Monday, February 07, 2011

Credit Report Resellers Settle FTC Data Privacy Allegations

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Three companies whose business is reselling consumers’ credit reports have agreed to settle FTC charges that they did not take reasonable steps to protect consumers’ personal information—failures that allowed computer hackers to access that data. Under the terms of proposed consent orders, the companies would be required to strengthen their data security procedures and submit to audits for 20 years.

The Commission voted 5-0 to issue the three administrative complaints and to accept the consent agreement packages containing the proposed consent orders for public comment. These are the FTC’s first cases against credit report resellers for their clients’ data security failures.

According to administrative complaints, the three resellers buy credit reports from the three nationwide consumer reporting agencies (Equifax, Experian, and TransUnion) and combine them into special reports that they sell to mortgage brokers and others to determine consumers’ eligibility for credit.

Due to their lack of information security policies and procedures, the companies allegedly allowed clients without basic security measures—such as firewalls and updated antivirus software—to access their reports. As a result, hackers accessed more than 1,800 credit reports without authorization via the clients’ computer networks, according to the FTC.

Violation of Section 5, Gramm-Leach-Bliley Rules

Even after becoming aware of the data breaches, the companies allegedly failed to make reasonable efforts to protect against future breaches. The FTC alleged that the companies’ failure to employ reasonable and appropriate measures to secure the personal information they maintain and sell is an unfair practice in violation of Sec. 5 of the FTC Act.

The resellers allegedly violated the Gramm-Leach-Bliley Safeguards Rule by failing to design and implement information safeguards to control the risks to consumer information; to regularly test or monitor the effectiveness of their controls and procedures; to evaluate and adjust their information security programs in light of known or identified risks; and to have comprehensive information security programs.

Commissioners’ Statement

A statement, issued by Commissioner Julie Brill, and joined by Chairman Jon Leibowitz and Commissioners J. Thomas Rosch and Edith Ramirez, noted that in future actions civil penalties will be imposed “against resellers of consumer reports who do not take adequate measures to fulfill their obligations to protect information contained in consumer reports, as required by the Fair Credit Reporting Act.”

The settlements involve SettlementOne Credit Corp., ACRAnet, Inc., and Fajilan and Associates, Inc. A news release, complaints, and agreements containing the proposed consent orders appear here on the Federal Trade Commission website.

Further details will appear in the CCH Trade Regulation Reporter.

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