FTC Seeks Public Comment on Proposed Financial Privacy Rule

The Federal Trade Commission has proposed a Rule, set forth in a Federal Register Notice to be published shortly, which would implement the financial privacy provisions of the Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act, enacted on November 12, 1999, places certain restrictions on when financial institutions may disclose nonpublic personal information about consumers to nonaffiliated third parties, and requires that financial institutions disclose their privacy policies and practices with respect to information sharing with both affiliates and nonaffiliated third parties. The Act directed the FTC and other federal agencies with jurisdiction over financial institutions to develop rules to implement its requirements.

A financial institution is required under the Act to provide consumers with a privacy policy at the time of establishing a "customer relationship." The proposed Rule defines "customer relationship" as a continuing relationship between a consumer and a financial institution whereby the institution provides a financial product or service to a consumer that is to be used primarily for personal, family or household purposes.

The Rule also describes the conditions under which a financial institution may disclose nonpublic personal information about a consumer, whether or not it has established a customer relationship with that consumer, to a nonaffiliated third party. Under the Act, such information cannot be disclosed without providing the consumer with the institution's privacy policy and the opportunity to opt out of the information sharing, subject to certain exceptions.

As explained in the Notice, the Act defines "financial institutions" broadly to include all institutions the business of which is engaging in financial activities as described in Section 4(k) of the Bank Holding Company Act. Section 4(k) includes not only a number of traditional financial activities, but also activities that the Federal Reserve Board has found to be closely related to banking or usual in connection with the transaction of banking or other financial operations abroad. The broad concept of "financial activity" results in a corresponding broad scope of "financial institutions" that may be subject to the Act's requirements. In addition to mortgage lenders and other credit grantors, numerous entities not traditionally considered "financial institutions" are included in the definition. These include personal property appraisers, real estate appraisers, retailers, career counselors for employees in financial occupations, real estate settlement services, manufacturers of computer hardware and software, and travel agencies operated in connection with financial services.

Despite the broad notion of "financial institutions" dictated by the Act, the Notice states that many entities that come within the broad definition of financial institution will likely not be subject to the disclosure requirements of the Rule because not all financial institutions have "consumers" or establish "customer relationships." For example, management consulting is a financial activity but it is not likely that any individual obtains management consulting services for personal, family or household purposes.

Similarly, not every product or service that a financial institution provides to an individual is a financial product or service that establishes the individual's status as a "consumer" entitled to the required notice and opt out. A product or service that does not result from a financial activity is not within the scope of the proposed Rule. Therefore, "a department store that issues its own credit card directly to consumers provides a financial service (credit) to consumers who utilize the card, but when it sells merchandise, it provides a nonfinancial product or service."

The FTC is seeking public comment on the proposed Rule until March 31, 2000. Comments should be addressed to: Secretary, Federal Trade Commission, Room H-159, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Comments may also be submitted via e-mail to GLBRule@ftc.gov

Copies of the Federal Register Notice are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll free at 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 002 3054)