WELLS
FARGO
August 16, 2004
Office of the Comptroller of the Currency
250 E Street, S.W., Mail Stop 1-5
Washington, DC 20219
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22341-3428
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Attention: No. 2004-31
Re: Fair Credit Reporting Affiliate Marketing Regulations
Ladies and Gentlemen:
Wells Fargo & Company ("Well Fargo") appreciates the
opportunity to comment on the notice of proposed rulemaking (the "Proposed
Rule") issued by the above-named agencies (the "Agencies")
with respect to the affiliate marketing regulations implementing
Section 214 of the Fair and Accurate Credit Transactions Act of 2003.
Wells Fargo is one of the country's leading integrated financial
services organizations. Wells Fargo includes a national bank with
branches in 23 states, a consumer finance company, insurance agencies
and brokerages, and securities broker-dealers and investment advisors.
Background
The FCRA expressly
permits the sharing of information between and among affiliated
entities.
For example, the FCRA permits financial
institutions to share transaction or experience information between
affiliated entities without limitation. The FCRA also permits financial
institutions to share information that otherwise would be considered
a consumer report with their affiliates if their customers are provided
notice and an opportunity to opt out before this information is shared.
Section 624 of the FCRA, as added by section 214 of the FACT Act,
however, limits the ability of financial institutions to use certain
information obtained from an affiliate for marketing purposes. Specifically,
section 624(a)(1) of the FCRA states that “[a]ny person that
receives from another person related to it by common ownership or
affiliated by corporate control a communication of information that
would be a consumer report, but for [the exceptions in] section 603(d)(2)(A),
may not use the information to make a solicitation for marketing
purposes to a consumer about its products or services, unless” the
consumer is provided notice and an opportunity to opt out, and the
consumer does not opt out.
Section 214(b)
of the FACT Act requires the Agencies, the Federal Trade Commission
(“FTC”) and the Securities and Exchange
Commission, with respect to the entities subject to their respective
FCRA enforcement authority, to “prescribe [consistent and comparable]
regulations to implement section 624 of the” FCRA. Although
the Proposed Rule would implement section 624 of the FCRA, certain
requirements of the Proposed Rule differ in nature and structure
from the requirements of section 624 of the FCRA, as well as the
privacy provisions of the Gramm-Leach-Bliley Act (“GLBA”),
and raise questions as to the scope and operation of the affiliate
marketing requirements in section 624. In sum, the new and unique
provisions introduced in the Proposed Rule have no statutory basis
in the FCRA or the FACT Act.
For instance,
the Agencies have raised questions about the ability of an entity
to market
to its own customers products or services
of its affiliates. Wells Fargo believes that such restrictions are
inconsistent with the plain language of the FACT Act and its intent.
In addition, we suggest that the final rule follow the statute by
making clear that the entity with the obligation to provide the required
opt-out notice is the affiliate that receives and wishes to use information
from its affiliates, while providing that entity with sufficient
flexibility to have that notice sent by another affiliate and/or
combined with notification sent on behalf of multiple affiliates.
Other comments address a variety of additional issues, including
the proposed exceptions, grandfathering of certain eligibility information,
consent by customers who have perviously opted out or during the
opt out “waiting period,” and the form, use and timing
of the opt-out notice. Finally, Wells Fargo suggests that the Agencies
provide additional time for mandatory compliance with the final rule.
The final rule also should make it clear, as clearly intended by
the statute, that an institution may incorporate the new FCRA opt-out
notice into its GLBA privacy notice by allowing the new FCRA opt-out
notice to be provided at the time of its next regularly scheduled
GLBA notice.
The Final Rule Should Not Address Constructive Sharing
The Agencies
specifically request comment on whether the Proposed Rule should
apply “if affiliated companies seek to avoid providing
notice and opt-out by engaging in the ‘constructive sharing’ of
eligibility information to conduct marketing.” As described
by the Agencies, constructive sharing occurs when a financial institution
uses its own information to make marketing solicitations to its own
customers concerning an affiliate’s products or services, and
the customers’ responses provide the affiliate with discernible
eligibility information about these customers. The term constructive
sharing is not used in section 624 or any other provision of the
FCRA or the FACT Act. However, the very structure of section 624
was designed to encourage financial institutions within the holding
company structure to conduct marketing through an affiliate that
has a pre-existing business relationship with its customers. Specifically,
the pre-existing business relationship exception, as contrasted with
the notice requirements imposed by section 624 on the use of eligibility
information to market consumers with whom a financial institution
does not have a pre-existing business relationship, creates an incentive
to conduct marketing in holding companies through financial institutions
with existing customer relationships.
The Supplementary
Information to the Proposed Rule (“Supplementary
Information”) presents the following, hypothetical example
of constructive sharing: An insurance company provides an affiliated
bank with specific eligibility criteria for the purpose of having
the bank make solicitations on behalf of the insurance company to
bank customers who meet those criteria; in addition, a consumer’s
response provides the insurance company with discernible eligibility
information, such as a response form that is coded to identify the
consumer as meeting the eligibility criteria. As discussed in further
detail below, section 624 does not apply to this hypothetical example
for several important reasons. Most importantly, the bank making
the solicitation has a pre-existing business relationship with its
customers and, thus, may make these marketing solicitations based
on its information or information received from an affiliate or other
third party. Similarly, if a bank customer responds to a solicitation
directly to the insurance company, the insurance company also would
then have a pre-existing business relationship with the bank customer
due to the consumer’s inquiry, and since the insurance company
can then use all available affiliate information in marketing to
that customer, the receipt of information through the customer simply
cannot trigger the section 624 notice requirement. In addition, section
624 does not apply to the Agencies’ hypothetical example because
the bank would not use eligibility information received from an affiliate
in order to make solicitations, but only would use its own information
to make the solicitations.
Section 624 Does Not Apply to Constructive Sharing
Section 624 does not limit the sharing of information. Section 624
addresses only the use of information after it has been shared and
not the sharing of information itself. In effect, section 624, like
the FTC Telemarketing Sales Rule, gives consumers the ability to
opt out of certain marketing practices. Specifically, section 624
gives consumers the ability to opt out of the use of information
that Congress deemed sensitive for direct marketing when conducted
by affiliated companies. As such, the focus and terms of section
624 are much different than the focus of general privacy legislation,
such as the privacy provisions of title V of the GLBA that restrict
the disclosure, as opposed to the use, of information.
Section 624 of the FCRA applies only if five conditions are met:
(1) An entity has received information from an affiliate;
(2) this information would be a consumer report if the exceptions
to the definition of consumer report in the FCRA for transaction
and experience information and other information shared with affiliates
did not apply;
(3) the entity uses this information to make marketing solicitations
to consumers;
(4) the marketing solicitations are for the products or services
of the entity receiving the information and making the solicitations;
and
(5) no exception under section 624 applies.
If any one of these five conditions is not met, section 624 does
not require notice and opt out before an entity may make a marketing
solicitation to a consumer based on eligibility information received
from an affiliate.
The plain language
of section 624 of the FCRA does not prohibit an entity from using
its own information to solicit its own customers
for the products or services of any third party, including an affiliate,
regardless of which entity establishes the marketing criteria. Section
624 applies only when an entity uses eligibility information received
from an affiliate to make a marketing solicitation to a consumer.
If an entity uses its own information to market an affiliate’s
products or services, the entity has not used eligibility information
received from an affiliate, and section 624 does not apply. As a
result, the entity may make a solicitation to a consumer without
the consumer receiving notice and an opportunity to opt out.
In constructive
sharing, the entity making the solicitation does not receive eligibility
information from an affiliate, and the entity
on whose behalf the solicitation is made only receives information
from a consumer’s response after the solicitation has been
made. Therefore, section 624 does not apply. Any other conclusion
would mean that an entity could use eligibility information to market
a non-affiliate’s products and services to its own customers,
but could not market the products or services of its affiliates to
those same customers without triggering the section 624 notice requirement.
The pre-existing business relationship exception was intended to
avoid this obviously illogical result.
Constructive Sharing is Covered by Section 624 Exceptions
Even if one were
totally to disregard the required conditions discussed above, section
624
of the FCRA still would not apply to “constructive
sharing” because one or more exceptions would apply. Section
624 expressly excludes from the notice and opt-out requirement any
person who uses information to make marketing solicitations “to
a consumer with whom the person has a pre-existing business relationship.” The
pre-existing business relationship exception is not limited to the
institution’s own products or services. Therefore, the notice
and opt-out requirement does not apply when an entity is making marketing
solicitations for an affiliate’s products or services to its
own customers because the entity has a pre-existing business relationship
with its customers. In constructive sharing, the pre-existing business
relationship exception applies because an entity makes solicitations
to its own customers with whom the entity has a pre-existing business
relationship. Furthermore, when the affiliate on whose behalf the
solicitations are made receives an application or inquiry from the
consumer, which includes the consumer’s response to the solicitation
that leads to the so-called constructive sharing, that affiliate
would be able to receive and use discernable information from affiliated
companies in order to respond to the communication because the affiliate
would then have a pre-existing business relationship with the consumer
as a result of the consumer’s inquiry.
As a result of
the pre-existing business relationship exception, the section 624
notice and opt-out
requirement cannot apply to an
entity that makes marketing solicitations to its own customers. Indeed,
the literal language of the pre-existing business relationship exception
goes well beyond constructive sharing. For example, if a financial
institution obtains a list of an affiliate’s customers from
a common, shared datWells Fargose and applies its own criteria to
this list, and then requests an affiliate with an existing business
relationship to solicit its own customers for the financial institution’s
products on its behalf, section 624 should not apply, as long as
the affiliate determines on its own whether or not to send the solicitations.
In these circumstances, because the affiliate making the ultimate
decision on whether to make the solicitation has a pre-existing business
relationship with the consumer, section 624 does not apply. In this
regard, the affiliate with the customer relationship that makes the
decision whether or not to send the marketing solicitations still
has a strong incentive to maintain that customer relationship and
would take care not to harm that relationship by over aggressively
marketing the products or services of its affiliates.
In addition,
as discussed below, the limitation in the servicing exception does
not prohibit
the affiliate from making solicitations
on behalf of the financial institution, even though the financial
institution could not make those solicitations on its own behalf.
The servicing exception in section 624(a)(4)(C) states that “this
subparagraph shall not be construed” to permit an entity to
make a solicitation on behalf of an affiliate that could not otherwise
provide the solicitation on its own behalf. Clearly, this limitation
is limited to the servicing exception only. The exceptions in section
624 are listed in the disjunctive and, as a result, if any exception
applies, section 624 and its notice and opt-out requirement does
not apply. In no way does the limitation in the servicing exception
limit the application of the pre-existing business relationship exception.
The Policy Behind Section 624 Does Not Support Limiting Constructive
Sharing
Not only does
the plain language of section 624 of the FCRA not apply, but also
the policy
and purpose behind section 624 does not
support applying the notice and opt-out requirement to constructive
sharing. The use of eligibility information by an entity to market
an affiliate’s products to its own customers does not raise
the same concerns as an affiliate using the same information to market
another entity’s customers. An entity that makes marketing
solicitations to its own customers has a strong incentive to maintain
those customer relationships and will take care not to jeopardize
those relationships by over aggressively marketing its products or
services. A recent study by the Secretary of the Treasury Department
highlighted this point in its key findings. The study noted that “[m]ost
businesses have a powerful market interest in not annoying their
customers with unwanted solicitations, particularly businesses that
value customer loyalty.” An affiliate without a current customer
relationship may see less to lose through aggressive marketing practices.
The scheme of section 624 that limits the marketing practices of
an affiliate without a customer relationship, but does not limit
the marketing practices of the institution with a customer relationship,
is based on this important distinction. Whether the notice and opt-out
requirement applies depends on who markets the product not what the
product is or whose product it is. Solicitations for the same product
are treated differently depending on who makes those solicitations.
Constructive Sharing is Beyond the Scope of Section 624 Rulemaking
Section 214(b)(1)
of the FACT Act requires the Agencies to “prescribe
regulations to implement section 624 of the” FCRA. The Agencies
are authorized and directed to write rules to implement the notice
and opt-out requirement. If the Agencies prescribe rules to limit
conduct that is not addressed by section 624, such as by limiting
the ability of an entity to market its affiliate’s products
or services to its own customers, those rules should not be viewed
as implementing section 624 unless the language of section 624 was
ambiguous. As discussed above, the language of section 624 is plain
and not ambiguous. As a result, if the final rule covers constructive
sharing, that rule should not be viewed as implementing section 624.
Wells Fargo believes that section 624 does not authorize the Agencies
to address constructive sharing.
The Final Rule Should Not Impose Responsibilities on a Financial
Institution that Shares Eligibility Information with an Affiliate
The Proposed
Rule would impose responsibilities on a financial institution that
shares
consumer report and certain transaction and experience
information (referred to in the Proposed Rule as “eligibility
information”) with an affiliate. Specifically, proposed section
___.20(a) would require that if a financial institution communicates
eligibility information to an affiliate, the affiliate may not use
this information to make or send solicitations to consumers, unless
first the financial institution provides the consumers notice and
an opportunity to opt out, and the consumers do not opt out.
Wells Fargo believes
that the final rule should not impose such a notice obligation
on the
financial institution that shares eligibility
information with another affiliate. Section 624 of the FCRA does
not establish a general restriction on the sharing of information
with or among affiliates. Instead, section 624 only provides that
an affiliate that receives eligibility information may not use this
information to make marketing solicitations, absent an applicable
exception, unless first the consumer is given notice and an opportunity
to opt out. Specifically, section 624(a)(1) states that “[a]ny
person that receives [eligibility information from an affiliate]
may not use the information to make a solicitation for marketing
purposes.” The Agencies acknowledge this exact point in the
Supplementary Information. The Supplementary Information states that “[s]ection
624 governs the use of information by an affiliate, not the sharing of information with or among affiliates.” In addition, the
Supplementary Information states that section 624 “is drafted
as a prohibition on the affiliate that receives [eligibility] information
from using such information to send solicitations, rather than as
an affirmative duty imposed on the affiliate that sends or communicates
that information.” Although the Agencies emphasize this point
in the Supplementary Information, the Proposed Rule nonetheless would
impose an affirmative duty to provide an opt-out notice on a financial
institution that shares eligibility information. While affiliated
companies may well decide among themselves that it is most efficient
to have the affiliate that shares the information also provide the
notice, there simply is no basis whatsoever in the statute to obligate
that affiliate to do so.
Significantly, section 624 of the FCRA is covered by the FCRA private
right of action provisions in sections 616 and 617. Under the Proposed
Rule, a financial institution that shares eligibility information
with an affiliate could be liable to a consumer if its affiliate
uses this information to make a solicitation to the consumer and
the financial institution first did not provide the consumer notice
and an opportunity to opt out. By drafting the Proposed Rule as a
prohibition on making certain solicitations unless the financial
institution that shares the eligibility information provides an opt
out notice, the Agencies would create a basis for civil liability
against the sharing institution under section 624.
As a result, under the Proposed Rule, a financial institution seeking
to avoid exposure to civil liability would be required to pursue
one of several courses of action before sharing eligibility information:
require the affiliate to commit that it will not use the information
for marketing purposes unless it provides the notice; always provide
the notice before sharing eligibility information with an affiliate;
or never share eligibility information. In many cases, none of these
solutions is practical. Financial services holding companies typically
have shared customer information databases that can be accessed by
each affiliate, and nothing in section 624 restricts their continued
ability to maintain such datWells Fargoses. Even if the financial
institution contracted with its affiliates concerning the use of
eligibility information, the financial institution nonetheless may
be exposed to potential liability for negligent noncompliance if
the affiliate used the information to make a solicitation to a consumer
who had not received notice and an opportunity to opt out.
The only practical way to address the affiliate marketing limitation
is by placing the sole duty to comply with section 624 on the affiliate
using the information, as reflected in the statute itself. Moreover,
because section 624 does not limit the ability of financial institutions
to share eligibility information with affiliates, by imposing duties
on financial institutions that share eligibility information, the
Proposed Rule goes beyond the requirements of section 624 and unnecessarily
would expose financial institutions to civil liability. The Proposed
Rule is not consistent with the statutory language of, or the legislative
intent behind, section 624. Wells Fargo believes that the final rule
should not impose new duties on entities that share eligibility information
with affiliates, as long as this sharing is permitted by section
603.
The Final Rule Should Not Require a Specific Entity to Provide the
Notice
Wells Fargo also believes that the final rule should not require
a specific entity to provide the notice, but only should require
that the consumer receive a notice before an affiliate may make a
solicitation to the consumer based on eligibility information received
from another affiliate.
In this regard, the FCRA specifically contemplates that the affiliate
receiving and using eligibility information to make marketing solicitations
to consumers could provide the notice. Section 624(b) of the FCRA
states that:
A notice or other disclosure under this section may be coordinated
and consolidated with any other notice required to be issued under
any other provision of law by a person who is subject to
this section,
and a notice or other disclosure that is equivalent to the notice
. . . and that is provided by a person described in subsection
(a) to a consumer together with disclosures required by any other provision
of law, shall satisfy the requirements of subsection (a).
As a result, the Proposed Rule contradicts this plain, unambiguous
language. The Agencies correctly point out in the Supplementary Information
that the FCRA does not specify which entity must provide the opt-out
notice. This lack of specification of the party who must provide
the notice, however, has no effect on the clear language of section
624(b) that the affiliate using eligibility information received
from an affiliate to make a marketing solicitation may provide the
notice.
The Agencies
state that the FCRA and the FACT Act suggest that the notice should
be provided
by the entity that communicates the eligibility
information. Specifically, the Agencies state that section 624(a)(1)(A)
requires that the notice disclose to the consumer that “information
may be communicated” among affiliates for the purpose of making
solicitations, which the Agencies conclude suggests that the entity
communicating the eligibility information must provide the notice.
This statement, however, simply informs the consumer that an entity
may make solicitations to the consumer based on information that
it receives from an affiliate. Section 624 only provides that the
consumer may opt out of the marketing use, and not the sharing, of
eligibility information.
The Agencies also note that section 214(b)(3) of the FACT Act requires
the Agencies to consider existing affiliate sharing notification
practices and provide for coordinated and consolidated notices. This
provision does not imply that the entity sharing eligibility information
with an affiliate must provide the notice. Congress only sought to
ensure that the notice requirement would be consistent with existing
disclosure practices and could be coordinated with other disclosures
required by law. Requiring that the notice is provided before eligibility
information received from an affiliate may be used to make a solicitation
is fully consistent with coordination and consolidation with other
notices, because it leaves that coordination to the institution or
institutions providing the notices.
Wells Fargo believes
that the final rule should not require any specific entity to provide
the opt-out notice, but should only require
that the consumer receive an opt-out notice that covers an affiliate’s
use of eligibility information for marketing purposes before a solicitation
is made to the consumer. This approach would promote flexibility
by allowing any affiliate to provide the notice. In addition, an
affiliate may receive eligibility information without intending,
or before deciding, to use this information to make solicitations.
Allowing the entity that uses eligibility information to provide
the notice would not require a determination to be made at the time
the information is shared, or placed into a centralized database,
whether later it will be used to make a solicitation. In addition,
an entity that later decides to use this information for marketing
would not be required to contact the affiliate that shared the information
to have that affiliate provide the notice. Most importantly, allowing
the entity that uses eligibility information received from an affiliate
to provide the notice would be consistent with the plain language
of section 624(b) of the FCRA.
Exceptions to the Section 624 Notice and Opt-Out Requirement
Proposed section ___.20(c) would list several exceptions to the
notice and opt-out requirement that generally track the statutory
exceptions in section 624(a)(4) of the FCRA. These proposed exceptions
would provide that the notice and opt-out requirement does not apply
when an entity uses eligibility information received from an affiliate:
(1) to make or send solicitations to consumers with whom the entity
has a pre-existing business relationship; (2) to perform services
on behalf of an affiliate; (3) to respond to a communication initiated
by a consumer; and (4) to respond to an affirmative authorization
or request by the consumer. Importantly, these proposed exceptions
are listed in the disjunctive in both section 624 and the Proposed
Rule. Nevertheless, Wells Fargo believes that the Agencies should
state specifically that if any one exception applies that section
624 and the final rule does not apply.
Pre-Existing Business Relationship Exception
Proposed section
___.20(c)(1) would provide an exception for a person that makes
or sends a solicitation
to a consumer with whom the person
has a pre-existing business relationship. Proposed section ___.3(m)
would define a “pre-existing business relationship” as
a relationship between a consumer and a person that is based on one
of three factors. First, a relationship based on a financial contract
between the parties that is in force on the date that a solicitation
is made or sent to the consumer would qualify as a pre-existing business
relationship. Wells Fargo believes that the Agencies should clarify
that a “financial contract” includes any in-force contract
relating to a financial product or service covered by title V of
the GLBA.
Second, a relationship
based on a consumer’s purchase, rental
or lease of the person’s products or services, or a financial
transaction with the person (including holding an active account
or an in-force policy) during the 18 months preceding the date that
a solicitation is made or sent to the consumer would qualify as a
pre-existing business relationship. Although the Agencies provide
an example of an insurance policy in the Proposed Rule, it is not
clear at what point the 18-month time period begins with respect
to other transactions. Wells Fargo believes that the Agencies should
clarify that the 18-month period begins at the time that all contractual
responsibilities expire. In addition, it is not clear what constitutes
an “active” account that would qualify as a pre-existing
business relationship. Any account with outstanding contractual responsibilities
on either side of an account relationship should be considered to
be an active account, regardless of whether individual transactions
occur or do not occur under the account.
Third, a relationship
based on a consumer’s inquiry or application
regarding the person’s products or services during the three
months preceding the date on which a solicitation is made or sent
to the consumer would qualify as a pre-existing business relationship.
The Agencies state in the Supplementary Information that with respect
to consumer inquiries, the FCRA definition is similar to the “established
business relationship” under the amended FTC Telemarketing
Sales Rule, which the Agencies believe “suggests that it would
be appropriate to consider the reasonable expectations of the consumer
in determining the scope of this exception.” As a result, the
Agencies conclude that “an inquiry includes any affirmative
request by a consumer for information, such that the consumer would
reasonably expect to receive information from the affiliate about
its products or services.” Additionally, the Agencies state
in the Supplementary Information that “[a] consumer would not
reasonably expect to receive information from the affiliate if the
consumer does not request information or does not provide contact
information to the affiliate.”
Wells Fargo believes
that this “expectation” standard
requires a financial institution receiving an inquiry to hypothesize
the consumer’s state of mind. Further, in the Supplementary
Information the Agencies state that in order for a consumer’s
inquiry to result in a pre-existing business relationship, the consumer
must both request information and provide contact information. In
practice, either of these actions should be sufficient to evidence
the consumer’s expectation that he or she will receive a solicitation.
In addition, these terms suggest that specific language must be used
for an inquiry to lead to a pre-existing business relationship.
As proposed by the Agencies, the expectation standard would severely
limit the inquiries and applications that would establish a pre-existing
business relationship. Section 624(d)(1)(C) of the FCRA contains
no such limitation on the types of inquiries or applications that
would comprise a pre-existing business relationship. Under section
624(d)(1)(C), if a consumer has made any inquiry or application within
the preceding three months, the pre-existing business relationship
exception applies. For example, if a consumer inquires to an entity
concerning reasonably identifiable products or services or indicates
interest in products, the affiliate that offers those types of products
or services should be considered to have a pre-existing business
relationship with the consumer.
Proposed section
___.20(d)(1) would provide examples of situations that would qualify
and would
not qualify as pre-existing business
relationships. Proposed section ___.20(d)(1)(iii) states, for example,
that if a consumer inquires about an affiliate’s products or
services and provides contact information for receipt of this information,
the affiliate can use eligibility information to make the consumer
a solicitation within three months. Although providing contact information
may indicate that a consumer reasonably expects to receive solicitations,
as noted above, this exception should not hinge on providing contact
information or on the consumer’s expectation. For example,
in the context of an e-mail request, the contact information may
be self-evident and the consumer may view it as unnecessary to provide
that information a second time. Similarly, the return address on
an envelope or the captured telephone number of a consumer requesting
information about products or services should be sufficient even
if the consumer neglects to provide his or her address or telephone
number. Also, the consumer may simply believe that an affiliate will
have access to his or her contact information (as will often be the
case because of common customer databases) or that the financial
institution with which the consumer already has a relationship will
provide it to the affiliate.
Finally, the Agencies specifically request comment on whether there
are additional circumstances that should be included within the definition
of pre-existing business relationship. Wells Fargo believes that
the term pre-existing business relationship should be defined to
include relationships arising out of the ownership of servicing rights,
a participation interest in lending and other similar relationships.
Servicing Exception
Proposed section
___.20(c)(3) would provide an exception for a person that uses
eligibility information
to perform services on behalf of
an affiliate. Proposed section ___.20(c)(3) states that this exception
is not to be “construed as permitting a bank to make or send
solicitations on its behalf or on behalf of an affiliate if the bank
or the affiliate, as applicable, would not be permitted to make or
send the solicitation as a result of the election of the consumer
to opt out.” The servicing exception is a stand-alone exception
designed to clarify that any affiliate can provide marketing services
to another affiliate. When providing such services, the servicing
affiliate cannot use information if the affiliate that has requested
the services could not use that information without first providing
notice. Obviously, if another exception applies, this caveat to the
servicing exception has no application whatsoever. This, again, demonstrates
the importance of the Agencies clarifying that the limitation in
section 624(a)(4)(C) only applies to the servicing exception.
Consumer-Initiated Communications Exception
Proposed section
___.20(c)(4) would provide an exception for a person that uses
eligibility information “[i]n response to a communication
initiated by the consumer orally, electronically, or in writing.” The
Supplementary Information indicates that to be covered by the consumer-initiated
communication exception, “use of eligibility information must
be responsive to the communication initiated by the consumer.” The
Supplementary Information also states that if a consumer calls an
affiliate to ask about the affiliate’s products or services,
only “solicitations related to those products or services would
be responsive to the communication and thus permitted under the exception.” The
concept of “responsive” is subjective and encourages
a narrow reading of this exception. Consumers may not be familiar
with the various types of products or services that are available
and may rely on the financial institution to inform the consumer
about available options and to offer guidance concerning the products
or services that would best suit the consumer’s needs. In addition,
a consumer may not be familiar with which affiliate offers a specific
product or service. Moreover, a financial institution should not
be limited in its ability to use eligibility information obtained
from an affiliate to respond to a consumer who initiates a communication
with that financial institution because that communication constitutes
an inquiry which makes available an additional section 624 exception.
Moreover, the
Proposed Rule’s narrow concept of “responsiveness” contradicts
the clear legislative history behind the consumer-initiated communication
exception. The Senate bill, which went to the FACT Act Conference
Committee to be reconciled with the House bill, included a narrower
version of the consumer-initiated communication exception. Specifically,
this Senate bill stated that the notice and opt-out requirement did
not apply to a person “using information in direct response
to a communication initiated by the consumer in which the consumer
has requested information about a product or service.” This
language, however, did not emerge from the Conference Committee and,
as a result, was not included as part of the FACT Act as enacted.
As a result, section 624(a)(4)(D) of the FCRA, as added by section
214 of the FACT Act, states that the notice and opt-out requirement
does not apply to a person “using information in response to
a communication initiated by the consumer.” The fact that the
more restrictive language of the Senate bill was not agreed to in
the Conference Committee or included in the FACT Act as enacted demonstrates
clear congressional intent not to limit the consumer-initiated communication
exception in the manner proposed by the Agencies.
The Proposed
Rule would provide examples of the consumer-initiated communication
exception.
For example, proposed section ___.20(d)(2)(i)
indicates that if a consumer initiates a call to a securities affiliate
concerning its products or services and provides contact information,
the securities affiliate may use eligibility information from an
affiliate to make solicitations in response to the call. Requiring
that the consumer provide contact information suggests that the affiliate
could not directly respond to the consumer’s inquiry and make
a solicitation over the phone on the same call. Rather, the affiliate
would have to mail or e-mail a solicitation to the consumer. As in
the case of the pre-existing business relationship exception, nothing
in section 624 requires that a consumer’s communication include
the consumer’s contact information in order for the exception
to apply.
Proposed section
___.20(d)(2)(ii) would provide an additional example that if an
affiliate makes
an initial marketing call and leaves a
message for the consumer to call back, the consumer’s response
is a communication initiated by the affiliate and not the consumer.
Wells Fargo believes that a consumer’s call is a communication “initiated” by
the consumer, whether or not the consumer is responding to an affiliate’s
call or other communication, so long as the affiliate’s message
makes clear the purpose of the call. If an affiliate has left a message,
the consumer is in a position to decide whether they want to return
the call based on the product or service or the affiliate involved.
If a consumer does not wish to receive a solicitation, he or she
does not have to initiate a telephone call in response to the message.
Moreover, by making the responsive inquiry, the consumer has triggered
the pre-existing business relationship exception, and the requirements
of section 624 no longer apply.
Consumer Affirmative Authorization or Request Exception
Proposed section
___.20(c)(5) would provide an exception for a person that uses
eligibility information “[i]n response to an affirmative
authorization or request by the consumer orally, electronically,
or in writing to receive a solicitation.” This proposed exception
does not follow the statutory language. Section 624(a)(4)(E) of the
FCRA does not require the consumer’s authorization or request
to be “affirmative.” The Proposed Rule and the Supplementary
Information do not indicate how an authorization or request would
be “affirmative,” or the basis for adding this language,
except to say that a preselected check box does not satisfy this
requirement. Consumers are familiar with check boxes, and if a consumer
has the ability to “unselect” a pre-selected check box,
the exception should apply. More broadly, Wells Fargo believes that
the exception should not be limited arbitrarily. A request or authorization
can take many forms. Adding the requirement that a request or authorization
be affirmative will only create uncertainty and needlessly complicate
compliance.
The Agencies
should also make it clear that the authorization or request exception
of proposed
section __.20(c)(5) applies to consumers
who have previously opted out and during the thirty-day waiting periods
of proposed section __.22(b). An authorization or request under section
__.20(c)(5) is, in effect, a one-time “opt in” and should
be controlling with respect to the particular situation in which
it is given. Any other interprertation would result in the financial
institution being unable to fulfill customer requests.
In addition,
Wells Fargo believes that the Agencies should clarify that a consumer’s authorization or request does not have to
refer to a specific product or service or to a specific provider
of products or services in order for the exception to apply. As discussed
above, the exception should apply if the consumer’s authorization
or request concerns a type of product or service or a type of provider
of products or services.
Grandfathering of Certain Eligibility Information
Proposed section
___.20(e) would provide that the notice and opt-out requirement
does not
apply to the use of eligibility information
shared by an affiliate to make or send solicitations to consumers
if “such information was received by the” affiliate prior
to the mandatory compliance date. This proposed language differs
from the corresponding provision in section 624. Section 624(a)(5)
states that “the use of information to send a solicitation
to a consumer [is not prohibited] if such information was received
prior to the date on which persons are required to comply with regulations
implementing this section.” Section 624 does not limit the
information that is grandfathered to eligibility information received
by the affiliate that would use this information to make solicitations.
Wells Fargo believes that the final rule should grandfather information
that is received by any financial institution or other affiliate
in a holding company, regardless of whether it has been shared with
a specific affiliate or placed in a common customer database.
The
Final Rule Should Not Define “Clear and Conspicuous”
Proposed section
___.20(a)(i) would require a financial institution that shares
eligibility information
with an affiliate to provide
a consumer “a clear and conspicuous notice” that the
consumer’s information may be communicated to, and used by,
an affiliate to make marketing solicitations to the consumer. Proposed
section ___.3(c) would define “clear and conspicuous” as “reasonably
understandable and designed to call attention to the nature and significance
of the information presented.” Wells Fargo believes that the
Agencies should not define “clear and conspicuous” in
the final rule.
Wells Fargo believes
that the proposed definition of “clear
and conspicuous” would significantly increase the risk of civil
liability to financial institutions. As noted above, section 624
of the FCRA is covered by the private right of action provisions
in sections 616 and 617. Consequently, the proposed definition would
expose financial institutions to liability, even if the opt-out notice
is completely accurate and even if the consumer is not harmed. As
a result, the inclusion of such a definition would foster litigation
involving financial institutions without a corresponding benefit
to consumers. The perils of this approach, especially in instances
where civil liability applies, were more fully discussed in the many
comment letters to the FRB in response to its proposal to apply a
similar definition of clear and conspicuous to Regulations B, E,
M and Z. The resulting recognition of the problems with specifying
what it means for information to be “clear and conspicuous” led
the FRB to recently withdraw that proposal. Wells Fargo believes
that the FCRA affiliate marketing rulemaking is not the appropriate
forum to experiment further with defining “clear and conspicuous.”
The Final Rule Should Permit Oral Notices
In the Supplementary
Information, the Agencies indicate that proposed section ___.20(a),
which would
require the affiliate providing eligibility
information to provide the consumer notice, “contemplates that
the opt out notice will be provided to the consumer in writing or,
if the consumer agrees, electronically.” The Agencies specifically
request comment on whether there are circumstances in which it is
necessary and appropriate to allow an oral notice. Wells Fargo believes
that the final rule should permit oral notices. If an entity communicates
with a consumer in person, an exception does not apply and section
624 would require a notice to be provided in order to make solicitations
using eligibility information received from an affiliate, the entity
should be permitted to provide the consumer an oral notice so that
the entity can determine whether or not to offer the consumer a product
or service at that time. However, if the final rule only permits
the entity that shares the eligibility information to provide the
notice, the affiliate communicating in person with a consumer could
not use eligibility information on the consumer in offering the product
or service on that same call even if the consumer fully consents
to the affiliate doing so; instead, the affiliate would be required
to terminate the call, provide the notice in writing, and then later
call the consumer again. Congress could not possibly have intended
such a result.
The Final Rule Should Permit Financial Institutions to Allow the
Consumer to Opt Out at the Time of the Transaction
Proposed section
___.22(a) would provide that before an affiliate may use eligibility
information
received from a financial institution,
the financial institution “must provide the consumer with a
reasonable opportunity, following the delivery of the opt out notice,
to opt out.” For example, proposed section ___.22(b)(1) would
provide that a financial institution provides a consumer a reasonable
opportunity to opt out if the financial institution “mails
the opt out notice to a consumer and gives the consumer 30 days from
the date the [financial institution] mailed the notice to elect to
opt out by any reasonable means.” Proposed section ___.22(b)(3),
however, would permit a financial institution to provide a consumer
the opt-out notice at the time of an electronic transaction “and
request that the consumer decide, as a necessary part of proceeding
with the transaction, whether to opt out before completing the transaction.”
Wells Fargo believes
that the final rule should permit a financial institution to provide
the opt-out notice t the time of the transaction
and provide the consumer with the opportunity to decide whether to
opt out as a necessary step in proceeding with the transaction. Clearly,
the opt-out decision is no more important than the consumer’s
decision on the transaction itself, and there is no reason why the
consumer’s decision cannot be made at that time.
The Final Rule Should Extend the Compliance Date
The Supplementary
Information indicates that the mandatory compliance date will be
included in
the final rules. The Agencies specifically
request comment on whether the mandatory compliance date “should
be different from the effective date of the final regulations.” Section
214(b)(4)(B) of the FACT Act provides that the regulations will become
effective within six months after being issued in final form. Wells
Fargo believes that the final rule should provide at least an additional
three months for compliance for new accounts, i.e., financial institutions
would be given at least nine months to comply with the notice and
opt-out requirement after the rule is issued in final form. This
additional compliance time would assist financial institutions that
must make significant changes to programs, practices and procedures
in order to comply with the final rule. Financial institutions cannot
design comprehensive compliance programs before the rules are issued
in final form due to uncertainty surrounding the final language of
the rules. This problem is illustrated by the many issues raised
in this and other comment letters. Keep in mind, that it is not simply
a question of designing the notice based on existing programs and
practices. Financial institutions will have to reprogram their systems
and redesign their privacy notices before the notices may be sent.
In addition,
the compliance deadline should take into account annual GLBA privacy
notice obligations
of financial institutions, and allow
a gradual “roll-out” of the new FCRA opt-out notices
so that they may be incorporated into the GLBA notices and schedule.
Wells Fargo believes that many institutions will coordinate and consolidate
the affiliate marketing notice with their annual GLBA privacy notice.
Section 624 itself clearly contemplates such coordination. However,
as a practical matter, the transition dates in section 624 are inadequate.
Many GLBA notices are mailed after March of each year. Further, to
the extent that the Proposed Rule is finalized later than the September
date contemplated by the FACT Act, even more GLBA mailings for 2005
will have been provided. Accordingly, Wells Fargo believes that the
Agencies should allow those financial institutions that will consolidate
the affiliate marketing notice with the GLBA notice for existing
customers to begin to comply with the final rule at the time that
those institutions provide their next GLBA notice following the mandatory
compliance date or December 31, 2005, whichever is earlier. This “roll-out” would
allow many financial institutions to coordinate and consolidate the
affiliate marketing notice with their “next” GLBA privacy
notice, if the institutions so choose, consistent with the statutory
directive that the affiliate marketing notice be “coordinated
and consolidated with any other notice required to be issued under
any other provision of law.” In addition, this “roll-out” would
also benefit consumers who would receive both the affiliate marketing
notice and the GLBA privacy notice together and, therefore, could
make all of their privacy choices at the same time.
Exclusions
from the Definition of “Solicitation”
Proposed section
___.3(n)(1) would define a “solicitation” as
marketing initiated to a particular person that is “[b]ased
on eligibility information” received from an affiliate and “[i]ntended
to encourage the consumer to purchase” a product or service.
Nevertheless, proposed section ___.3(n)(2) would exclude from the
definition of “solicitation” “communications that
are directed at the general public and distributed without the use
of eligibility information.”
Wells Fargo supports
the Agencies’ determination that communications
that are directed at the general public should not be considered
solicitations. However, the Agencies also should clarify that all
communications that are directed at the general public do not qualify
as solicitations, whether or not these communications were developed
using eligibility information received from an affiliate. Section
624(d)(2) of the FCRA states that the term “solicitation” “does
not include communications that are directed at the general public.” The
FCRA does not limit or qualify which communications directed at the
general public are excluded. An entity should be permitted to use
information received from affiliates to develop communications directed
at the general public, including television ads. In addition, Wells
Fargo believes that the final rule should clarify that a marketing
solicitation that is distributed without the use of eligibility information
received from an affiliate does not constitute a solicitation.
The Final Rule Should Not Address Methods of Opt Out that are Not
Reasonable or Simple
Proposed section
___.23(b) would provide examples of methods of opting out that
are not reasonable
or simple. Because of the potential
for private litigation based on section 624, WELLS FARGO believes
that the final rule should not include these, or any other, examples
of methods of opting out that are not reasonable or simple. The examples
provided in proposed section ___.23(b), including requiring the consumer
to write a letter to the financial institution, find no basis in
section 624, which simply requires that the “the method provided
[for opting out must] be simple.” These examples are likely
to be used in litigation to argue that financial institutions are
not meeting this standard.
“Affiliate” Should
be Defined as Defined in GLBA
Proposed section
___.3(b) would define an “affiliate” as “any
person that is related by common ownership or common corporate control
with another person.” The Supplementary Information indicates
that this proposed definition “simplifies the various FCRA
and FACT Act formulations [of the term affiliate].” Wells Fargo
strongly supports the Agencies’ efforts to simplify this definition.
Wells Fargo believes that the most effective way to simplify this
definition will be to make it completely consistent with the definition
of the same term in the GLBA rules. The interrelationship between
the GLBA and the FCRA is difficult enough without having different
definitions of affiliate.
Online Opt Outs are Not Always Feasible
Proposed section
___.23(a)(3) would provide that a financial institution provides
a consumer
a reasonable and simple method for opting out
if the financial institution “[p]rovides an electronic means
to opt out, such as a form that can be electronically mailed or processed
at the bank’s Web site, if the consumer agrees to the electronic
delivery of information.” Conversely, proposed section ___.23(b)(3)
would provide that a financial institution does not provide a consumer
a reasonable and simple method for opting out if the financial institution “[r]equires
the consumer who agrees to receive the opt out notice in electronic
form only, such as by electronic mail or at the bank’s Web
site, to opt out solely by telephone or by paper mail.” The
Supplementary Information states that “a consumer who agrees
to receive the opt out notice in electronic form only . . . should
be allowed to opt out by the same or a substantially similar electronic
form.”
Wells Fargo believes
that a financial institution should be permitted to allow consumers
to opt out by elephone or by paper mail after
receipt of an electronic notice where it is technically necessary
to do so. In some instances, a financial institution may not technically
be able to permit consumers to opt out online. In these situations,
financial institutions should not be limited to delivering opt-out
notices by non-electronic means. The proposal to require electronic
opt outs for electronic notices arbitrarily discriminates against
the delivery of opt-out notices electronically; for example, financial
institutions providing opt-out notices by mail are not required to
receive reply forms by mail.
The
Final Rule Should Not Address “Sending” Solicitations
Throughout the
Proposed Rule, the Agencies refer to “making” or “sending” solicitations.
For instance, proposed section ___.20(b) would prohibit an affiliate
that receives eligibility information from using this information “to
make or send” solicitations to a consumer. Wells Fargo believes
that the Agencies should remove all references to “sending” solicitations
from the final rule. Section 624 of the FCRA only concerns the use
of eligibility information to “make” solicitations and
does not address “sending” solicitations. By referring
to sending solicitations, the Proposed Rule would appear to apply
the notice and opt-out requirement to servicers that send solicitations
on behalf of another entity. Although it is not clear what the Agencies
believes “send” refers to, reference to “send” would
be redundant if it only covered the same use as “make.” If “make” and “send” are
not synonymous, the Agencies would be regulating conduct that is
not addressed in section 624.
Wells Fargo is grateful for the opportunity to comment on the Proposed
Rule. If you have any questions regarding our comments, please contact
the undersigned at (415) 396-0940 or mccorkpl@wellsfargo.com.
Sincerely yours,
Peter L. McCorkell
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