AMERICA'S COMMUNITY BANKERS
August 16, 2004
Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street & Constitution Avenue, NW
Washington, DC 20551
Attention: Docket No. R-1203
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G St, NW
Washington, DC 20552
Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attention: RIN 3064-AC73
Office of the Comptroller of the Currency
250 E. Street, SW
Mail Stop 1-5
Washington, DC 20219
Attention: Docket No. 04-16
Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
Re:
Fair Credit Reporting Affiliate Marketing Regulations; Proposed
Rule 69 FR 42502 (July 15, 2004)
Dear Sir or Madam:
America’s
Community Bankers (“ACB”)1 is pleased
to comment on the proposed Fair Credit Reporting Affiliate Marketing
Regulations2 issued by the federal banking agencies.3 The
proposed rule would implement the affiliate marketing notice and
opt out provisions
of the Fair and Accurate Credit Transaction Act of 2003 (the “FACTA”).4
The proposal would require institutions that share customer information
with corporate affiliates to provide customers with the ability to
chose not to have such information used for marketing purposes.
ACB Position
Responsible information
sharing practices allow community banks to facilitate transactions,
protect their customers, understand customers’ financial
needs, and improve overall customer service. The benefits from responsible
information sharing can result in significant economic benefit for
both consumers and financial institutions. ACB supports the efforts
of the agencies to develop a regulation that satisfies the intent
of the FACTA, while preserving the ability of community banks to
share information among affiliates.
While we generally support the proposal we have several specific
concerns. ACB suggests the agencies:
• Clarify
some of the key definitions in the proposal;
• Broaden the scope of pre-existing business relationships to better
reflect the statutory language of FACTA;
•
Include guidance for “clear and conspicuous” disclosure;
• Reconsider the requirements for electronic notices; and
• Allow institutions at least one year to come into compliance.
Background
FACTA establishes
a new restriction in the Fair Credit Reporting Act (the “FCRA”)5 for solicitations made for marketing
purposes when those solicitations are based on information received
from an affiliate. The restrictions apply to a broad category of
customer information beyond what would traditionally be considered
a consumer report. The proposal refers to this information as “eligibility
information” and it includes transaction and experience information
typically exempt from the definition of a consumer report.
FACTA prohibits any business from using eligibility information
obtained from an affiliate for marketing purposes without first providing
the consumer with notice and an opportunity to opt out of receiving
such marketing solicitations. Exceptions exist for customers with
whom the affiliate has some sort of pre-existing business relationship
and in cases where the customer initiates contact with the organization.
The new affiliate
marketing restrictions of FACTA are in addition to existing FCRA
notice and
opt-out requirements relating to sharing
consumer report information among affiliates. Additionally, information-sharing
restrictions with nonaffiliated third parties established by the
Gramm-Leach-Bliley Act (the “GLBA”)6 continue to apply.
As such, many institutions will be subject to a minimum of three
distinct privacy notice and information sharing requirements: (1)
FCRA affiliate sharing; (2) FCRA affiliate marketing restrictions;
and (3) GLBA privacy notices and third party opt out.
Clarification of Key Definitions
The proposal
includes several key definitions that ACB suggests should be clarified
in
order to ensure regulatory compliance and
minimize legal risks. Additionally, the definition section for the
proposed OTS regulations is not consistent with the proposed definitions
of the other agencies. For example, the proposed regulations for
the Federal Reserve, OCC, FDIC and the NCUA all define the term consumer
as “an individual.” 7 In what appears to be
an unintended omission, the proposed definition section of the OTS
regulations
omits the term. Several other key terms are similarly missing from
the proposed OTS definitions section. ACB recommends that the OTS
proposed regulations8 be revised to be consistent with that of the
other regulators. ACB also suggests the agencies revise the proposed
definitions for the following terms:
Affiliate –In
the proposal, the term affiliate means “any
person that is related by common ownership or common corporate control
with another person.” In the preamble, the agencies acknowledge
that there are several variations of this definition in banking law
and regulation and request comment on whether the differences among
the definitions are significant. For example, the privacy regulations
required by the GLBA define the term as “any company that controls,
is controlled by, or is under common control with another company.” 9 GLBA
provides specific definitions for what is meant by control, including
control of 25 percent or more of the financial interests of an organization
and control over the selection of the board of directors. While the
definitions appear to be functionally equivalent, ACB requests that
the agencies use the definitions developed for purposes of the implementing
regulation for GLBA for “affiliate” and “control.” By
establishing a consistent definition, the agencies will help avoid
any potential confusion and facilitate the creation of a more simplified
consumer notice with a single definition.
Consumer – The proposed definition of the term “consumer” as
an “individual” is inconsistent with that of the regulations
issued to implement Title V of GLBA. This inconsistency makes it
difficult for institutions to harmonize privacy related disclosures
required by both the FCRA and GLBA. The use of the terms “consumer” and “customer” interchangeably
within the statutes creates compliance challenges for financial institutions.
Moreover, we note that the FCRA applies directly to natural persons
and that its application should not apply to information relating
to any business or incorporated entities. Previously, as part of
the GLBA implementing regulations, the agencies have developed regulations,
official commentary, and examples that provide a clear definition
of the terms “consumer” and “customer” that
minimize confusion relating to when specific notices are required.
ACB requests the agencies to establish that the term consumer has
the same meaning as defined by the appropriate regulations issued
by each agency pursuant to Section 509 of the GLBA and rely on the
definitions established by the GLBA for other terms wherever possible.
Eligibility
Information – As required by the statute, the
information covered by the affiliate sharing provision is broad and
includes transaction and experience information typically exempted
as part of the definition of a consumer report. The agencies have
proposed a new term, “eligibility information,” that
attempts to describe the information covered. In defining the term,
the agencies have attempted to conform the regulatory definition
to the statutory definition that relies on a series of exceptions.
ACB recommends that the agencies create a simple clear definition
of the term that removes any ambiguity as to what is covered. The
definition should also articulate that non-sensitive information,
such as names and addresses of consumers, is not considered eligibility
information. The Federal Trade Commission has consistently interpreted
the FCRA to exclude from the definition of “consumer report” lists
of names and addresses of consumers with no further classification
of the consumers.10 ACB believes that it is important for the agencies
to codify this interpretation to insure consistent compliance standards
for all provisions in the FCRA.
Pre-Existing Business Relationships
The FACTA provides
the agencies with broad authority to expand the circumstances that
would constitute a “pre-existing business
relationship.” This is a key provision of the law intended
to allow businesses of all types the flexibility necessary to maintain
and develop customer relationships. ACB supports the inclusion by
the agencies of several illustrative examples of what would be considered
a pre-existing business relationship and how information can be used
by affiliates. ACB urges the agencies to review and expand on these
examples over time as necessary.
The agencies
asked for comment on the use of “constructive
sharing” of eligibility information among affiliates. This
is described as the practice by which an institution conducts marketing
on behalf of an affiliate based on criteria established by the affiliate
with customers of the institution. While the example is not discussed
in the proposed regulatory language, the agencies request for specific
comment in the preamble indicates that one may be provided in the
final regulations. ACB believes that a specific example regarding
constructive information sharing is unnecessary and that institutions
should be able to conduct marketing on behalf of their affiliates.
Banks should have the ability to present products and services to
their customers that best meet their needs whether the source is
an affiliate, joint marketing partner, or other third party. In the
example of “constructive sharing” provided, no information
about the consumer flows to the affiliated entity for which the marketing
is being conducted. Nothing in the statutory language of the FACTA
indicates that lawmakers had intended to limit the discretion of
banks (or any other business) to present products or services to
their customers. Moreover, defining such an example would have the
unintended consequence of making it easier for an organization to
market the products of nonaffiliated third parties over those provided
within the corporate family of companies.
Additionally,
as defined in the FACTA, the term “pre-existing
business relationship” is “a relationship between a person,
or a person’s licensed agent, and a consumer.” In the
context of this proposed regulation, the term “person” would
most often represent a financial services firm subject to the regulatory
authority of one of the agencies. In the proposed regulations, the
agencies omitted the term “a person’s licensed agent” from
the definition. ACB believes that the statutory language in this
regard is clear, and that the definition should be revised to include
licensed agents. ACB also suggests that the agencies clarify in an
example that licensed agents include the financing of products provided
through a franchised dealer relationship.
Clear and Conspicuous Standard Creates Potential Liability
The FACTA requires
that affiliate sharing opt out notices be “clear,
conspicuous and concise.” This standard is included in the
proposed regulations and is more fully articulated in the preamble
discussion in proposal. The subjective definition of “clear
and conspicuous” is open to broad interpretation, and therefore
creates potential liability for institutions. Similar disclosure
requirements provided in the GLBA limit the authority of a consumer
to bring legal action against the institution. No such limits exist
in this section of the FACTA. The discussion in the preamble outlines
reasonable expectations for what would be considered “clear
and conspicuous” and ACB suggests that the agencies incorporate
similar language as an example in the regulation.
ACB urges the agencies to add a provision to the final regulations
that would provide reasonable protection for banks against liability
and administrative penalties for unintentional compliance errors,
if the bank corrects those errors promptly after being made aware
of them. In providing these protections, the agencies can look to
the Truth in Savings Act, which contains a provision creating safe
harbors against unavoidable errors and the ability to correct errors
in a timely manner without incurring liability.11
Electronic Notice Confirmation Requirement Unnecessary
The agencies
have proposed that when communicating opt out disclosure information
electronically
that a consumer must acknowledge receipt
of that communication prior to allowing any affiliate to use eligibility
information for marketing purposes. The proposal appears in two examples
in the proposed rules (§__.22.(b)(ii) and §__.24(b)(iii)).
This repetitive use of examples featuring consumer acknowledgement
make it quite likely that courts, examiners and others will consider
acknowledgement necessary before an institution “may reasonably
expect that a consumer will receive actual notice”. ACB believes
that this requirement is unnecessary and inconsistent with the requirements
outlined in the proposal for delivering notices and the related opt
out requirements of the privacy notices required by GLBA. Moreover,
we believe that the proposal does not comply with the clear language
of the statute to establish an opt out methodology for affiliate
sharing because it effectively creates an opt-in requirement for
notices sent electronically, and an opt-out approach for all other
types of notices.
In outlining
the various ways an institution may deliver opt out notices; the
agencies indicate
that for notices provided electronically,
compliance with either the electronic disclosure provisions described
in this subsection (§__. 24), or with provisions of section
101 of the Electronic Signatures in Global and National Commerce
Act (the “ESIGN Act”)12 is acceptable. ACB supports the
agencies explicitly incorporating the ESIGN Act into the requirements
for delivering notices. However, in a separate subsection (§__.
22) the agencies require consumers to acknowledge receipt of notices
sent electronically. No such requirement exists in the ESIGN Act
for ongoing electronic communication with a consumer. ACB believes
this is an inconsistent application of the ESIGN Act, and that the
consumer acknowledgment requirement for electronic notices should
be removed.
The ESIGN Act establishes a rigorous legal framework for the legal
recognition of electronic signatures, contracts, and other records.
As outlined in section 101 of the ESIGN, a consumer must affirmatively
consent to receiving electronic records and must be provided with
detailed information that describes their rights to withdraw their
authorization at any time along with instructions on how to obtain
a paper copy of the document. The consumer must also demonstrate
that he or she has the ability to access information in the electronic
format provided.
ACB believes strongly that the provisions of the ESIGN Act should
govern the communication of electronic records.
If institutions
are required to get acknowledgements before delivery of electronic
notices becomes
effective, institutions will have to
send paper notices to be assured of compliance with the rule. It
is unclear why the agencies would require paper notices in this case,
when virtually every other regulatory disclosure can be made electronically
if the consumer wishes. The ACB does not believe that it is wise
to block consumers’ ability to choose to receive information
electronically.
Additionally,
the agencies selectively relied on official examples of notice
delivery provided
by the privacy regulations required by
GLBA. Several examples of acceptable notice delivery are consistent
with those provided in GLBA, however, the list is incomplete. Pursuant
to the examples provided in the GLBA, there is no requirement for
a consumer to acknowledge receipt of a privacy statement and opt
out notice required by GLBA. The regulations implementing these provisions
of the GLBA include an example that indicates it is unreasonable
to expect delivery of privacy statements and opt out notices when
sending “the notice via electronic mail to a consumer who does
not obtain a financial product or service from you electronically.” 13 The
logical corollary to this example is that it is reasonable to send
such notices to consumers who agree to obtain a financial product
or service electronically. ACB believes that the procedures established
by the GLBA for communicating and receiving opt out notifications
should be the model used for FACTA affiliate sharing opt out requirements.
This will allow institutions to create a consistent customer experience
for handling data use preferences.
Effective Date
The proposal would provide institutions with six months after the
date on which the final regulations are issued to be in compliance
with the FACTA affiliate marketing restrictions. ACB believes that
six months does not provide adequate time for institutions to evaluate
the new requirements, develop an appropriate compliance strategy,
and train staff as needed.
ACB requests that the agencies provide that institutions will have
one year from the time the proposal is published in the Federal Register
to come into compliance with the affiliate marketing regulations.
Should the agencies believe that a shorter implementation timeframe
is required to meet a FACTA statutory deadline, ACB suggests the
agencies establish a separate effective date and mandatory compliance
date as was done for the privacy regulations issued to implement
GLBA. In the GLBA privacy rulemaking, the agencies established an
effective date of November 13, 2000, however, institutions were granted
with an additional seven months until July 1, 2001 to be in full
compliance with the regulation.
Conclusion
ACB appreciates the opportunity to comment on this important matter
and supports the federal banking agencies efforts to promulgate effective
and workable regulations for affiliate marketing. We stand ready
to work with the agencies as this regulation is developed. Should
you have any questions, please contact the undersigned at 202-857-3148
or via e-mail at rdrozdowski@acbankers.org, or Charlotte Bahin at
202-857-3121 or via e-mail at cbahin@acbankers.org.
Sincerely,
Robert C. Drozdowski
Vice President
Payments and Technology Policy
___________________________________
1 America's Community Bankers is the member-driven national trade association
representing
community banks that pursue progressive, entrepreneurial and service-oriented
strategies to benefit their customers and communities. To learn more about ACB,
visit www.AmericasCommunityBankers.com.
2 69 Fed. Reg. 42502 (July 15, 2004).
3 The proposal has been issued jointly by the Office
of the Comptroller of the
Currency (“OCC”); the Board of Governors of the Federal Reserve System
(the “Federal Reserve”), the Federal Deposit Insurance Corporation
(“FDIC”), Office of Thrift Supervision (“OTS”) and the
National Credit Union Administration (“NCUA”), collectively referred
to as the agencies.
4 Pub L. No. 108-259 (2003).
5 Pub. L. No. 91-508 (1970).
6 Pub. L. No. 106-102, Title V (November 12, 1999).
7 69 Fed. Reg. 42520, 42525, 42529, 42538 (July 15, 2004).
8 69 Fed. Reg. 42502 (July 15, 2004).
9 12 CFR 40.4
10 16 CFR Part 600, Appendix—Commentary on the Fair Credit Reporting Act.
11 12 USC 4310, P. L. 102-242, 105 Stat. 2236 (Dec. 19, 1991).
12 Pub. L. No. 106-229 (June 30, 2000).
13 12 CFR 332.9(b)(2)(ii)
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