Proposed Regulation S-AM Includes Consumer Privacy Provision

Washington, DC, July 12, 2004 – The SEC recently proposed new Regulation S-AM, which includes a provision giving consumers the right to restrict marketer solicitations using certain information about an individual obtained from the marketer’s affiliate.

Background
Last November, President Bush signed into law the Fair and Accurate Credit Transactions Act (FACTA).

Section 214 of FACTA adds a new Section 624 to the Fair Credit Reporting Act (FCRA), which generally establishes conditions that must be met before a person may use certain information for marketing purposes if the information is obtained from an affiliate. Before a person may make marketing solicitations to a consumer using certain information about that consumer, the consumer must be given notice and a reasonable opportunity to opt out of having the information used for this purpose. Thus, Section 624 governs the use of certain information by an affiliate, and not the sharing of information with or among affiliates.

FACTA also includes a provision that requires regulators to establish rules and regulations that:

• consumers be provided with clear and conspicuous notice of their right to opt-out of sharing personal information with affiliates;
• a simple method be established by which consumers may exercise their right to opt out;
• a customer’s election to opt out be effective for at least five years; and
• prior to the expiration of a consumer’s election to opt out, the consumer be provided notice of his or her right to extend the opt-out for a minimum of five more years.

FACTA requires the regulators to work in consultation and coordination with one another to adopt the required implementing rules no later than September 5, 2004, with an effective date no later than six months after the rules’ issuance.

ICI Position
The Institute supports measures, such as the disclosure requirements included in the Gramm-Leach-Bliley Act, that strike an appropriate balance between the protection of consumer privacy and legitimate information sharing necessary to serve shareholder interests. For example, the Act requires all financial services firms to inform customers about the use of personal information, and allows consumers to decline to share their personal information with unaffiliated third parties.

Related Links
A section of this website is devoted to consumer privacy issues.