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| Is Your Financial Information Safe?
It takes more than money to open a bank account, buy a car, or even have someone prepare your tax return. In exchange for these and other financial services, you must hand over a great deal of personal information. To the identity thief, your information is more valuable than your money. When you do business with any company, you have good reason to ask what that company is doing to safeguard your information. Above all, you want to make sure you are not one of the millions who fall victim to identity theft each year.i1 In this guide we tell you how financial companies must safeguard your personal information, the types of companies that must follow security procedures, and what you can do to protect yourself. The federal Gramm-Leach-Bliley Act, or GLB, (15 U.S.C.§§ 6801-6810) gives you some minimal rights to protect your financial privacy. (For more on GLB and your privacy see, PRC Fact Sheet 24, Protecting Financial Privacy in the New Millennium: The Burden Is on You, www.privacyrights.org/fs/fs24-finpriv.htm.) GLB also requires financial institutions to adopt procedures to safeguard your personal information. This is called the Safeguard Rule. Another section of GLB creates civil as well as criminal penalties when someone uses false pretenses to get your personal financial information, called “pretexting.”. Privacy and security go hand in hand. You have probably heard these terms used frequently, but are still not clear what they mean. Think of it this way: Privacy is your right to control how your personal information is collected and used. Security is the obligation of the company that collects and uses your information to make sure the information is safe against unauthorized access and uses. As we pointed out in our Fact Sheet 24 on the privacy provisions of GLB, your rights are limited. The same is true of financial institutions’ security obligations under GLB. 2. Companies that Must Safeguard Your Financial Information Does GLB cover banks? Yes, and much more. The GLB privacy and security provisions apply to “financial institutions,” a term defined in the Bank Holding Company Act of 1956 as an institution that is “significantly engaged in financial activities…”. (12 U.S.C. 1843(k)) Obviously, banks and other companies such as credit unions and thrifts that are engaged in activities like accepting deposits meet the definition of “financial institution.” Financial institutions involved in banking are regulated by one of five federal agencies. 2 These agencies are collectively called the “banking agencies.” (For more information on the banking agencies and the types of activities each agency regulates, see the References Section of this guide.) In addition to the banking agencies, the GLB privacy and security requirements also apply to companies under the jurisdiction of the Securities and Exchange Commission (SEC) www.sec.gov and the Commodity Futures Trading Commission (CFTC) www.cftc.gov. Still others fall under the jurisdiction of the Federal Trade Commission (FTC), www.ftc.gov.i 3 Some of the companies that qualify as “financial institutions” covered by the FTC are:
For other companies that come under the jurisdiction of the FTC, see Financial Institutions and Customer Data: Complying with the Safeguards Rule, www.ftc.gov/bcp/conline/pubs/buspubs/safeguards.htm. Because the term “financial institution” potentially includes a wide array of companies, it is not surprising that lawsuits quickly followed GLB’s effective date. Early on, the FTC took the view that attorneys sometimes might be subject to GLB. However, this interpretation was challenged in court by the American Bar Association, among others, and the issue was decided in favor of attorneys. www.dcd.uscourts.gov/02-810a.pdf In another important court battle over GLB, TransUnion, one of the three big national credit bureaus, sued the FTC and the banking agencies over the government’s interpretation of “financial institution.” TransUnion claimed it was not covered by GLB. However, the U.S. Court of Appeals for the District of Columbia ruled against the credit bureau. www.ftc.gov/opa/2002/07/tuglbappeal.htm Do insurance companies have to safeguard my information? Yes. Insurance companies are considered “financial institutions” under GLB. Because the insurance industry is primarily regulated by states, GLB privacy regulations regarding notice and opt-out were published by states. Many states followed the model state privacy regulations adopted by the National Association of Insurance Commissioners (NAIC), www.naic.org. Other states adopted their own version of the GLB privacy rules. The NAIC has also adopted a model rule to carrying out GLB’s data safeguarding requirements. www.naic.org/models_papers/models/docs/ST673.pdf. To find out whether your state has a GLB security rule for insurance companies, connect with your state insurance commissioner through the NAIC’s web site, www.naic.org. Do I lose security protections when my information is shared? It depends. The FTC’s Safeguards Rule requires financial institutions to take steps to ensure that affiliates and service providers also safeguard customer data. The rule also requires financial institutions that receive customer data from another financial institution to safeguard information. But, the Safeguards Rule does not apply if the recipient of your information is neither a financial institution nor an affiliate or service provider. Even the security provisions that apply to service providers have their limitations. Your financial institution may, for example, employ another company to send out mail, print account statements, provide accounting services or any number of other functions. The company that provides these services has to comply with the established security procedures. However, the service provider that works for your company may employ an independent contractor or yet another company to perform some service that involves access to your personal information. In that case, the security requirements do not apply except to the service provider that contracts directly with the company you’re doing business with. Is my information safe when a financial institution sends data offshore? Many people are asking this same question. The practice of outsourcing creates unique risks to data privacy and security. Since the GLB privacy and security provisions took effect, outsourcing has exploded as a public policy issue. This is particularly true of financial services and health care functions covered by the Health Insurance Portability and Accountability Act (HIPAA). (For more on health privacy and HIPAA, see PRC Fact Sheet 8a, HIPAA Basics, www.privacyrights.org/fs/fs8a-hipaa.htm.) A June 2004 study conducted by the Federal Deposit Insurance Corporation (FDIC) www.fdic.gov examines the history of outsourcing, also called offshoring, and makes a number of recommendations for improved protection for customer data. Significantly, the study recommends that financial institutions become more involved in third-party contracting arrangements. The study also suggests changes in the law. To learn more about the FDIC study or read the entire report, go to Offshore Outsourcing of Data Services by Insured Institutions and Associated Consumer Privacy Risks, www.fdic.gov/regulations/examinations/offshore/index.html. In short, whether your data is covered by security protections at all depends on several different factors. The key to whether you have any data security protection is whether you meet the definition of “customer.” For more on what “customer” means, see section 4 below. Is GLB the only federal law that covers personal data? No. The federal Fair Credit Reporting Act (FCRA) governs personal information included in consumer reports. (15 U.S.C. §1681 et seq.) The main “security” feature of the FCRA is that the law limits access to certain “permissible purposes,” such as credit, employment, insurance underwriting, and rental history. Many companies covered by the FCRA may also be “financial institutions” under GLB. Recent amendments to the FCRA were made by the Fair and Accurate Credit Transactions Act of 2003 (FACTA), (Pub. Law 108-159) The FCRA, as recently amended by FACTA, can be found at www.ftc.gov/os/statutes/031224fcra.pdf. As a safeguard against identity theft, FACTA includes an important new section that requires proper disposal of personal data, such as shredding. Consumer and privacy advocates have long argued that strict disposal standards are essential to combat the growing trend in identity theft. This new provision of FACTA is formal acknowledgement by Congress that information security is a cooperative effort, and that consumers can only do so much to protect personal information. This is good news for consumers. Soon, consumer reporting agencies and those who obtain consumer reports for credit, employment, insurance, rental history, or other “permissible purposes” must discard sensitive data in a structured way. The new FACTA sections add to the existing requirement for proper data disposal included in the GLB Safeguards Rule and guidelines for financial institutions published by the banking agencies. Like the GLB security requirements, FACTA does not mandate specific disposal procedures. The FTC’s proposed regulation for proper disposal under FACTA can be found at www.ftc.gov/opa/2004/04/factafrn.htm. 4 For more on the FCRA and FACTA, see PRC Fact Sheets 6, How Private Is My Credit Report? www.privacyrights.org/fs/fs6-crdt.htm and 6a, FACTA, the Fair and Accurate Credit Transactions Act: Consumers Win Some, Lose Some www.privacyrights.org/fs/fs6a-facta.htm. 3. What Companies Must Do to Protect Your Financial Information Generally, companies are left on their own to develop security programs that are appropriate to their individual size and operations. The federal agencies determined flexibility was necessary because of the many different kinds and sizes of companies that would have to comply. In the end, security under GLB translates to “guidelines” rather than strict rules for compliance. There are some things a financial institution must do. For example, financial institutions are required to:
Other than these requirements, security procedures are generally left up to the financial institution. The FTC identified three areas as important to security: (1) employee management and training; (2) information systems; and (3) managing system failures. The FTC’s Safeguards Rule goes on to suggest steps a company might take to secure information. For more on the FTC’s suggested security steps, see Financial Institutions and Customer Data: Complying with the Safeguards Rule, www.ftc.gov/bcp/conline/pubs/buspubs/safeguards.htm. Does the Safeguard Rule apply only to computer data? No. The rule applies to all “customer information” “whether in paper, electronic, or other form that is handled or maintained by” a financial institution or its affiliates. (FTC Regulation 16 CFR 314.2) Can I get a copy of my financial institution’s written security plan? Very unlikely. Most companies would consider this proprietary or confidential commercial data. Public disclosure of a company's security plan could actually jeopardize data security. Many companies include general statements about security in the annual privacy notice you receive under the privacy provisions of GLB. However, these notices will not give you a detailed description of a company’s data security plan. 4. Security Only Goes So Far. Are You Protected? Does the Safeguard Rule always apply when I supply personal information? No. The rule only applies to “customers” of a financial institution. You are a “customer” if you have an “ongoing” relationship with the company. Supplying personal information alone is not enough to make you a customer. For example, you may cash a check or make an ATM withdrawal from a bank where you do not have an account. To complete the transaction, you will probably have to supply your account number, your personal identification number (PIN), and possibly even your drivers’ license number or other identifying information. It makes no difference whether these transactions are a one-time event or you cash your checks at the same place every week. If you do not have an ongoing relationship with the company that cashes your checks – meaning you don’t have an established account – you are what GLB calls a “consumer. ” But you are not a “customer” whose data is covered by the security requirements. Am I a “customer” or “consumer” of my former financial institution? “Once a customer, always a customer” does not apply when it comes to data security. If your account is closed, you no longer have an “ongoing” relationship. This makes you a consumer. I am a small business owner. Does the security rule apply to my account? No. GLB applies only to financial products or services obtained for “personal, family, or household use.” Commercial uses are not covered, even if you are a sole proprietor where the lines between personal and business data are often blurred. For more on the distinction between “consumer” and “customer,” see the FTC publication, How to Comply with the Privacy of Consumer Financial Information Rule of the Gramm-Leach-Bliley Act, www.ftc.gov/bcp/conline/pubs/buspubs/glblong.htm#whois. Pretexting is when someone gains access to your personal information through false pretenses. Another person may want your personal financial information for any number of reasons. Another term for pretexting is “social engineering.” Here are just some of the ways your information could be used against you:
GLB includes a specific section that prohibits fraudulent access to your financial information. www.ftc.gov/privacy/glbact/glbsub2.htm The pretexting section applies if someone calls you and tricks you into giving personal information, or calls someone else such as your bank. It also applies if someone uses a forged or stolen document to get your information. (15 USC, Subchapter II, Sec. 6821-6827) The law includes civil as well as criminal penalties for one who uses false pretenses to get your personal financial information. Am I at risk for pretexting? No one is immune. However, there are certain life situations in which you could be more vulnerable than others to pretexting. Here are just a few questions you can ask to assess your risk level:
If you’ve answered “yes” to any of these scenarios, you could be vulnerable to pretexting, where your financial account information is unwittingly made available to a clever imposter. What can I do to protect myself against pretexting? The FTC publication, Pretexting: Your Personal Information Revealed, www.ftc.gov/bcp/conline/pubs/credit/pretext.htm, describes pretexting and offers some tips on how to protect yourself. These pointers apply not just to preventing pretexting, but are good practices for your own personal privacy and security efforts as well. See also Part 6 of this guide for additional tips to protect your information. Following is the FTC’s advice:
Do any other laws protect me against pretexting? Yes, the FCRA includes a section that covers pretexting when someone uses false pretenses to get information about you from a consumer reporting agency. FCRA §619 makes pretexting a crime and calls for up to two years in prison for anyone convicted. Another FCRA provision, §620, allows up to two years in prison for any officer or employee of a consumer reporting agency who “knowingly and willfully” provides information from your consumer files to anyone who is not authorized to receive it. 6. What You Can Do to Protect Your Information Privacy and security of personal data are often beyond your ability to control. You must nearly always give up some bit of personal information to conduct even the most routine financial transaction. Once you provide your data, its security is outside your control. But, there are some steps you can take to optimize the chances your data will be safe.
For additional advice on ways to protect your sensitive personal information, read PRC Fact Sheet 17, Coping with Identity Theft: Reducing the Risk of Fraud, www.privacyrights.org/fs/fs17-it.htm. Federal Law
Federal Agencies’ Security Rules and Guidelines
NOTE: For information about GLB security regulations for insurance companies, link to state insurance commissioners through the web site for the National Association of Insurance Commissioners, www.naic.org. Federal Agency Contact and Consumer Complaints Information
FTC and Other Government Publications
PRC Publications
1 The Federal Trade Commission (FTC) estimates that nearly 10 million Americans were the victim of identity theft in 2002. To read this and other studies about the number of victims as well as the financial and other impacts of this crime, see How Many Identity Theft Victims Are There? www.privacyrights.org/ar/idtheftsurveys.htm. 2 The banking agencies are: Office of Thrift Supervision (www.ots.treas.gov); Office of Comptroller of Currency (www.occ.treas.gov); Federal Reserve Board (www.federalreserve.gov); Federal Deposit Insurance Corporation (www.fdic.gov); and National Credit Union Administration (www.ncua.gov). 3 All federal agencies involved have adopted similar versions of the GLB data security rules, usually referred to as “safeguards rule” or guidelines. For a link to these agency regulations, see the References section. The Privacy Rights Clearinghouse developed this guide with funding from |
| Copyright © 2004-2007. Privacy Rights Clearinghouse/UCAN. For distribution of this fact sheet, see our copyright and reprint guidelines. This copyrighted document may be copied and distributed for nonprofit, educational purposes only.The text of this document may not be altered without express authorization of the Privacy Rights Clearinghouse. This fact sheet should be used as an information source and not as legal advice. PRC fact sheets contain information about federal laws as well as some California-specific information. Laws in other states may vary. Overall, our fact sheets are applicable to consumers nationwide. Privacy Rights Clearinghouse, 3100 - 5th Ave., Suite B, San Diego, CA 92103. Web: www.privacyrights.org |
