[BreachExchange] More Companies Must Comply with the Gramm-Leach-Bliley Act, But Don’t Know It. Are You One of Them?

[Audrey McNeil]

https://www.natlawreview.com/article/more-companies-must-
comply-gramm-leach-bliley-act-don-t-know-it-are-you-one-them

When the topic of data privacy and cyber security comes up, most people
automatically think of data breaches, especially given the high-profile
nature of so many of them. Breaches and hacks are certainly an issue about
which to be concerned, but there are other issues concerning data privacy
and cybersecurity that businesses should be cautious regarding as well,
such as regulatory compliance. A lot of confusion arises around this area
because many businesses do not fully appreciate the specific laws and
regulations with which they are required to comply or how to best do so.

For those in the healthcare field, compliance requirements are easily
identified. Entities in the healthcare space typically have to comply with
HIPAA/HITECH, which means complying with the Privacy Rule and the Security
Rule. Entities in the education field have to comply with FERPA and,
sometimes, COPPA. But what about other compliance obligations in other
industries?

Take, for example, those in the financial industry, such as banks that have
to comply with the Gramm-Leach-Bliley Act (GLBA). Many businesses assume
that “financial institution” for purposes of GLBA compliance means a bank
and assume that GLBA does not apply to them. This, however, may not be
correct. GLBA applies to far more businesses than just banks. The
misunderstanding seems to come from two main sources. First, many
businesses simply do not understand they are considered to be a “financial
institution” under GLBA. Second, many businesses believe they are simply
too small to warrant such federal regulatory oversight.

What businesses does GLBA cover?

Businesses that must comply with GLBA are “financial institutions,” but
what is considered a “financial institution” goes much further than banks
under GLBA. Under GLBA, a financial institution includes businesses that
are “significantly engaged” in providing financial products or services,
including:

Check-cashing businesses;

Payday lenders;

Mortgage brokers;

Non-bank lenders;

Personal property or real estate appraisers;

Professional tax preparers such as CPA firms; and

Courier services.

As for the business size requirement, there is none. So, if you are in one
of those businesses, there are some things about GLBA you need to know.

Step 1: Complying with the Safeguards Rule

The first compliance hurdle under GLBA is complying with the Safeguards
Rule, which was issued by the Federal Trade Commission (FTC), and requires
financial institutions to have measures in place to protect and keep secure
the consumer information they collect. Interestingly, the Safeguard Rule
also applies to credit card reporting agencies and ATM operators that
receive information about customers of financial institutions.

Requirement 1: Written Information Security Plan

The first requirement of the Safeguards Rule is that financial institutions
must have a written information security plan (WISP) that describes the
company’s processes for protecting customer information. The WISP should
not be one-size-fits-all because it has to include administrative,
technical, and physical safeguards appropriate to the business’ size, the
nature and scope of its activities, and the sensitivity of the customer
information at issue. For example, companies have to conduct an assessment
of how customers’ information could be at risk and then implement
safeguards to address those risks. As part of its WISP, each company must
do all of the following:

Designate one or more employees to coordinate its information security
program;

Identify and assess the risks to customer information in each relevant area
of the company’s operation, and evaluate the effectiveness of the current
safeguards for controlling these risks;

Design and implement a safeguards program, and regularly monitor and test
it;

Select service providers that can maintain appropriate safeguards, make
sure your contract requires them to maintain safeguards, and oversee their
handling of customer information; and

Evaluate and adjust the program in light of relevant circumstances,
including changes in the firm’s business or operations, or the results of
security testing and monitoring.

The requirements are flexible, but they are nevertheless requirements.

Requirement 2: Securing Information

The Safeguards Rule also requires companies assess and address risks to
customer information in all areas of operation, including three areas that
are particularly important to information security:

Employee Management and Training;

Information Systems; and

Detecting and Managing System Failures.

There are many different ways to assess and address these various risks,
including employee confidentiality agreements, reference checks,
need-to-know-only access, password protection, screen locks, ensuring
physical security, and other physical and technological safeguards.

Step 2: Complying with the Privacy Rule

Financial institutions must also comply with the Privacy Rule which
requires they give their customers a “clear and conspicuous” written notice
describing their privacy policies and practices. When the notice is
provided and what the notice says depends on what the financial institution
does with the information.

Why this matters

The reason this information matters is because the FTC, which enforces
GLBA, is doing just that…it is enforcingit, especially in the context of
data privacy non-compliance issues.

In fact, this issue very recently came up when the FTC settled with
TaxSlayer after taking action affecting the company, which offered its
customers tax preparation and filing services through its online
application. As with all taxes, to prepare and file them, TaxSlayer
collected a significant amount of customer data, which essentially rose to
the level of personal protected information (PII) under every state’s data
breach notification statute.

What happened was that in 2015, TaxSlayer was subject to a validation
attack wherein a remote attacker gained access to 8,800 TaxSlayer users.
The hackers filed fake tax returns based on the information they collected
and had the various tax refunds direct deposited to altered routing numbers.

The FTC investigated the matter and filed a complaint against TaxSlayer for
allegedly violating GLBA in a number of ways. First, the FTC alleged
TaxSlayer violated the Privacy Rule by failing to provide customers with
the required privacy notices. Second, the FTC alleged that TaxSlayer
violated the Safeguards Rule by failing to have a WISP in place, by failing
to conduct the necessary risk assessment, and by failing to put safeguards
in place to control the risk of remote attackers using stolen credentials
to steal customer information.

The complaint also alleged that TaxSlayer:

Failed to require customers to choose a strong password, “which is a
standard practice for accounts containing sensitive personal information,”
instead allowing any password between eight and 16 characters;

Failed to conduct a risk assessment that would have identified reasonably
foreseeable security risks, including those associated with inadequate
online identity authentication;

Failed to use risk-based authentication measures, which allowed hackers to
try logging onto multiple different accounts from a remote computer; and

Failed to validate an email address when the account was first created,
meaning they had no reliable way of communicating with customers.

As part of the settlement with the FTC, the company is prohibited from
violating the Privacy Rule and the Safeguards Rule of the GLBA for 20
years. Consistent with several past cases involving violations of GLBA,
TaxSlayer is required for 10 years to obtain biennial third-party
assessments of its compliance with these rules.

The FTC’s complaint against TaxSlayer provides a good roadmap of the level
of security the FTC expects financial institutions to have under GLBA and
what will be expected.

What to do now?

If you are a financial institution, or just discovering that you are one
under GLBA, and are not in compliance with the Safeguards Rule and/or the
Privacy Rule, whether it be because you don’t have a WISP or proper
notices, or you are just unsure as to your level of compliance in line with
the FTC’s standards, please consult one of our data privacy attorneys who
can help you review your current compliance status and assist you in
checking-off the compliance requirements you must meet.
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