurately describes your policies and practices;
(2) You have provided to the consumer a new opt out notice;
(3) You have given the consumer a reasonable opportunity, before
you disclose the information to the nonaffiliated third party, to opt
out of the disclosure; and
(4) The consumer does not opt out.
(b) Examples--(1) Except as otherwise permitted by Secs. 573.13,
573.14, and 573.15, you must provide a revised notice before you:
(i) Disclose a new category of nonpublic personal information to
any nonaffiliated third party;
(ii) Disclose nonpublic personal information to a new category of
nonaffiliated third party; or
(iii) Disclose nonpublic personal information about a former
customer to a nonaffiliated third party, if that former customer has
not had the opportunity to exercise an opt out right regarding that
disclosure.
(2) A revised notice is not required if you disclose nonpublic
personal information to a new nonaffiliated third party that you
adequately described in your prior notice.
(c) Delivery. When you are required to deliver a revised privacy
notice by this section, you must deliver it according to Sec. 573.9.
Sec. 573.9 Delivering privacy and opt out notices.
(a) How to provide notices. You must provide any privacy notices
and opt out notices, including short-form initial notices, that this
part requires so that each consumer can reasonably be expected to
receive actual notice in writing or, if the consumer agrees,
electronically.
(b) (1) Examples of reasonable expectation of actual notice. You
may reasonably expect that a consumer will receive actual notice if
you:
(i) Hand-deliver a printed copy of the notice to the consumer;
(ii) Mail a printed copy of the notice to the last known address of
the consumer;
(iii) For the consumer who conducts transactions electronically,
post the notice on the electronic site and require the consumer to
acknowledge receipt of the notice as a necessary step to obtaining a
particular financial product or service;
(iv) For an isolated transaction with the consumer, such as an ATM
transaction, post the notice on the ATM screen and require the consumer
to acknowledge receipt of the notice as a necessary step to obtaining
the particular financial product or service.
(2) Examples of unreasonable expectation of actual notice. You may
not, however, reasonably expect that a consumer will receive actual
notice of your privacy policies and practices if you:
(i) Only post a sign in your branch or office or generally publish
advertisements of your privacy policies and practices;
(ii) Send the notice via electronic mail to a consumer who does not
obtain a financial product or service from you electronically.
(c) Annual notices only. You may reasonably expect that a customer
will receive actual notice of your annual privacy notice if:
(1) The customer uses your web site to access financial products
and services electronically and agrees to receive notices at the web
site, and you post your current privacy notice continuously in a clear
and conspicuous manner on the web site; or
(2) The customer has requested that you refrain from sending any
information regarding the customer relationship, and your current
privacy notice remains available to the customer upon request.
(d) Oral description of notice insufficient. You may not provide
any notice required by this part solely by orally explaining the
notice, either in person or over the telephone.
(e) Retention or accessibility of notices for customers-(1) For
customers only, you must provide the initial notice required by
Sec. 573.4(a)(1), the annual notice required by Sec. 573.5(a), and the
revised notice required by Sec. 573.8 so that the customer can retain
them or obtain them later in writing or, if the customer agrees,
electronically.
(2) Examples of retention or accessibility. You provide a privacy
notice to the customer so that the customer can retain it or obtain it
later if you:
(i) Hand-deliver a printed copy of the notice to the customer;
(ii) Mail a printed copy of the notice to the last known address of
the customer; or
(iii) Make your current privacy notice available on a web site (or
a link to another web site) for the customer who
[[Page 35233]]
obtains a financial product or service electronically and agrees to
receive the notice at the web site.
(f) Joint notice with other financial institutions. You may provide
a joint notice from you and one or more of your affiliates or other
financial institutions, as identified in the notice, as long as the
notice is accurate with respect to you and the other institutions.
(g) Joint relationships. If two or more consumers jointly obtain a
financial product or service from you, you may satisfy the initial,
annual, and revised notice requirements of Secs. 573.4(a), 573.5(a),
and 573.8(a), respectively, by providing one notice to those consumers
jointly.
Subpart B--Limits on Disclosures
Sec. 573.10 Limits on disclosure of non-public personal information to
nonaffiliated third parties.
(a)(1) Conditions for disclosure. Except as otherwise authorized in
this part, you may not, directly or through any affiliate, disclose any
nonpublic personal information about a consumer to a nonaffiliated
third party unless:
(i) You have provided to the consumer an initial notice as required
under Sec. 573.4;
(ii) You have provided to the consumer an opt out notice as
required in Sec. 573.7;
(iii) You have given the consumer a reasonable opportunity, before
you disclose the information to the nonaffiliated third party, to opt
out of the disclosure; and
(iv) The consumer does not opt out.
(2) Opt out definition. Opt out means a direction by the consumer
that you not disclose nonpublic personal information about that
consumer to a nonaffiliated third party, other than as permitted by
Secs. 573.13, 573.14, and 573.15.
(3) Examples of reasonable opportunity to opt out. You provide a
consumer with a reasonable opportunity to opt out if:
(i) By mail. You mail the notices required in paragraph (a)(1) of
this section to the consumer and allow the consumer to opt out by
mailing a form, calling a toll-free telephone number, or any other
reasonable means within 30 days from the date you mailed the notices.
(ii) By electronic means. A customer opens an on-line account with
you and agrees to receive the notices required in paragraph (a)(1) of
this section electronically, and you allow the customer to opt out by
any reasonable means within 30 days after the date that the customer
acknowledges receipt of the notices in conjunction with opening the
account.
(iii) Isolated transaction with consumer. For an isolated
transaction, such as the purchase of a cashier's check by a consumer,
you provide the consumer with a reasonable opportunity to opt out if
you provide the notices required in paragraph (a)(1) of this section at
the time of the transaction and request that the consumer decide, as a
necessary part of the transaction, whether to opt out before completing
the transaction.
(b) Application of opt out to all consumers and all nonpublic
personal information--(1) You must comply with this section, regardless
of whether you and the consumer have established a customer
relationship.
(2) Unless you comply with this section, you may not, directly or
through any affiliate, disclose any nonpublic personal information
about a consumer that you have collected, regardless of whether you
collected it before or after receiving the direction to opt out from
the consumer.
(c) Partial opt out. You may allow a consumer to select certain
nonpublic personal information or certain nonaffiliated third parties
with respect to which the consumer wishes to opt out.
Sec. 573.11 Limits on redisclosure and reuse of information.
(a)(1) Information you receive under an exception. If you receive
nonpublic personal information from a nonaffiliated financial
institution under an exception in Sec. 573.14 or 573.15 of this part,
your disclosure and use of that information is limited as follows:
(i) You may disclose the information to the affiliates of the
financial institution from which you received the information;
(ii) You may disclose the information to your affiliates, but your
affiliates may, in turn, disclose and use the information only to the
extent that you may disclose and use the information; and
(iii) You may disclose and use the information pursuant to an
exception in Sec. 573.14 or 573.15 in the ordinary course of business
to carry out the activity covered by the exception under which you
received the information.
(2) Example. If you receive a customer list from a nonaffiliated
financial institution in order to provide account processing services
under the exception in Sec. 573.14(a), you may disclose that
information under any exception in Sec. 573.14 or 573.15 in the
ordinary course of business in order to provide those services. For
example, you could disclose the information in response to a properly
authorized subpoena or to your attorneys, accountants, and auditors.
You could not disclose that information to a third party for marketing
purposes or use that information for your own marketing purposes.
(b)(1) Information you receive outside of an exception. If you
receive nonpublic personal information from a nonaffiliated financial
institution other than under an exception in Sec. 573.14 or 573.15 of
this part, you may disclose the information only:
(i) To the affiliates of the financial institution from which you
received the information;
(ii) To your affiliates, but your affiliates may, in turn, disclose
the information only to the extent that you can disclose the
information; and
(iii) To any other person, if the disclosure would be lawful if
made directly to that person by the financial institution from which
you received the information.
(2) Example. If you obtain a customer list from a nonaffiliated
financial institution outside of the exceptions in Sec. 573.14 and
573.15:
(i) You may use that list for your own purposes; and
(ii) You may disclose that list to another nonaffiliated third
party only if the financial institution from which you purchased the
list could have lawfully disclosed the list to that third party. That
is, you may disclose the list in accordance with the privacy policy of
the financial institution from which you received the list, as limited
by the opt out direction of each consumer whose nonpublic personal
information you intend to disclose, and you may disclose the list in
accordance with an exception in Sec. 573.14 or 573.15, such as to your
attorneys or accountants.
(c) Information you disclose under an exception. If you disclose
nonpublic personal information to a nonaffiliated third party under an
exception in Sec. 573.14 or 573.15 of this part, the third party may
disclose and use that information only as follows:
(1) The third party may disclose the information to your
affiliates;
(2) The third party may disclose the information to its affiliates,
but its affiliates may, in turn, disclose and use the information only
to the extent that the third party may disclose and use the
information; and
(3) The third party may disclose and use the information pursuant
to an exception in Sec. 573.14 or 573.15 in the ordinary course of
business to carry out the activity covered by the exception under which
it received the information.
[[Page 35234]]
(d) Information you disclose outside of an exception. If you
disclose nonpublic personal information to a nonaffiliated third party
other than under an exception in Sec. 573.14 or 573.15 of this part,
the third party may disclose the information only:
(1) To your affiliates;
(2) To its affiliates, but its affiliates, in turn, may disclose
the information only to the extent the third party can disclose the
information; and
(3) To any other person, if the disclosure would be lawful if you
made it directly to that person.
Sec. 573.12 Limits on sharing account number information for marketing
purposes.
(a) General prohibition on disclosure of account numbers. You must
not, directly or through an affiliate, disclose, other than to a
consumer reporting agency, an account number or similar form of access
number or access code for a consumer's credit card account, deposit
account, or transaction account to any nonaffiliated third party for
use in telemarketing, direct mail marketing, or other marketing through
electronic mail to the consumer.
(b) Exceptions. Paragraph (a) of this section does not apply if you
disclose an account number or similar form of access number or access
code:
(1) To your agent or service provider solely in order to perform
marketing for your own products or services, as long as the agent or
service provider is not authorized to directly initiate charges to the
account; or
(2) To a participant in a private label credit card program or an
affinity or similar program where the participants in the program are
identified to the customer when the customer enters into the program.
(c) Examples--(1) Account number. An account number, or similar
form of access number or access code, does not include a number or code
in an encrypted form, as long as you do not provide the recipient with
a means to decode the number or code.
(2) Transaction account. A transaction account is an account other
than a deposit account or a credit card account. A transaction account
does not include an account to which third parties cannot initiate
charges.
Subpart C--Exceptions
Sec. 573.13 Exception to opt out requirements for service providers
and joint marketing.
(a) General rule. (1) The opt out requirements in Secs. 573.7 and
573.10 do not apply when you provide nonpublic personal information to
a nonaffiliated third party to perform services for you or functions on
your behalf, if you:
(i) Provide the initial notice in accordance with Sec. 573.4; and
(ii) Enter into a contractual agreement with the third party that
prohibits the third party from disclosing or using the information
other than to carry out the purposes for which you disclosed the
information, including use under an exception in Sec. 573.14 or 573.15
in the ordinary course of business to carry out those purposes.
(2) Example. If you disclose nonpublic personal information under
this section to a financial institution with which you perform joint
marketing, your contractual agreement with that institution meets the
requirements of paragraph (a)(1)(ii) of this section if it prohibits
the institution from disclosing or using the nonpublic personal
information except as necessary to carry out the joint marketing or
under an exception in Sec. 573.14 or 573.15 in the ordinary course of
business to carry out that joint marketing.
(b) Service may include joint marketing. The services a
nonaffiliated third party performs for you under paragraph (a) of this
section may include marketing of your own products or services or
marketing of financial products or services offered pursuant to joint
agreements between you and one or more financial institutions.
(c) Definition of joint agreement. For purposes of this section,
joint agreement means a written contract pursuant to which you and one
or more financial institutions jointly offer, endorse, or sponsor a
financial product or service.
Sec. 573.14 Exceptions to notice and opt out requirements for
processing and servicing transactions.
(a) Exceptions for processing transactions at consumer's request.
The requirements for initial notice in Sec. 573.4(a)(2), for the opt
out in Secs. 573.7 and 573.10, and for service providers and joint
marketing in Sec. 573.13 do not apply if you disclose nonpublic
personal information as necessary to effect, administer, or enforce a
transaction that a consumer requests or authorizes, or in connection
with:
(1) Servicing or processing a financial product or service that a
consumer requests or authorizes;
(2) Maintaining or servicing the consumer's account with you, or
with another entity as part of a private label credit card program or
other extension of credit on behalf of such entity; or
(3) A proposed or actual securitization, secondary market sale
(including sales of servicing rights), or similar transaction related
to a transaction of the consumer.
(b) Necessary to effect, administer, or enforce a transaction means
that the disclosure is:
(1) Required, or is one of the lawful or appropriate methods, to
enforce your rights or the rights of other persons engaged in carrying
out the financial transaction or providing the product or service; or
(2) Required, or is a usual, appropriate or acceptable method:
(i) To carry out the transaction or the product or service business
of which the transaction is a part, and record, service, or maintain
the consumer's account in the ordinary course of providing the
financial service or financial product;
(ii) To administer or service benefits or claims relating to the
transaction or the product or service business of which it is a part;
(iii) To provide a confirmation, statement, or other record of the
transaction, or information on the status or value of the financial
service or financial product to the consumer or the consumer's agent or
broker;
(iv) To accrue or recognize incentives or bonuses associated with
the transaction that are provided by you or any other party;
(v) To underwrite insurance at the consumer's request or for
reinsurance purposes, or for any of the following purposes as they
relate to a consumer's insurance: account administration, reporting,
investigating, or preventing fraud or material misrepresentation,
processing premium payments, processing insurance claims, administering
insurance benefits (including utilization review activities),
participating in research projects, or as otherwise required or
specifically permitted by Federal or State law;
(vi) In connection with:
(A) The authorization, settlement, billing, processing, clearing,
transferring, reconciling or collection of amounts charged, debited, or
otherwise paid using a debit, credit, or other payment card, check, or
account number, or by other payment means;
(B) The transfer of receivables, accounts, or interests therein; or
(C) The audit of debit, credit, or other payment information.
Sec. 573.15 Other exceptions to notice and opt out requirements.
(a) Exceptions to opt out requirements. The requirements for
initial notice in Sec. 573.4(a)(2), for the opt out in Secs. 573.7 and
573.10, and for service providers and joint marketing in Sec. 573.13 do
not apply when you disclose nonpublic personal information:
[[Page 35235]]
(1) With the consent or at the direction of the consumer, provided
that the consumer has not revoked the consent or direction;
(2)(i) To protect the confidentiality or security of your records
pertaining to the consumer, service, product, or transaction;
(ii) To protect against or prevent actual or potential fraud,
unauthorized transactions, claims, or other liability;
(iii) For required institutional risk control or for resolving
consumer disputes or inquiries;
(iv) To persons holding a legal or beneficial interest relating to
the consumer; or
(v) To persons acting in a fiduciary or representative capacity on
behalf of the consumer;
(3) To provide information to insurance rate advisory
organizations, guaranty funds or agencies, agencies that are rating
you, persons that are assessing your compliance with industry
standards, and your attorneys, accountants, and auditors;
(4) To the extent specifically permitted or required under other
provisions of law and in accordance with the Right to Financial Privacy
Act of 1978 (12 U.S.C. 3401 et seq.), to law enforcement agencies
(including a federal functional regulator, the Secretary of the
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records
and Reports on Monetary Instruments and Transactions) and 12 U.S.C.
Chapter 21 (Financial Recordkeeping), a State insurance authority, with
respect to any person domiciled in that insurance authority's State
that is engaged in providing insurance, and the Federal Trade
Commission), self-regulatory organizations, or for an investigation on
a matter related to public safety;
(5)(i) To a consumer reporting agency in accordance with the Fair
Credit Reporting Act (15 U.S.C. 1681 et seq.), or
(ii) From a consumer report reported by a consumer reporting
agency;
(6) In connection with a proposed or actual sale, merger, transfer,
or exchange of all or a portion of a business or operating unit if the
disclosure of nonpublic personal information concerns solely consumers
of such business or unit; or
(7)(i) To comply with Federal, State, or local laws, rules and
other applicable legal requirements;
(ii) To comply with a properly authorized civil, criminal, or
regulatory investigation, or subpoena or summons by Federal, State, or
local authorities; or
(iii) To respond to judicial process or government regulatory
authorities having jurisdiction over you for examination, compliance,
or other purposes as authorized by law.
(b) Examples of consent and revocation of consent. (1) A consumer
may specifically consent to your disclosure to a nonaffiliated
insurance company of the fact that the consumer has applied to you for
a mortgage so that the insurance company can offer homeowner's
insurance to the consumer.
(2) A consumer may revoke consent by subsequently exercising the
right to opt out of future disclosures of nonpublic personal
information as permitted under Sec. 573.7(f).
Subpart D--Relation to Other Laws; Effective Date
Sec. 573.16 Protection of Fair Credit Reporting Act.
Nothing in this part shall be construed to modify, limit, or
supersede the operation of the Fair Credit Reporting Act (15 U.S.C.
1681 et seq.), and no inference shall be drawn on the basis of the
provisions of this part regarding whether information is transaction or
experience information under section 603 of that Act.
Sec. 573.17 Relation to State laws.
(a) In general. This part shall not be construed as superseding,
altering, or affecting any statute, regulation, order, or
interpretation in effect in any State, except to the extent that such
State statute, regulation, order, or interpretation is inconsistent
with the provisions of this part, and then only to the extent of the
inconsistency.
(b) Greater protection under State law. For purposes of this
section, a State statute, regulation, order, or interpretation is not
inconsistent with the provisions of this part if the protection such
statute, regulation, order, or interpretation affords any consumer is
greater than the protection provided under this part, as determined by
the Federal Trade Commission, after consultation with the OTS, on the
Federal Trade Commission's own motion, or upon the petition of any
interested party.
Sec. 573.18 Effective date; transition rule.
(a) Effective date. This part is effective November 13, 2000. In
order to provide sufficient time for you to establish policies and
systems to comply with the requirements of this part, the OTS has
extended the time for compliance with this part until July 1, 2001.
(b)(1) Notice requirement for consumers who are your customers on
the compliance date. By July 1, 2001, you must have provided an initial
notice, as required by Sec. 573.4, to consumers who are your customers
on July 1, 2001.
(2) Example. You provide an initial notice to consumers who are
your customers on July 1, 2001, if, by that date, you have established
a system for providing an initial notice to all new customers and have
mailed the initial notice to all your existing customers.
(c) Two-year grandfathering of service agreements. Until July 1,
2002, a contract that you have entered into with a nonaffiliated third
party to perform services for you or functions on your behalf satisfies
the provisions of Sec. 573.13(a)(1)(ii) of this part, even if the
contract does not include a requirement that the third party maintain
the confidentiality of nonpublic personal information, as long as you
entered into the contract on or before July 1, 2000.
Appendix A to Part 573--Sample Clauses
Financial institutions, including a group of financial holding
company affiliates that use a common privacy notice, may use the
following sample clauses, if the clause is accurate for each
institution that uses the notice. (Note that disclosure of certain
information, such as assets, income, and information from a consumer
reporting agency, may give rise to obligations under the Fair Credit
Reporting Act, such as a requirement to permit a consumer to opt out
of disclosures to affiliates or designation as a consumer reporting
agency if disclosures are made to nonaffiliated third parties.)
A-1--Categories of information you collect (all institutions)
You may use this clause, as applicable, to meet the requirement
of Sec. 573.6(a)(1) to describe the categories of nonpublic personal
information you collect.
Sample Clause A-1:
We collect nonpublic personal information about you from the
following sources:
Information we receive from you on applications or
other forms;
Information about your transactions with us, our
affiliates, or others; and
Information we receive from a consumer reporting
agency.
A-2--Categories of information you disclose (institutions that disclose
outside of the exceptions)
You may use one of these clauses, as applicable, to meet the
requirement of Sec. 573.6(a)(2) to describe the categories of
nonpublic personal information you disclose. You may use these
clauses if you disclose nonpublic personal information other than as
permitted by the exceptions in Secs. 573.13, 573.14, and 573.15.
Sample Clause A-2, Alternative 1:
We may disclose the following kinds of nonpublic personal
information about you:
Information we receive from you on applications or
other forms, such as [provide illustrative examples, such as ``your
name,
[[Page 35236]]
address, social security number, assets, and income''];
Information about your transactions with us, our
affiliates, or others, such as [provide illustrative examples, such
as ``your account balance, payment history, parties to transactions,
and credit card usage'']; and
Information we receive from a consumer reporting
agency, such as [provide illustrative examples, such as ``your
creditworthiness and credit history''].
Sample Clause A-2, Alternative 2:
We may disclose all of the information that we collect, as
described [describe location in the notice, such as ``above'' or
``below''].
A-3--Categories of information you disclose and parties to whom you
disclose (institutions that do not disclose outside of the exceptions)
You may use this clause, as applicable, to meet the requirements
of Secs. 573.6(a)(2), (3), and (4) to describe the categories of
nonpublic personal information about customers and former customers
that you disclose and the categories of affiliates and nonaffiliated
third parties to whom you disclose. You may use this clause if you
do not disclose nonpublic personal information to any party, other
than as permitted by the exceptions in Secs. 573.14, and 573.15.
Sample Clause A-3:
We do not disclose any nonpublic personal information about our
customers or former customers to anyone, except as permitted by law.
A-4--Categories of parties to whom you disclose (institutions that
disclose outside of the exceptions)
You may use this clause, as applicable, to meet the requirement
of Sec. 573.6(a)(3) to describe the categories of affiliates and
nonaffiliated third parties to whom you disclose nonpublic personal
information. You may use this clause if you disclose nonpublic
personal information other than as permitted by the exceptions in
Secs. 573.13, 573.14, and 573.15, as well as when permitted by the
exceptions in Secs. 573.14, and 573.15.
Sample Clause A-4:
We may disclose nonpublic personal information about you to the
following types of third parties:
Financial service providers, such as [provide
illustrative examples, such as ``mortgage bankers, securities
broker-dealers, and insurance agents''];
Non-financial companies, such as [provide illustrative
examples, such as ``retailers, direct marketers, airlines, and
publishers'']; and
Others, such as [provide illustrative examples, such as
``non-profit organizations;''].
We may also disclose nonpublic personal information about you to
nonaffiliated third parties as permitted by law.
A-5--Service provider/joint marketing exception
You may use one of these clauses, as applicable, to meet the
requirements of Sec. 573.6(a)(5) related to the exception for
service providers and joint marketers in Sec. 573.13. If you
disclose nonpublic personal information under this exception, you
must describe the categories of nonpublic personal information you
disclose and the categories of third parties with whom you have
contracted.
Sample Clause A-5, Alternative 1:
We may disclose the following information to companies that
perform marketing services on our behalf or to other financial
institutions with whom we have joint marketing agreements:
Information we receive from you on applications or
other forms, such as [provide illustrative examples, such as ``your
name, address, social security number, assets, and income''];
Information about your transactions with us, our
affiliates, or others, such as [provide illustrative examples, such
as ``your account balance, payment history, parties to transactions,
and credit card usage'']; and
Information we receive from a consumer reporting
agency, such as [provide illustrative examples, such as ``your
creditworthiness and credit history''].
Sample Clause A-5, Alternative 2:
We may disclose all of the information we collect, as described
[describe location in the notice, such as ``above'' or ``below''] to
companies that perform marketing services on our behalf or to other
financial institutions with whom we have joint marketing agreements.
A-6--Explanation of opt out right (institutions that disclose outside
of the exceptions)
You may use this clause, as applicable, to meet the requirement
of Sec. 573.6(a)(6) to provide an explanation of the consumer's
right to opt out of the disclosure of nonpublic personal information
to nonaffiliated third parties, including the method(s) by which the
consumer may exercise that right. You may use this clause if you
disclose nonpublic personal information other than as permitted by
the exceptions in Secs. 573.13, 573.14, and 573.15.
Sample Clause A-6:
If you prefer that we not disclose nonpublic personal
information about you to nonaffiliated third parties, you may opt
out of those disclosures, that is, you may direct us not to make
those disclosures (other than disclosures permitted by law). If you
wish to opt out of disclosures to nonaffiliated third parties, you
may [describe a reasonable means of opting out, such as ``call the
following toll-free number: (insert number)''].
A-7--Confidentiality and security (all institutions)
You may use this clause, as applicable, to meet the requirement
of Sec. 573.6(a)(8) to describe your policies and practices with
respect to protecting the confidentiality and security of nonpublic
personal information.
Sample Clause A-7:
We restrict access to nonpublic personal information about you
to [provide an appropriate description, such as ``those employees
who need to know that information to provide products or services to
you'']. We maintain physical, electronic, and procedural safeguards
that comply with federal standards to guard your nonpublic personal
information.
Dated: May 10, 2000.
By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 00-13124 Filed 5-31-00; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P
