Untangling the New Rules for Affiliate Marketing: New Federal Regulations Place Limits on How Financial Institutions Can Market to Consumers Using Information Obtained from Affiliate
Harris, T. Alan, ABA Bank Marketing
Financial institutions have until Oct. 1 to bring their operations into compliance with new federal interagency regulations that restrict use for marketing purposes of certain information about consumers that institutions and their affiliates obtain from one another.
Clarity and ease for consumers are the tenets to which financial institutions must ascribe under the new regulations. As bankers peruse the nearly 30-page explanation of the new rules in the Federal Register, they may find themselves wishing the regulators had held themselves to the same standards. Depository institutions with affiliates that desire to use each other's customer information for marketing purposes have some homework and planning to do in 2008.
The rules apply to depository institutions. bank hoMing companies and their subsidiaries (referred to together in this article as "institutions"), and they implement one of the provisions added to the Fair Credit Reporting Act (FCRA) by 2003's "FACT Act." That provision restricts an institution's ability to use for marketing purposes certain information about consumers that it obtains from an affiliate.
Institutions already must comply with two existing notice and Opt-out requirements: (1) under the Gramm-Leach-Bliley Act (GLBA) privacy provisions, relating to sharing consumer information with unaffiliated third parties, and (2) under portions of the FCRA already in effect before the FACT Act. relating to sharing consumer information with affiliates. The new rules add a third notice and opt-out regime that applies to the use of shared consumer information.
Essence of the rules
The rules apply when all three of the following conditions are met:
* An institution or its affiliate receives eligibility information from the other about a consumer.
* The receiving entity plans to use that information to determine whether a particular consumer should receive a solicitation, decide what types of products or services should be marketed to a certain consumer, or tailor the makeup of a solicitation according to a consumer's partitular characteristics.
* As a result of that use of information, the consumer will be provided a solicitation.
When these factors are present, receiving entity may not use the information for the purpose of solicitations to the consumer unless: (1) the consumer is provided a clear and notice of such use and a simple means for opting out of it, and (2) the consumer does not opt out. Several exceptions apply, including when the consumer has a pre-existing relationship with the entity that is using the information, or when the consumer has authorized or requested the solicitation.
An institution and its affiliates must honor for at least five years a consumer's choice to opt out. If at the end of that period an institution wants another chance to make solicitations to the consumer based on information from an affiliate, the consumer must be provided a "renewal" notice, along with another opportunity to opt out.
Key concepts and some interpretive issues
Applicability of the rules. Although the rules generally speak in terms of an institution making solicitations based on its use of eligibility information obtained from an affiliate, the language of the statute and the regulators explanations indicate that the requirements also apply the other way around--that is, to an affiliate's use of eligibility information obtained from the institution for the purpose of solicitations about the affiliate's products or services. Broker-dealer affiliates will be subject to separate but largely identical rules to be issued by the Securities and Exchange Commission.
Eligibility information. Eligibility information is data containing personal identifiers that, when used alone or in combination, could identify a particular consumer--such as an account address, Social Security Number, driver's license number or telephone number. …