Tag: data brokers

CFPB Takes Aim at Data Brokers in Proposed Rule Amending FCRA

On December 3, the CFPB announced a proposed rule to enhance oversight of data brokers that handle consumers’ sensitive personal and financial information. The proposed rule would amend Regulation V, which implements the Fair Credit Reporting Act (FCRA), to require data brokers to comply with credit bureau-style regulations under FCRA if they sell income data or certain other financial information on consumers, regardless of its end use.

Should this rule be finalized, the CFPB would be empowered to enforce the FCRA’s privacy protections and consumer safeguards in connection with data brokers who leverage emerging technologies that became prevalent after FCRA’s enactment.

What are some of the implications of the new rule?

  • Data Brokers are Now Considered CRAs. The proposed rule defines the circumstances under which companies handling consumer data would be considered CRAs by clarifying the definition of “consumer reports.” The rule specifies that data brokers selling any of four types of consumer information—credit history, credit score, debt payments, or income/financial tier data—would generally be considered to be selling a consumer report.
  • Assembling Information About Consumers Means You are a CRA. Under the rule, an entity is a CRA if it assembles or evaluates information about consumers, including by collecting, gathering, or retaining; assessing, verifying, validating; or contributing to or altering the content of such information. This view is in step with the Bureau’s recent Circular on AI-based background dossiers of employees. (See our prior discussion here.)
  • Header Information is Now a Consumer Report. Under the proposed rule, communications from consumer reporting agencies of certain personal identifiers that they collect—such as name, addresses, date of birth, Social Security numbers, and phone numbers—would be consumer reports. This would mean that consumer reporting agencies could only sell such information (typically referred to as “credit header” data) if the user had a permissible purpose under the FCRA.
  • Marketing is Not a Legitimate Business Need. The proposed rule emphasizes that marketing is not a “legitimate business need” under the FCRA. Accordingly, CRAs could not use consumer reports to decide for an advertiser which consumers should receive ads and would not be able to send ads to consumers on an advertiser’s behalf.
  • Enhanced Disclosure and Consent Requirements. Under the FCRA, consumers can give their consent to share data. Under the proposed rule, the Bureau clarified that consumers must be provided a clear and conspicuous disclosure stating how their consumer report will be used. It would also require data brokers to acknowledge a consumer’s right to revoke their consent. Finally, the proposed rule requires a new and separate consumer authorization for each product or service authorized by the consumer. The Bureau is focused on instances where a customer signs up for a specific product or service, such as credit monitoring, but then receives targeted marketing for a completely different product.

Comments on the rule must be received on or before March 3, 2025.

Putting It Into Practice: With the release of the rule so close to the end of Director Chopra’s term, it will be interesting to see what a new administration does with it. We expect a new CFPB director to scale back and rescind much of the informal regulatory guidance that was issued by the Biden administration. However, some aspects of the data broker rule have bipartisan support so we may see parts of it finalized in 2025.

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Copyright © 2024, Sheppard Mullin Richter & Hampton LLP.
For more on the CFPB, visit the NLR Financial Institutions Banking section

American Privacy Rights Act Advances with Significant Revisions

On May 23, 2024, the U.S. House Committee on Energy and Commerce Subcommittee on Data, Innovation, and Commerce approved a revised draft of the American Privacy Rights Act (“APRA”), which was released just 36 hours before the markup session. With the subcommittee’s approval, the APRA will now advance to full committee consideration. The revised draft includes several notable changes from the initial discussion draft, including:

  • New Section on COPPA 2.0 – the revised APRA draft includes the Children’s Online Privacy Protection Act (COPPA 2.0) under Title II, which differs to a certain degree from the COPPA 2.0 proposal currently before the Senate (e.g., removal of the revised “actual knowledge” standard; removal of applicability to teens over age 12 and under age 17).
  • New Section on Privacy By Design – the revised APRA draft includes a new dedicated section on privacy by design. This section requires covered entities, service providers and third parties to establish, implement, and maintain reasonable policies, practices and procedures that identify, assess and mitigate privacy risks related to their products and services during the design, development and implementation stages, including risks to covered minors.
  • Expansion of Public Research Permitted Purpose – as an exception to the general data minimization obligation, the revised APRA draft adds another permissible purpose for processing data for public or peer-reviewed scientific, historical, or statistical research projects. These research projects must be in the public interest and comply with all relevant laws and regulations. If the research involves transferring sensitive covered data, the revised APRA draft requires the affirmative express consent of the affected individuals.
  • Expanded Obligations for Data Brokers – the revised APRA draft expands obligations for data brokers by requiring them to include a mechanism for individuals to submit a “Delete My Data” request. This mechanism, similar to the California Delete Act, requires data brokers to delete all covered data related to an individual that they did not collect directly from that individual, if the individual so requests.
  • Changes to Algorithmic Impact Assessments – while the initial APRA draft required large data holders to conduct and report a covered algorithmic impact assessment to the FTC if they used a covered algorithm posing a consequential risk of harm to individuals, the revised APRA requires such impact assessments for covered algorithms to make a “consequential decision.” The revised draft also allows large data holders to use certified independent auditors to conduct the impact assessments, directs the reporting mechanism to NIST instead of the FTC, and expands requirements related to algorithm design evaluations.
  • Consequential Decision Opt-Out – while the initial APRA draft allowed individuals to invoke an opt-out right against covered entities’ use of a covered algorithm making or facilitating a consequential decision, the revised draft now also allows individuals to request that consequential decisions be made by a human.
  • New and/or Revised Definitions – the revised APRA draft’s definition section includes new terms, such as “contextual advertising” and “first party advertising.”. The revised APRA draft also redefines certain terms, including “covered algorithm,” “sensitive covered data,” “small business” and “targeted advertising.”
Copyright © 2024, Hunton Andrews Kurth LLP. All Rights Reserved.2154by: Hunton Andrews Kurth’s Privacy and Cybersecurity of Hunton Andrews Kurth
For more on the American Privacy Rights Act, visit the NLR Communications Media Internet section.

California’s “Delete Act” Significantly Expands Requirements for Data Brokers

California recently passed a groundbreaking new law aimed at further regulating the data broker industry. California is already one of only three states (along with Oregon and Vermont) that require data brokers—businesses that collect and sell personal information from consumers with whom the business does not have a direct relationship—to meet certain registration requirements.

Under the new law, the regulation of data brokers—including the registration requirements—falls within the purview of the California Privacy Protection Agency (CPPA) and requires data brokers to comply with expanded disclosure and record keeping requirements. Notably, the law also requires the CPPA to make an “accessible deletion mechanism” available to consumers at no cost by January 1, 2026. The tool is intended to act as a single “delete button,” allowing consumers to request the deletion of all of their personal information held by registered data brokers within the state.

Putting it into practice: Businesses considered “data brokers” should carefully review the new and expanded requirements and develop a compliance plan, as certain aspects of the law (e.g., the enhanced registry requirements) go into effect as soon as January 31, 2024.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.
Article by Brittany Walter of Sheppard, Mullin, Richter & Hampton LLP
For more articles on data brokers, visit the NLR Communications, Media and Internet section.