Did Anyone at ChoicePoint Read the February ’04 Issue of Legal Bytes?

Shareholders are suing ChoicePoint and its executives after learning that criminals posing as bona fide businesses were given access to personal data. ChoicePoint maintains databases of background information on almost every citizen in the United States—billions of records. A class-action lawsuit has been filed in California charging that executives withheld information to avoid having the stock price fall when and if the news broke: the share price has since fallen more than 20 percent in a month. The suit claims the executives knew their data protection was inadequate; knew or should have known ChoicePoint was selling data to illegal businesses; and that security breaches had occurred previously, exposing even more people to identity theft.

The security breach was uncovered last October, when law enforcement first contacted ChoicePoint investigating an identity theft. Suspects, posing as a ChoicePoint client, gained access to its consumer databases. As if the class action and drop in share price were not trouble enough, ChoicePoint is under investigation by the FTC inquiring into its compliance with information security laws; is under investigation by the SEC for possible violations by certain executives of the insider trading regulations; and is facing lawsuits arising from violations of the Fair Credit Reporting Act and California state law. Will someone please pick up and read the February 2004 issue of Legal Bytes!?!

California’s a Trendsetter—-This Time it’s Privacy

No longer merely the source of new fashion trends or technology movements (or McDonald’s), California is quickly becoming the thought leader in protecting consumer privacy. Two new laws, one which deals with personal information given to third parties for marketing (SB27) and another which obligates businesses to adhere to certain security requirements for using and storing personal information, both came into effect January 1, 2005. The new law requires businesses with 20 or more employees to give consumers detailed disclosures about not only what customer information they have shared with third parties, but also the contact information for and descriptions of those parties. Want to avoid the disclosure obligations? Simple. Allow your customers a free opt-out election from having their personal information shared. That said, you will still have to let your customers know how and to whom they can inquire about these requirements – even if your business offers the opt-out choice to consumers. By the way, if you are already subject to the stricter requirements of California’s financial privacy act, you are exempt. While there are some additional exemptions, they are narrow, and anyone doing business in California shouldn’t be too quick to conclude they are exempt without consulting legal counsel. California’s Office of Privacy Protection has drafted a set of recommended practices which attempts to harmonize the requirements of this new act with the California online privacy act, the state’s financial privacy provisions, the federal Gramm-Leach-Bliley Act, HIPAA, and European Union privacy directives. Good luck.

Do you or your contractors have sensitive personal information (e.g., names and addresses in combination with social security numbers and PIN numbers) that could lead to identity or financial theft if compromised? What about medical information about a person’s diagnosis and treatment? Start ensuring you have “reasonable” practices to protect that information from unauthorized access, use, modification and disclosure—and it doesn’t matter if the information is on paper or in electronic form. Both are covered. While the legislative history makes it clear that no one particular standard is “the standard” for “reasonable” security, a company will need to designate a specific individual who is responsible for the company’s security program, and will need to establish a security task force—including a compliance officer and legal counsel. To avoid running afoul of the standards, not only must practices and a task force be implemented, but companies will also have to demonstrate they periodically test and monitor how the security measures are working, make risk assessment, and fine-tune their security measures to keep them updated appropriately. Need employee training? Need help implementing background checks, confidentiality agreements, encryption and record retention/destruction requirements, and disciplinary measures? Call the lawyers at Rimon. We can help.

Remember California’s security breach notification law (we told you about this and you get another prize if you can identify the back-issue in which we did so)? That law requires businesses to disclose security lapses. This new law creates a new duty and standard of care. Lawsuits arising from breaches in security (you remember California’s Business and Professions Code section 17200) can now use AB1950 as a discovery prod to determine if your business has used and effectively maintains reasonable security measures.

Consider this: California has already passed more than a dozen laws to protect privacy—many of which have now spawned federal legislation, some already passed and others in process. SB186 bans unsolicited e-mail and AB1769 bans text messaging advertisements to cell phones and pagers. AB1733 mandates consent from customers before a wireless carrier can list their phone numbers in a 411 directory, and SB1436 restricts keystroke monitoring software, website tracking software, and software that attempts to control personal computers.

Privacy is Back in the News

In last month’s issue, we mentioned (in “Gnu & Gnoteworthy”) the F.D.I.C. released a report entitled “Offshore Outsourcing of Data Services by Insured Institutions and Associated Consumer Privacy Risks”. Well, privacy issues are popping up all over the place again.

California Financial Privacy Act

The California Financial Privacy Act of 2003 became effective July 1st and requires banks to give customers the right to opt out of sharing information with bank affiliates with separately regulated lines of business and requires banks to get permission from customers to share information with outside companies. After the law was enacted, the American Bankers Association, Consumer Banking Association and Financial Services Roundtable filed suit claiming the Fair Credit Reporting Act—the federal law regulating sharing of information among affiliates—preempted state law and thus the part of the statute attempting to limit sharing of information among affiliates is invalid. Not so, said the Judge—to the surprise of bankers scrambling to comply—a recent notice from the California Department of Financial Institutions indicated it would begin enforcing the law immediately!

The Judge ruled that since the FCRA only applied to the sharing of “credit reports,” the California law covering a broader range of customer information was not preempted by federal law. Will the ruling be appealed? Will other states follow suit?

Continue reading “Privacy is Back in the News”

Privacy Policies to be Required by California on All Commercial Websites

California has done it again! The nation’s toughest anti-spam law, the first database security breach notification law, and now the first state to require commercial website owners and online service providers to adopt and communicate privacy policies, ensure policies satisfy certain minimum standards, and pay penalties if they fail to conform.

California’s Online Privacy Protection Act of 2003 becomes effective July 1, 2004, and applies to commercial website owners and online services that collect and maintain “personally identifiable information” from a “consumer” residing in California. This will likely apply to all businesses selling goods or services online in the United States. To comply, among other things, the privacy policy must identify the categories of information collected; third parties who have access; how a consumer may review and correct information; and how consumers will be notified of changes in the policy. The statute also requires website owners to “conspicuously post” a privacy policy on their websites. A website owner can satisfy the requirement by posting the policy on its home page or by providing a hyperlink from that page to the policy. The link must include the word “privacy” and meet certain case, type size, font, or contrasting colors or marking requirements that call attention to the link and the policy. Online service providers must use “reasonably accessible means” to make its policy available.

This act is a good reason for businesses to review existing privacy, website and online practices. Re-examine privacy promises and consider liability waivers. If you have not yet adopted a privacy policy, now is the time to do so!