The Federal Trade Commission (FTC) has approved an amendment to its Safeguards Rule that will require non-banking financial institutions to report certain data breaches (or “notification events”) to the FTC (not affected individuals).

The “Safeguards Rule,” short for “Standards for Safeguarding Customer Information,” was created to ensure that businesses maintain safeguards to protect the security of customer information. The Safeguards Rule already applied to financial institutions subject to the FTC jurisdiction and that aren’t subject to the enforcement authority of another regulator under the Gramm-Leach-Bliley Act. Under the Rule, financial institutions are defined as any institution the business of which is engaging in an activity that is financial in nature or incidental to such financial activities. FTC guidance can help to better navigate that definition.   

Amendment

While parts of the Safeguards Rule already apply to non-banking financial institutions such as mortgage brokers, motor vehicle dealers, accountants, tax preparation services, and payday lenders, the recent amendment expands the data breach reporting requirements to these entities.

The recent amendment presents a significant expansion of the obligation to provide notification of a “notification event,” even beyond what generally is required under potentially applicable state breach notification laws. Under the FTC’s amendment, the notification obligation applies to “customer information,” whereas most state breach notification laws apply to “personal information.” Remember definitions are important. While states have expanded their definitions of personal information over the years, the term is generally defined to include an individual’s first name (or first initial) and last name, together with one or more of the following data elements:

• Social security number.
• Driver’s license number, California identification card number, tax identification number, passport number, military identification number, or other unique identification number issued on a government document commonly used to verify the identity of a specific individual.
• Account number or credit or debit card number, in combination with any required security code, access code, or password that would permit access to an individual’s financial account.
• Medical information.
• Health insurance information.
• Unique biometric data generated from measurements or technical analysis of human body characteristics, such as a fingerprint, retina, or iris image, is used to authenticate a specific individual. Unique biometric data does not include a physical or digital photograph, unless used or stored for facial recognition purposes.
• Information or data collected through the use or operation of an automated license plate recognition system, as defined in Section 1798.90.5.
• Genetic data.

The above definition is taken from California’s breach notification law that applies to certain businesses and is one of the most expansive. It also includes a username or email address, in combination with a password or security question and answer that would permit access to an online account. However, many other states include only a portion of these elements, often only those in the first three bullets above.

On the other hand, customer information is nonpublic, personally identifiable financial information maintained about a “customer.” For this purpose, a customer is a consumer with whom the financial institution has a continuing relationship to provide financial products or services for personal, family, or household purposes. In its final rule, the FTC describes customer information as follows:

The definition of “customer information” in the Rule does not encompass all information that a financial institution has about consumers. “Customer information” is defined as records containing “non-public personal information” about a customer. “Non-public personal information” is, in turn, defined as “personally identifiable financial information,” and excludes information that is publicly available or not “personally identifiable.” The Commission believes that security events that trigger the notification requirement—where customers’ non-public personally identifiable, unencrypted financial information has been acquired without authorization—are serious and support the need for Commission notification.

This definition is not limited to a specific set of data elements like Social Security numbers or financial account numbers. Also, while many state laws limit the definition of personal information to computerized data, FTC guidance provides that customer information includes “any record containing nonpublic personal information about a customer of a financial institution, whether in paper, electronic, or other form, that is handled or maintained by or on behalf of you or your affiliates.”

Under the amendment, non-banking financial institutions must report “notification events” in which the data of at least 500 people has been acquired without authorization as soon as possible, and no later than 30 days after the discovery to the FTC. A few other points about the rule:

• Notification events are defined as unauthorized acquisitions of customer information, while several state breach notification laws include unauthorized access to personal information.
• As noted above, the final rule does not require notification to affected individuals. However, like many states, notably Maine, the FTC will publish information about the notification events it receives.
• The FTC’s final rule does not include a risk of harm exception, which is a provision in state laws. Such provisions can be welcomed relief to businesses as they provide that even if there is a “breach” as defined under the law, notice is not required if, generally speaking, there is not a significant risk of harm to affected individuals.    

The breach notification requirement becomes effective 180 days after publication of the rule in the Federal Register.