Font Size: AAA // Print // Bookmark

2010-26893

  • FR Doc 2010-26893[Federal Register: October 27, 2010 (Volume 75, Number 207)]

    [Proposed Rules]

    [Page 66018-66037]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr27oc10-17]

    -----------------------------------------------------------------------

    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 162

    RIN Number 3038-AD12

    Business Affiliate Marketing and Disposal of Consumer Information

    Rules

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Notice of proposed rulemaking.

    -----------------------------------------------------------------------

    SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

    ``CFTC'') is proposing regulations to implement new statutory

    provisions enacted by Title X of the ``Dodd-Frank Wall Street Reform

    and Consumer Protection Act'' (``Dodd-Frank Act''). These proposed

    regulations apply to futures commission merchants, retail foreign

    exchange dealers, commodity trading advisors, commodity pool operators,

    introducing brokers, swap dealers and major swap participants

    (collectively, ``CFTC registrants''). The Dodd-Frank Act provides the

    CFTC with authority to implement regulations under sections 624 and 628

    of the Fair Credit Reporting Act (``FCRA''). The proposed regulations

    implementing section 624 of the FCRA require CFTC registrants to

    provide consumers with the opportunity to prohibit affiliates from

    using certain information to make marketing solicitations to consumers.

    The proposed regulations implementing section 628 of the FCRA require

    CFTC registrants that possess or maintain consumer report information

    in connection with their business activities

    [[Page 66019]]

    to develop and implement a written program for the proper disposal of

    such information.

    DATES: Comments must be received on or before December 27, 2010.

    ADDRESSES: You may submit comments, identified by RIN number 3038-AD12,

    by any of the following methods:

    Federal eRulemaking Portal: http://www.regulations.gov.

    Follow the instructions for submitting comments.

    Regular Mail: David Stawick, Secretary, Commodity Futures

    Trading Commission, Three Lafayette Centre, 1155 21st Street, NW.,

    Washington, DC 20581.

    E-mail: amr@cftc.gov.

    Hand Delivery/Courier: Same as mail above.

    All comments must be submitted in English, or if not, accompanied

    by an English translation. Comments will be posted as received at

    http://www.cftc.gov. You should submit information only that you wish

    to make available publicly. If you wish the Commission to consider

    information that is exempt from disclosure under the Freedom of

    Information Act, a petition for confidential treatment of the exempt

    information may be submitted according to the established rules in CFTC

    Regulation 145.9.\1\

    ---------------------------------------------------------------------------

    \1\ 17 CFR 145.9.

    ---------------------------------------------------------------------------

    The Commission reserves the right, but shall have no obligation, to

    review, pre-screen, filter, redact, refuse or remove any or all of your

    submission from http://www.cftc.gov that it may deem to be

    inappropriate for publication, such as obscene language. All

    submissions that have been redacted or removed that contain comments on

    the merits of the rulemaking will be retained in the public comment

    file and will be considered as required under the Administrative

    Procedure Act, 5 U.S.C. 551 et seq., and other applicable laws, and may

    be accessible under the Freedom of Information Act, 5 U.S.C. 552.

    FOR FURTHER INFORMATION CONTACT: Carl E. Kennedy, Counsel, (202) 418-

    6625, Commodity Futures Trading Commission, Office of the General

    Counsel, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC

    20581, facsimile number (202) 418-5524, e-mail: c_kennedy@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Wall Street

    Reform and Consumer Protection Act (``Dodd-Frank Act'').\2\ Title VII

    of the Dodd-Frank Act \3\ amended the Commodity Exchange Act (``CEA'')

    \4\ to establish a comprehensive new regulatory framework for swaps and

    security-based swaps. The legislation was enacted to reduce risk,

    increase transparency, and promote market integrity within the

    financial system by, among other things: (1) Providing for the

    registration and comprehensive regulation of swap dealers and major

    swap participants; (2) imposing clearing and trade execution

    requirements on standardized derivative products; (3) creating robust

    recordkeeping and real-time reporting regimes; and (4) enhancing the

    Commodity Futures Trading Commission's (``Commission'' or ``CFTC'')

    rulemaking and enforcement authorities with respect to, among others,

    all registered entities and intermediaries subject to the Commission's

    oversight.

    ---------------------------------------------------------------------------

    \2\ See Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Pub. L. 111-203, 124 Stat. 1376 (2010). The text of the Dodd-

    Frank Act may be accessed at http://www.cftc.gov./LawRegulation/

    OTCDERIVATIVES/index.htm.

    \3\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

    be cited as the ``Wall Street Transparency and Accountability Act of

    2010.''

    \4\ 7 U.S.C. 1 et seq.

    ---------------------------------------------------------------------------

    In addition, Title X of the Dodd-Frank Act--which is entitled the

    Consumer Financial Protection Act of 2010 (``CFP Act'')--established a

    Bureau of Consumer Financial Protection within the Federal Reserve

    System and provided this new Federal agency with rulemaking,

    enforcement, and supervisory powers over many consumer financial

    products and services and the entities that sell them. In addition, the

    CFP Act amends a number of other Federal consumer protection laws

    enacted prior to the Dodd-Frank Act, including the Fair Credit

    Reporting Act (``FCRA''),\5\ the Fair and Accurate Credit Transactions

    Act of 2003 (``FACT Act'') \6\ and Title V of the Gramm-Leach-Bliley

    Act \7\ (``GLB Act'').

    ---------------------------------------------------------------------------

    \5\ See 15 U.S.C. 1681-1681x. The FCRA, enacted in 1970, sets

    standards for the collection, communication, and use of information

    bearing on a consumer's credit worthiness, credit standing, credit

    capacity, character, general reputation, personal characteristics,

    or mode of living that is collected and communicated by consumer

    reporting agencies. 15 U.S.C. 1681-1681x.

    \6\ See Public Law 108-159, Section 214, 117 Stat. 1952, 1980

    (2003). The FACT Act was signed into law on December 4, 2003. The

    FACT Act amended the FCRA to enhance the ability of consumers to

    combat identity theft, to increase the accuracy of consumer reports,

    to allow consumers to exercise greater control regarding the type

    and amount of solicitations they receive, and to restrict the use

    and disclosure of sensitive medical information. A portion of

    section 214 of the FACT Act amended the FCRA to add section 624 to

    the FCRA.

    \7\ See Public Law 106-102, 113 Stat. 1338 (1999).

    ---------------------------------------------------------------------------

    Section 1088 of the CFP Act sets out two amendments to the FCRA and

    the FACT Act directing the Commission to promulgate regulations that

    are intended to provide privacy protections to certain consumer

    information held by any person that is subject to the enforcement

    jurisdiction of the Commission. One provision of section 1088 amends

    section 214(b) of the FACT Act--which added section 624 to the FCRA in

    2003--and directs the Commission to implement the provisions of section

    624 of the FCRA with respect to persons that are subject to the CFTC's

    enforcement jurisdiction. Section 624 of the FCRA gives consumers the

    right to prohibit a CFTC registrant \8\ from using certain information

    obtained from an affiliate to make solicitations to that consumer

    (hereinafter referred to as the ``affiliate marketing rules''). The

    other provision in the CFP Act amends section 628 of the FCRA and

    mandates that the Commission implement regulations requiring persons

    subject to the CFTC's jurisdiction who possess or maintain consumer

    report information in connection with their business activities to

    properly dispose of that information (hereinafter referred to as the

    ``disposal rules'').

    ---------------------------------------------------------------------------

    \8\ ``CFTC registrant'' includes a futures commission merchant,

    retail foreign exchange dealer, commodity trading advisor, commodity

    pool operator, introducing broker, swap dealer or major swap

    participant.

    ---------------------------------------------------------------------------

    Both sections 624 and 628 of the FCRA required various Federal

    agencies charged with regulating financial institutions in possession

    of consumer information to issue regulations in final form in

    consultation and coordination with each other. In particular, these

    sections required the Office of the Comptroller of the Currency

    (``OCC''), the Board of Governors of the Federal Reserve System

    (``Board''), the Federal Deposit Insurance Corporation (``FDIC''), the

    Office of Thrift Supervision (``OTS''), the National Credit Union

    Administration (``NCUA'') (collectively, the ``Banking Agencies''), the

    Securities and Exchange Commission (``SEC'') and the Federal Trade

    Commission (``FTC'') (the SEC, FTC and the Banking Agencies, are

    collectively, the ``Agencies'') in consultation and coordination with

    one another, to issue rules implementing these sections of the FCRA.

    The Agencies already have adopted final affiliate marketing rules and

    disposal rules.\9\ Accordingly, the

    [[Page 66020]]

    Commission is now proposing to adopt similar rules to the final rules

    adopted by the Agencies, to the extent possible, to ensure consistency

    and comparability.

    ---------------------------------------------------------------------------

    \9\ For the disposal rules adopted by the various Federal

    agencies, see 69 FR 68690 (Nov. 24, 2004) (FTC); 69 FR 77610 (Dec.

    28, 2004) (Banking Agencies); 73 FR 13692 (Mar. 13, 2008) (SEC). For

    the affiliate marketing rules adopted by the various Federal

    agencies, see 72 FR 61424 (Oct. 31, 2007) (FTC); 72 FR 62910 (Nov.

    7, 2007) (Banking Agencies); 74 FR 58204 (Sept. 10, 2009) (SEC).

    ---------------------------------------------------------------------------

    The Commission requests comment on all aspects of the proposed

    regulations--both the affiliate marketing rules and the disposal

    rules--that are highlighted in the discussion in Section II below.

    II. Explanation of the Proposed Regulations

    A. Affiliate Marketing Rules

    Section 624 of the FCRA and the Commission's proposed regulations

    generally provide that consumers can block a CFTC registrant from

    soliciting the consumer based on ``eligibility information'' (i.e.,

    certain financial information, such as information regarding the

    consumer's transactions or experiences with the person) that such

    registrant received from an affiliate that has or previously had pre-

    existing business relationship. Under the proposed regulations, these

    registrants can make solicitations to a consumer based on that

    consumer's eligibility information if:

    (1) The consumer is given clear, conspicuous and concise notice;

    (2) The consumer is given a reasonable opportunity to opt out of

    such use of the information; and

    (3) The consumer does not opt out.

    Section 624 governs the use of information by an affiliate, not the

    sharing of information with or among affiliates.\10\ While some of the

    entities that fall under the Commission's jurisdiction may comply

    already with the regulations promulgated by other Federal agencies

    implementing the provisions of section 624 of the FCRA, the Commission

    seeks comment on its proposed regulations implementing section 624 of

    the FCRA.

    ---------------------------------------------------------------------------

    \10\ The opt-out right contained in section 624 of the FCRA is

    distinct from the affiliate sharing provisions under section

    603(d)(2)(A)(iii) of the FCRA.

    ---------------------------------------------------------------------------

    Responsibility for Providing Notice and an Opportunity to Opt Out

    Section 624 does not specify which affiliate must give the consumer

    notice and an opportunity to opt out of the use of the information by

    an affiliate for marketing purposes. The Commission has reviewed the

    proposed and final regulations issued by the Agencies implementing

    section 624 and has determined to take a consistent approach with

    respect to which affiliate may provide the initial opt-out notice. As

    such, the Commission's proposed regulations provide that the initial

    opt-out notice must be provided either by an affiliate that has or

    previously had a ``pre-existing business relationship'' with the

    consumer, or as part of a joint notice from two or more members of an

    affiliated group, provided that at least one of the affiliates on the

    joint notice has or previously had a pre-existing business relationship

    with the consumer. The Commission agrees with the Agencies that this

    approach provides a measure of flexibility and ensures that the notice

    is provided by an entity that is known to the consumer. The Commission

    invites comment on whether this approach continues to be a reasonable

    one.

    Scope of Coverage

    Section 624 of the FCRA specifies under which circumstances the

    provisions under this section and the proposed regulation do not apply.

    Specifically, section 624(a)(4) provides that the requirements and

    prohibitions of that section do not apply, in part, when: (1) The

    covered affiliate receiving the information has a pre-existing business

    relationship with the consumer; (2) the information is used to perform

    services for another affiliate that does not have such a relationship

    with the consumer (subject to certain conditions described below); (3)

    the information is used in response to a communication initiated by the

    consumer; or (4) the information is used to make a solicitation that

    has been authorized or requested by the consumer. The Commission has

    incorporated each of these statutory exceptions into the proposed rule.

    In addition, the Commission has set out the persons to whom the

    proposed rule will apply, as well as the type of consumer information

    that is the subject of such rule. The Commission solicits comments on

    whether there should be other circumstances to which the proposed

    regulations do not apply.

    Duration of Opt Out

    Section 624(a)(3) of the FCRA provides that a consumer's affiliate

    marketing opt-out election shall be effective for at least five years.

    Accordingly, the proposed regulations provide that a consumer's opt-out

    election would be valid for a period of at least five years (the ``opt-

    out period''), beginning as soon as reasonably practicable after the

    consumer's opt-out election is received, unless the consumer revokes

    the election before the opt-out period has expired. When a consumer

    opts out, unless a statutory exception applies, a receiving affiliate

    would be unable to make or send marketing solicitations to that

    consumer based on his or her eligibility information during the opt-out

    period.

    As described in the section-by-section analysis below, an extension

    notice would be provided to the consumer at the end of the opt-out

    period if the receiving affiliate wishes to make marketing

    solicitations. Affiliated persons may wish to avoid the cost and burden

    of tracking five-year consumer opt-out periods with varying start and

    end dates, and delivering extension notices to each consumer at the

    appropriate time, by choosing to treat a consumer's opt-out election as

    effective for a period longer than five years, including indefinitely.

    An affiliate without a pre-existing business relationship that chooses

    to honor a consumer's opt-out election for more than five years would

    not violate the proposed rules.

    In the discussion that follows, the Commission solicits comment on

    specific aspects of the proposed regulations on a section-by-section

    basis.

    Section 162.1--Purpose, Scope and Examples

    Proposed section 162.1 sets forth the purpose and scope of the

    proposed regulations. This section also provides that examples in this

    part are not exclusive; compliance with an example, to the extent

    applicable, constitutes compliance with this subpart.

    Section 162.2--Definitions

    Proposed section 162.2 contains definitions for, inter alia, the

    following terms: ``affiliate''; ``clear and conspicuous''; ``common

    ownership or common corporate control''; ``communication'';

    ``company''; ``consumer''; ``covered affiliate''; ``eligibility

    information''; ``financial product or service''; ``major swap

    participant''; ``person''; ``pre-existing business relationship'';

    ``solicitation''; and ``swap dealer''.

    Affiliate

    Section 2 of the FACT Act (which, as noted above, added section 624

    to the FCRA) defines the term ``affiliate'' to mean ``persons that are

    related by common ownership or affiliated by corporate control.''

    The FACT Act and the GLB Act contain a variety of approaches to

    define the term ``affiliate.'' Proposed paragraph (a) employs the same

    formulation used by the Commission in defining ``affiliate'' under part

    160 of the

    [[Page 66021]]

    Commission's Regulations.\11\ Under the proposed regulation, the

    definition of ``affiliate'' will mean any company that is under common

    ownership or common corporate control with a covered affiliate.\12\ The

    Commission believes it is important to harmonize the treatment of

    ``affiliate'' across its Regulations as much as possible and to

    construe them to have the same meaning. The Commission solicits

    comments on whether there should be any meaningful difference between

    the Commission's proposed definitions and the FACT Act and the GLB Act

    definitions.

    ---------------------------------------------------------------------------

    \11\ Part 160 of the Commission's Regulations implement the

    provisions of Title V of the GLB Act. Under Title V of the GLB Act,

    ``financial institutions'' (which include futures commission

    merchants, retail foreign exchange dealers, commodity trading

    advisors and other CFTC registrants) are required to provide initial

    and annual privacy notices to their customers. These requirements

    apply only to customers that are individuals who obtain financial

    products or services that are primarily used for personal, family,

    or household purposes. Part 160 also requires financial institutions

    that share nonpublic, personal information about a customer with

    non-affiliates to provide the customer with a reasonable opportunity

    to opt out of the sharing of such information. See section 160.7 of

    the Commission's Regulations.

    \12\ The terms ``swap dealer'' and ``major swap participant'' as

    used in this proposed regulation refer to the statutory definitions

    of such terms as defined in Title VII of the Dodd-Frank Act, and as

    may be further defined by the Commission in a future rulemaking. See

    section 721(b) of the Dodd-Frank Act, which provides that the

    Commission has the authority to adopt rules further defining any

    term included in the Dodd-Frank Act, which amends the CEA. See also

    section 721(c) which provides that the Commission is required to

    adopt a rule to further define, inter alia, the terms ``swap

    dealer'' and ``major swap participant'' to include transactions and

    entities that have been structured to evade provisions in the Dodd-

    Frank Act.

    ---------------------------------------------------------------------------

    Clear and Conspicuous

    Proposed paragraph (b) defines the term ``clear and conspicuous''

    to mean reasonably understandable and designed to call attention to the

    nature and significance of the information presented in the notice.

    Companies retain flexibility in determining how best to meet the clear

    and conspicuous standard. Again, the Commission has decided to

    harmonize the definition of this term across its Regulations. In

    addition, the Commission believes that the FCRA directs the Commission

    to provide specific guidance regarding how to comply with the clear and

    conspicuous standard. See 15 U.S.C. 1682s-3(a)(2)(B).

    Companies may wish to consider a number of methods to make their

    notices clear and conspicuous. A notice or disclosure may be made

    reasonably understandable through methods that include, but are not

    limited to: Using clear and concise sentences, paragraphs, and

    sections; using short explanatory sentences; using bullet lists; using

    definite, concrete, everyday words; using active voice; avoiding

    multiple negatives; avoiding legal and highly technical business

    terminology; and avoiding explanations that are imprecise and are

    readily subject to different interpretations. Various methods may also

    be used to design a notice or disclosure to call attention to the

    nature and significance of the information in it, including, but not

    limited to, using: A plain-language heading; a typeface and type size

    that are easy to read; wide margins and ample line spacing; or boldface

    or italics for key words. Companies that provide the notice on an

    Internet web page may use text or visual cues to encourage scrolling

    down the page if necessary to view the entire notice, and take steps to

    ensure that other elements on the Web site (such as pop-up ads, text,

    graphics, hyperlinks, or sound) do not distract attention from the

    notice.

    When a notice or disclosure is combined with other information,

    methods for designing the notice or disclosure to call attention to the

    nature and significance of the information in it may include using

    distinctive type sizes, styles, fonts, paragraphs, headings, graphic

    devices, and groupings or other devices. It is unnecessary, however, to

    use distinctive features, such as distinctive type sizes, styles, or

    fonts, to differentiate an affiliate marketing opt-out notice from

    other components of a required disclosure (e.g., where a privacy notice

    under the GLB Act includes several opt-out disclosures in a single

    notice). Nothing in the clear and conspicuous standard requires the

    segregation of an affiliate marketing opt-out notice when it is

    combined with a privacy notice under the GLB Act or other provisions of

    law.

    It may not be feasible to incorporate all of the methods described

    above all of the time. For example, a company may have to use legal

    terminology, rather than everyday words, in certain circumstances to

    provide a precise explanation. Companies are encouraged, but not

    required, to consider the practices described above in designing their

    notices or disclosures, as well as using readability testing to devise

    notices that are understandable to consumers.

    The Commission has proposed model forms in Appendix A that may, but

    are not required to, be used to facilitate compliance with the

    affiliate marketing notice requirements. The requirement for clear and

    conspicuous notices would be satisfied by the appropriate use of one of

    the model forms.

    Common Ownership or Common Corporate Control

    Proposed paragraph (f) defines the term ``common ownership or

    common corporate control'' for purposes of Part 162 to mirror the

    definition of ``control'' under Part 160. Under the proposal, ``common

    ownership or common corporate control'' means the power to exercise a

    controlling influence over the management or policies of a company

    whether through ownership of securities, by contract, or otherwise. Any

    person who owns beneficially, either directly or through one or more

    controlled companies, more than 25 percent of the voting securities of

    any company is presumed to control the company. Any person who does not

    own more than 25 percent of the voting securities of a company will be

    presumed not to control the company.

    Company

    Proposed paragraph (g) defines the term ``company'' to mean any

    corporation, limited liability company, business trust, general or

    limited partnership, association, or similar organization. This

    definition is consistent with the definition of company in Part 160 of

    the Commission's Regulations.

    Concise

    Proposed paragraph (h) defines the term ``concise'' to mean a

    reasonably brief expression or statement. The proposal also provides

    that a notice required by this subpart may be concise even if it is

    combined with other disclosures required or authorized by Federal or

    state law. Such disclosures may include, but are not limited to, a GLB

    Act privacy notice or other consumer disclosures required under the

    FCRA or any other provision of law.

    As noted above, the Commission has proposed model forms in Appendix

    A that may, but are not required to, be used to facilitate compliance

    with the affiliate marketing notice requirements in this subpart. The

    requirement for concise notices would be satisfied by the appropriate

    use of one of the model forms.

    Consumer

    Proposed paragraph (i) defines the term ``consumer'' to mean an

    individual person, which follows the statutory definition in section

    603(c) of the FCRA. For purposes of this definition, an individual

    acting through a legal representative qualifies as a consumer. The

    Commission notes that the

    [[Page 66022]]

    definition of ``consumer'' is broader than the definition of that term

    in the GLB Act and is consistent with the definitions used by the

    Agencies in their rulemakings promulgated under section 624 of the

    FCRA. The Commission believes that the use of distinct definitions of

    ``consumer'' in the two statutes reflects differences in the scope and

    objectives of each statute.

    Covered Affiliate

    Proposed paragraph (h) defines the term ``covered affiliate'' to

    mean a futures commission merchant, retail foreign exchange dealer,

    commodity trading advisor, commodity pool operator, introducing broker,

    swap dealer or major swap participant, which is subject to the

    jurisdiction of the Commission.

    Eligibility information

    Under proposed paragraph (j), the term ``eligibility information''

    means any information that would be a consumer report if the exclusions

    from the definition of ``consumer report'' in section 603(d)(2)(A) of

    the FCRA did not apply.\13\ Examples of the type of information that

    would fall within the definition of ``eligibility information''

    includes an affiliate's own transaction or experience information, such

    as information about a consumer's account history with that person, and

    other information, such as information from credit bureau reports or

    applications. The Commission's proposal defines the term ``eligibility

    information'' consistently with the definitions in the Agencies'

    regulations promulgated pursuant to section 624 of the FCRA.

    ---------------------------------------------------------------------------

    \13\ Section 603(d)(2)(A) of the FCRA provides that the term

    ``consumer report'' does not include ``(i) [any] report containing

    information solely as to transactions or experiences between the

    consumer and the person making the report; (ii) communication of

    that information among persons related by common ownership or

    affiliated by corporate control; or (iii) communication of other

    information among persons related by common ownership or affiliated

    by corporate control, if it is clearly and conspicuously disclosed

    to the consumer that the information may be communicated among such

    persons and the consumer is given the opportunity, before the time

    that the information is initially communicated, to direct that such

    information not be communicated among such persons * * *.'' Thus,

    the scope of what falls within the definition of ``eligibility

    information'' is broader than, and includes, information that would

    fall within the definition of ``consumer report''.

    ---------------------------------------------------------------------------

    The term ``eligibility information'' does not include aggregate or

    blind data that does not contain personal identifiers. Examples of

    personal identifiers include account numbers, names, or addresses, as

    well as Social Security numbers, driver's license numbers, telephone

    numbers, or other types of information that, depending on the

    circumstances or when used in combination, could identify the consumer.

    The Commission invites comment on whether the term ``eligibility

    information'', as defined, appropriately reflects the scope of what

    information should be covered by this proposed regulation.

    Financial Product or Service

    Proposed paragraph (l) defines the term ``financial product or

    service'' to mean any product or service that a futures commission

    merchant, retail foreign exchange dealer, commodity trading advisor,

    commodity pool operator, introducing broker, major swap participant or

    swap dealer could offer that is subject to the Commission's

    jurisdiction. This definition is consistent with the definition of

    financial product or service in Part 160 of the Commission's

    Regulations, with certain revisions made to fit within the scope of the

    proposed regulations. The Commission invites comment on whether the

    term ``financial product or service'', as defined, appropriately

    captures the types of products or services that should be covered by

    this regulation.

    Major Swap Participant

    Proposed paragraph (n) defines the term ``major swap participant''

    to have the same meaning as in section 1a(33) of the Commodity Exchange

    Act, as may be further defined by the Commission's Regulations, and

    includes any person registered as such thereunder.

    Person

    Proposed paragraph (o) defines the term ``person'' to mean any

    individual, partnership, corporation, trust, association, or other

    entity. For purposes of this part, actions taken by an agent on behalf

    of a person that are within the scope of the agency relationship will

    be treated as actions of that person. The definition of person in the

    proposed regulation is consistent with the definition of person in CFTC

    Regulation 1.3(u).

    Pre-Existing Business Relationship

    Proposed paragraph (p) defines this term to mean a relationship

    between a person (or a person's licensed agent) and a consumer based on

    the following: (1) A financial contract between the person and the

    consumer that is in force on the date on which the consumer is sent a

    solicitation by this subpart; (2) the purchase, rental, or lease by the

    consumer of a person's financial products or services, or a financial

    transaction (including holding an active account or a policy in force

    or having another continuing relationship) between the consumer and the

    person, during the 18-month period immediately preceding the date on

    which a solicitation covered by this subpart is sent to the consumer;

    or (3) an inquiry or application by the consumer regarding a financial

    product or service offered by that person during the three-month period

    immediately preceding the date on which the consumer is sent a

    solicitation covered by this subpart. The proposed definition generally

    tracks the statutory definition contained in section 624 of the FCRA,

    with certain revisions for clarity.

    The Commission believes that, for purposes of this proposed

    regulation, an inquiry should include any affirmative request by a

    consumer for information, such that the consumer would reasonably

    expect to receive information from the affiliate about its financial

    products or services. In addition, the Commission believes that a

    consumer would not reasonably expect to receive information from the

    affiliate if the consumer does not request information or does not

    provide contact information to the affiliate.

    The Commission has the statutory authority to define in the

    regulations other circumstances that qualify as a pre-existing business

    relationship. The Commission has not proposed to exercise this

    authority at this time to expand the definition of ``pre-existing

    business relationship'' beyond the circumstances set forth in the

    statute. The Commission solicits comments, however, on whether there

    are other circumstances that the Commission should include within the

    definition of ``pre-existing business relationship''.

    Solicitation

    Proposed paragraph (q) defines the term ``solicitation'' to mean

    the marketing of a financial product or service initiated by a covered

    affiliate to a particular consumer that is based on eligibility

    information communicated to the covered affiliate by its affiliate and

    is intended to encourage the consumer to purchase the covered

    affiliate's financial product or service. A communication, such as a

    telemarketing solicitation, direct mail, or e-mail, is a solicitation

    if it is directed to a specific consumer based on eligibility

    information. The proposed definition of solicitation does not, however,

    include communications that are directed at the general public without

    regard to eligibility information, even if those communications are

    intended to encourage consumers to purchase

    [[Page 66023]]

    financial products and services from the person initiating the

    communications. The proposed definition tracks the statutory definition

    contained in section 624 of the FCRA, with certain revisions for

    clarity.

    The proposed definition of ``solicitation'' does not distinguish

    between different mediums of communication. A determination of whether

    a marketing communication constitutes a solicitation will depend upon

    the facts and circumstances. The Commission has decided not to make

    those determinations in this rulemaking.

    The Commission has the statutory authority to determine by

    regulation that other communications do not constitute a solicitation.

    The Commission has decided to use the same definition of

    ``solicitation'' adopted by the Agencies, and as a result, has not

    proposed to exercise its authority under section 624 at this time to

    specify other communications that would not be deemed ``solicitations''

    beyond the circumstances set forth in the statute.

    The Commission solicits comment, however, on whether there are

    other communications that the Commission should determine do not meet

    the definition of ``solicitation.'' The Commission also solicits

    comment on whether, and to what extent, various tools used in Internet

    marketing, such as popup ads, may constitute solicitations as opposed

    to communications directed at the general public, and whether further

    guidance is needed to address Internet marketing.

    Swap Dealer

    Proposed paragraph (r) defines the term ``swap dealer'' to have the

    same meaning as in section 1a(49) of the Commodity Exchange Act, as may

    be further defined by the Commission's Regulations, and includes any

    person registered as such thereunder.

    Section 162.3--Affiliate Marketing Opt Out and Exceptions

    Proposed section 162.3 establishes the basic rules governing the

    requirement to provide the consumer with notice, a reasonable

    opportunity and a simple method to opt out of a company's use of

    eligibility information that it obtains from an affiliate for the

    purpose of making solicitations to the consumer.

    General Notice Requirement

    Proposed paragraph (a) contains three conditions that must be met

    before a covered affiliate that does not have a pre-existing business

    relationship with a consumer may use eligibility information about the

    consumer that it receives from a affiliate that does have such a

    relationship to make a solicitation for marketing purposes to that

    consumer. First, the proposal provides that it must be clearly and

    conspicuously disclosed to the consumer in writing or, if the consumer

    agrees, electronically, in a concise notice that the covered affiliate

    that does not have a pre-existing business relationship may use shared

    eligibility information to make solicitations to the consumer. Second,

    the consumer must be provided a reasonable opportunity and a reasonable

    and simple method to opt out of the use of that eligibility information

    to make solicitations to the consumer. Third, the consumer must not

    have opted out.

    The Commission believes that an opt-out notice may not be provided

    orally. Indeed, the Commission is concerned that with oral notice, it

    may be impossible to ensure that a consumer receives the appropriate

    notice or information on the right to opt out. In addition, the

    Commission is concerned that oral notice may create enforcement

    barriers for the Commission.

    Persons Responsible for Satisfying the Notice Requirement

    Section 624 does not specify explicitly which affiliate must

    provide the opt-out notice to the consumer. Proposed paragraph (b) sets

    forth the duty of the persons responsible for satisfying the notice

    requirement under section 624. This proposal is consistent with the

    approach taken by the Agencies in their respective rulemakings pursuant

    to section 624. The proposed regulation strives to provide flexibility

    by allowing either: (1) The affiliate with a pre-existing business

    relationship to report the initial opt-out notice directly to the

    consumer; or (2) one or more of affiliates to provide a joint notice to

    the consumer, provided that at least one of the affiliates has or

    previously had the pre-existing business relationship with the

    consumer. The Commission solicits comments on whether this approach

    will provide meaningful or effective notice and will not lead to

    consumer confusion as to whether the opt-out notice is itself a

    solicitation.

    Exceptions to the General Rule

    Paragraph (c) contains exceptions to the requirements of this

    subpart. It incorporates each of the following statutory exceptions to

    the affiliate marketing notice and opt-out requirements set forth in

    section 624(a)(4) of the FCRA: (1) Using the information to make a

    solicitation to a consumer with whom the affiliate has a pre-existing

    business relationship; (2) using the information to facilitate

    communications to an individual for whose benefit the affiliate

    provides employee benefit or other services under a contract with an

    employer related to, and arising out of, a current employment

    relationship or an individual's status as a participant or beneficiary

    of an employee benefit plan; (3) using the information to perform

    services for another affiliate, unless the services involve sending

    solicitations on behalf of the other affiliate and such affiliate is

    not permitted to send such solicitations itself as a result of the

    consumer's decision to opt out; (4) using the information to make

    solicitations in response to a communication initiated by the consumer;

    (5) using the information to make solicitations in response to a

    consumer's request or authorization for a solicitation; or (6) if

    compliance with the requirements of section 624 by the affiliate would

    prevent that affiliate from complying with any provision of state

    insurance laws pertaining to unfair discrimination in a state where the

    affiliate is lawfully doing business. Several of these exceptions are

    discussed immediately below.

    Proposed paragraph (c)(1) clarifies that the provisions of this

    subpart do not apply where the covered affiliate using the information

    to make a solicitation to a consumer has a ``pre-existing business

    relationship'' with that consumer, a key term that is discussed in

    detail above.

    Proposed paragraph (c)(3) clarifies that the provisions of this

    subpart do not apply where the information is used to perform services

    for another affiliate, except that the exception does not permit the

    service provider to make solicitations on behalf of itself or an

    affiliate if the service provider or the affiliate, as applicable,

    would not be permitted to make such solicitations as a result of the

    consumer's election to opt out. Thus, when the notice has been provided

    to a consumer and the consumer has opted-out, a covered affiliate

    subject to the consumer's opt-out election that has received

    eligibility information from its affiliate may not circumvent the opt-

    out notice requirement by instructing its affiliate or another

    affiliate to make solicitations to the consumer on its behalf. The

    Commission requests comment on whether there are other means of

    circumvention that the final rule should also address.

    Proposed paragraph (c)(4) incorporates the statutory exception for

    information used in response to a communication initiated by the

    consumer. The proposed rule clarifies

    [[Page 66024]]

    that this exception may be triggered by an oral, electronic, or written

    communication initiated by the consumer. To be covered by the proposed

    exception, use of eligibility information must be responsive to the

    communication initiated by the consumer. For example, if a consumer

    calls a covered affiliate to ask about business locations and hours,

    the covered affiliate may not then use eligibility information to make

    solicitations to the consumer about specific financial products or

    services because those solicitations would not be responsive to the

    consumer's communication. Conversely, if the consumer calls a covered

    affiliate to ask about its financial products or services, then

    solicitations related to those financial products or services would be

    responsive to the communication and thus be permitted under the

    exception. The time period during which solicitations remain responsive

    to the consumer's communication will depend on the facts and

    circumstances. The Commission does not intend for this exception to

    apply to a communication where a covered affiliate makes the initial

    call and leaves a message for the consumer to call back, and the

    consumer responds.

    Proposed paragraph (c)(5) provides that the provisions of this

    subpart do not apply where the information is used to make

    solicitations affirmatively authorized or requested by the consumer.

    This provision may be triggered by an oral, electronic, or written

    authorization or request by the consumer. Under this exception, the

    consumer may provide the authorization or make the request either

    through the company with whom the consumer has a business relationship

    or directly to the covered affiliate that will make the solicitation.

    In addition, the duration of the authorization or request will depend

    on the facts and circumstances.

    The exceptions in proposed paragraphs (c)(1), (4), and (5)

    described above may overlap in certain situations. For example, if a

    customer makes a telephone call to the commodity trading advisor's

    clearing broker affiliate and requests information about its services,

    the clearing broker affiliate may use information about the consumer it

    obtains from the commodity trading advisor to make solicitations in

    response to the telephone call initiated by the consumer under the

    exception in paragraph (c)(4) for responding to a communication

    initiated by the consumer. In addition, the consumer's request for

    information from the clearing broker affiliate triggers the exceptions

    in paragraph (c)(1) for inquiries by the consumer regarding a financial

    product or service offered by the clearing broker affiliate under the

    statutory definition of a ``pre-existing business relationship'' as

    well as the exception in paragraph (c)(5) for a use in response to a

    solicitation requested by the consumer.

    Making Solicitations

    Proposed paragraph (d) sets forth when a covered affiliate makes a

    solicitation to a consumer. Section 624 does not describe what a

    covered affiliate must do in order to make a solicitation. Similarly

    the legislative history does not contain guidance as to the meaning of

    making a solicitation. For that reason, the Commission believes it

    important to provide clear guidance regarding what activities

    constitute making a solicitation. Proposed section 162.3(d)(1) provides

    that a covered affiliate makes a solicitation for marketing purposes to

    a consumer if: (i) The covered affiliate receives eligibility

    information from an affiliate; (ii) the covered affiliate uses that

    eligibility information to do one of the following--identify the

    consumer or type of consumer to receive a solicitation, establish the

    criteria used to select the consumer to receive a solicitation, or

    decide which of its financial products or services to market to the

    consumer or tailor its solicitation to that consumer; and (iii) as a

    result of the covered affiliate's use of the eligibility information,

    the consumer is provided a solicitation about the covered affiliate's

    financial products or services.

    The Commission recognizes that several common industry practices

    create issues in applying the provisions in proposed subparagraph

    (d)(1). First, affiliated companies often use a common database as the

    repository for eligibility information obtained by various affiliates,

    and information in that database may be accessible to multiple

    affiliates. Second, affiliated companies often use service providers to

    perform marketing activities, and some of those service providers may

    provide services for a number of different affiliates. Third, a covered

    affiliate may use its own eligibility information to market the

    financial products or services of another affiliate. Proposed sections

    162.3(d)(2)-(5) seek to address these issues.

    Proposed subparagraph (d)(2) provides that a covered affiliate may

    receive eligibility information from an affiliate in various ways,

    including when the covered affiliate places that information into a

    common database that the covered affiliate may access. Thus, the use of

    a common database may satisfy the first element of the rule outlined in

    subparagraph (d)(1) (i.e., through a common database, the covered

    affiliate receives eligibility information from an affiliate).

    Proposed subparagraph (d)(3) provides that a covered affiliate

    receives or uses an affiliate's eligibility information if a service

    provider acting on behalf of the covered affiliate receives or uses

    that information in the manner described in subparagraphs (d)(1)(i) or

    (d)(1)(ii), except as provided in subparagraph (d)(5), which is

    discussed below. Proposed subparagraph (d)(3) also provides that all

    relevant facts and circumstances will determine whether a service

    provider is acting on behalf of a covered affiliate when it receives or

    uses its affiliate's eligibility information in connection with

    marketing the covered affiliate's financial products or services.

    Proposed subparagraph (d)(4) describes two situations where a

    covered affiliate is deemed not to have made a solicitation subject to

    this subpart. In particular, this section provides that unless a

    covered affiliate uses a consumer's eligibility information received

    from an affiliate in a manner described in section 162.3(d)(1)(ii)

    (i.e., identify the consumer, establish criteria to select the

    consumer, or decide which financial product or service to market to the

    consumer), the covered affiliate does not make a solicitation for the

    purposes of this subpart if the affiliate: (i) uses its own eligibility

    information obtained in connection with that relationship to market the

    covered affiliate's financial products or services; or (ii) directs its

    service provider to use the affiliate's own eligibility information to

    market the covered affiliate's financial products or services. Both

    situations (i) and (ii) assume that the covered affiliate whose

    financial products or services are being marketed has not used

    eligibility information received from the affiliate. In contrast, the

    core concept underlying situation (ii) is that the affiliate controls

    the actions of the service provider using that information. Since the

    affiliate controls the service provider's use of the eligibility

    information, the solicitation should not be attributed to the covered

    affiliate whose financial products or services will be marketed to the

    consumers. Instead, the solicitation should be attributed to the

    affiliate.

    The Commission also recognizes that there may be situations where

    the covered affiliate whose financial products or services are being

    marketed does communicate and have contact

    [[Page 66025]]

    with the service provider of the affiliate. This situation might arise,

    for example, where the service provider performs services for various

    affiliates relying on information maintained in and accessed from a

    common database. In certain circumstances, the covered affiliate whose

    financial products or services are being marketed may communicate with

    the service provider, yet the service provider is still acting on

    behalf of the affiliate when it uses that affiliate's eligibility

    information in connection with marketing the covered affiliate's

    financial products or services. Proposed subparagraph (d)(5) describes

    the conditions under which a service provider (including an affiliated

    or third-party service provider) would be deemed to be acting on behalf

    of the affiliate that has or previously had a pre-existing business

    relationship with a consumer, rather than the covered affiliate whose

    financial products or services are being marketed, notwithstanding

    direct communications between the covered affiliate and the service

    provider.

    Proposed subparagraph (d)(5) builds upon the concept of control of

    a service provider and thus is a natural outgrowth of proposed

    subparagraph (d)(4). Under the conditions set out in subparagraph

    (d)(5), the service provider is acting on behalf of an affiliate that

    obtained the eligibility information in connection with a pre-existing

    business relationship with the consumer because, inter alia, the

    affiliate controls the actions of the service provider in connection

    with the service provider's receipt and use of the eligibility

    information. This provision is designed to minimize uncertainty that

    may arise from application of the facts and circumstances test in

    subparagraph (d)(3) to cases that involve direct communications between

    a service provider and a covered affiliate whose financial products and

    services will be marketed to consumers.

    In particular, proposed subparagraph (d)(5) provides that a covered

    affiliate does not make a solicitation subject to this subpart if a

    service provider receives eligibility information (regardless of

    whether such information is received through a common database or

    otherwise) from an affiliate and the service provider uses that

    eligibility information to market the covered affiliate's financial

    products or services to the consumer, only when five conditions are

    met.

    Those five conditions are:

    First, the affiliate controls access to and use of its

    eligibility information by the service provider (including the right to

    establish specific terms and conditions under which the service

    provider may use such information to market the financial products or

    services of the covered affiliate that does not have such

    relationship). This requirement must be set forth in a written

    agreement between the affiliate and the service provider. The affiliate

    may demonstrate control by, for example, establishing and implementing

    reasonable policies and procedures applicable to the service provider's

    access to and use of its eligibility information.

    Second, the affiliate establishes specific terms and

    conditions under which the service provider may access and use that

    eligibility information to market the financial products or services of

    the covered affiliate that does not have a pre-existing business

    relationship (or those of affiliates generally) to the consumer, and

    periodically evaluates the service provider's compliance with those

    terms and conditions. These terms and conditions may include the

    identity of the affiliated companies whose financial products or

    services may be marketed to the consumer by the service provider, the

    types of financial products or services of affiliated companies that

    may be marketed, and the number of times the consumer may receive

    marketing materials. The affiliate must set forth in writing the

    specific terms and conditions, but need not set forth such terms and

    conditions in a written agreement. If a periodic evaluation by the

    affiliate that has or previously had a pre-existing business

    relationship with a consumer reveals that the service provider is not

    complying with those terms and conditions, the Commission expects the

    affiliate to take appropriate corrective action.

    Third, the affiliate requires the service provider to

    implement reasonable policies and procedures designed to ensure that

    the service provider uses its eligibility information in accordance

    with the terms and conditions established by the such affiliate

    relating to the marketing of the financial products or services of the

    covered affiliate that does not have a pre-existing business

    relationship. This requirement must be set forth in a written agreement

    between the affiliate and the service provider.

    Fourth, the affiliate that has or previously had a pre-

    existing business relationship with a consumer is identified on or with

    the marketing materials provided to the consumer. This requirement will

    be construed flexibly. For example, the affiliate may be identified

    directly on the marketing materials, on an introductory cover letter,

    on other documents included with the marketing materials, such as a

    periodic statement, or on the envelope which contains the marketing

    materials.

    Fifth, the covered affiliate that does not have a pre-

    existing business relationship with the consumer does not directly use

    the eligibility information of the affiliate that does have such

    relationship in the manner described in section 162.3(d)(1)(ii). These

    five conditions together ensure that the service provider is acting on

    behalf of the affiliate because that affiliate controls the service

    provider's receipt and use of such affiliate's eligibility information.

    Section 162.4--Scope and Duration of Opt Out

    Scope of Opt Out

    The scope of the opt-out election is derived from language of

    section 624(a)(2)(A) of the FCRA and generally depends upon the content

    of the opt-out notice. Proposed section 162.4(a)(1) provides that,

    except as otherwise provided in that section, a consumer's election to

    opt out prohibits any covered affiliate subject to the scope of the

    opt-out notice from using the eligibility information received from

    another affiliate as described in the notice to make solicitations for

    marketing purposes to the consumer. The scope of the election in the

    proposed regulations is consistent with the scope of the final

    regulations promulgated by the Agencies.

    Proposed section 162.4(a)(2)(i) clarifies that, in the context of a

    continuing relationship, an opt-out notice may apply to eligibility

    information obtained in connection with a single continuing

    relationship, multiple continuing relationships, continuing

    relationships established subsequent to delivery of the opt-out notice,

    or any other transaction with the consumer. Proposed section

    162.4(a)(2)(ii) provides the following examples of a continuing

    relationship: (i) The covered affiliate is a futures commission

    merchant through whom a consumer has opened an account, or that carries

    the consumer's account on a fully-disclosed basis, or that effects or

    engages in commodity interest transactions with or for a consumer, even

    if the covered affiliate does not hold any assets of the consumer; (ii)

    the covered affiliate is an introducing broker that solicits or accepts

    specific orders for trades; (iii) the covered affiliate is a commodity

    trading advisor with whom a consumer has a contract or subscription,

    either written or oral, regardless of whether the advice is

    standardized, or is based on, or tailored

    [[Page 66026]]

    to, the commodity interest or cash market positions or other

    circumstances or characteristics of the particular consumer; (iv) the

    covered affiliate is a commodity pool operator, and accepts or receives

    from the consumer, funds, securities, or property for the purpose of

    purchasing an interest in a commodity pool; (v) the covered affiliate

    holds securities or other assets as collateral for a loan made to the

    consumer, even if the covered affiliate did not make the loan or do not

    affect any transactions on behalf of the consumer; or (vi) the covered

    affiliate regularly effects or engages in commodity interest

    transactions with or for a consumer even if covered affiliate does not

    hold any assets of the consumer.

    Proposed section 162.4(a)(3)(i) limits the scope of an opt-out

    notice that is not connected with a continuing relationship. This

    section provides that if there is no continuing relationship between

    the consumer and a covered affiliate or its affiliate, and if the

    covered affiliate or its affiliate provides an opt-out notice to a

    consumer that relates to eligibility information obtained in connection

    with a transaction with the consumer, such as an isolated transaction,

    the opt-out notice only applies to eligibility information obtained in

    connection with that transaction. The notice cannot apply to

    eligibility information that may be obtained in connection with

    subsequent transactions or a continuing relationship that may be

    subsequently established by the consumer with the covered affiliate or

    its affiliate. Proposed section 162.4(a)(3)(ii) provides the following

    examples of where no continuing relationship exists: (i) The covered

    affiliate has acted solely as a ``finder'' for a futures commission

    merchant, and the covered affiliate does not solicit or accept specific

    orders for trades; or (ii) the covered affiliate has solicited the

    consumer to participate in a pool or to direct his or her account and

    he or she has not provided the covered affiliate with funds to

    participate in a pool or entered into any agreement with the covered

    affiliate to direct his or her account.

    Proposed section 162.4(a)(4) provides that a consumer may be given

    the opportunity to choose from a menu of alternatives when electing to

    prohibit solicitations. An opt-out notice may give the consumer the

    opportunity to elect to prohibit: solicitations from certain types of

    affiliates covered by the opt-out notice but not other types of

    affiliates covered by the notice; solicitations based on certain types

    of eligibility information but not other types of eligibility

    information; or solicitations by certain methods of delivery but not

    other methods of delivery, so long as one of the alternatives is the

    opportunity to prohibit all solicitations from all of the affiliates

    that are covered by the notice. The Commission believes that the

    language of section 624(a)(2)(A) of the FCRA requires the opt-out

    notice to contain a single opt-out option for all solicitations within

    the scope of the notice. The Commission solicits comments as to whether

    it would be burdensome for consumers to receive a number of different

    opt-out notices, even from the same affiliate, under the circumstances

    described above.

    Proposed section 162.4(a)(5) contains a special rule for notice

    following termination of a continuing relationship. This proposed

    regulation provides that a consumer must be given a new opt-out notice

    if, after all continuing relationships with a covered affiliate or its

    affiliate have been terminated, the consumer subsequently establishes a

    new continuing relationship with the covered affiliate or the same or a

    different affiliate and the consumer's eligibility information is used

    to make a solicitation. In addition, this section affords the consumer

    and the company a fresh start following termination of all continuing

    relationships by requiring a new opt-out notice if a new continuing

    relationship is subsequently established.

    The new opt-out notice must apply, at a minimum, to eligibility

    information obtained in connection with the new continuing

    relationship. The new opt-out notice may apply more broadly to

    information obtained in connection with a terminated relationship and

    give the consumer the opportunity to opt out with respect to

    eligibility information obtained in connection with both the terminated

    and the new continuing relationships. Further, the consumer's failure

    to opt out does not override a prior opt-out election by the consumer

    applicable to eligibility information obtained in connection with a

    terminated relationship that is still in effect, regardless of whether

    the new opt-out notice applies to eligibility information obtained in

    connection with the terminated relationship. The Commission notes,

    however, that where a consumer was not given an opt-out notice in

    connection with the initial continuing relationship because eligibility

    information obtained in connection with that continuing relationship

    was not shared with affiliates for use in making solicitations, an opt-

    out notice provided in connection with a new continuing relationship

    would have to apply to any eligibility information obtained in

    connection with the terminated relationship that is to be shared with

    affiliates for use in making future solicitations.

    Duration of Opt-Out Election

    Proposed section 162.4(b) provides that an opt-out election must be

    effective for a period of at least five years beginning when the

    consumer's opt-out election is received and implemented, unless the

    consumer subsequently revokes the opt-out election in writing or, if

    the consumer agrees, electronically. The Commission believes that this

    approach is consistent with the approach taken by the Agencies and the

    Commission's approach in the GLB Act privacy rule in Part 160. The

    Commission does not believe it is necessary or appropriate to permit

    oral revocation.

    The Commission believes that this approach provides companies with

    flexibility in complying with the proposed regulations. For example, to

    avoid the cost and burden of tracking consumer opt outs over five-year

    periods with varying start and end dates and sending out extension

    notices in five-year cycles, some companies may choose to treat the

    consumer's opt-out election as effective for a period longer than five

    years, including in perpetuity, unless revoked by the consumer. A

    company that chooses to honor a consumer's opt-out election for more

    than five years would not violate the proposed regulations.

    The Commission seeks comment on whether the consumers should be

    given the opportunity to opt-out permanently from receiving marketing

    solicitations from affiliates regardless of the opt-out period stated

    in the opt-out notice. This approach would provide consumers with the

    ability to avoid receiving and responding to extension notices every

    five years.

    Time Period To Opt Out

    Proposed section 162.4(c) provides that a consumer may opt out at

    any time. Indeed, a consumer may opt out even if the consumer did not

    opt out in response to the initial opt-out notice or if the consumer's

    election to opt out was not prompted by an opt-out notice. Regardless

    of when the consumer opts out, the opt out must be effective for a

    period of at least five years.

    No Effect on Opt-Out Period

    Proposed section 162.4(d) provides that an opt-out period may not

    be shortened by sending a renewal notice to the consumer before

    expiration of the opt-out period, even if the consumer does not renew

    the opt out.

    [[Page 66027]]

    Section 162.5--Contents of Opt-Out Notice; Consolidated and Equivalent

    Notices

    Contents in General

    The Commission believes that proposed section 162.5(a) reflects the

    intent of Congress, as expressed in section 624(a)(2)(B) of the FCRA,

    which provides that the notice required by this proposed regulation

    must be in writing, ``clear, conspicuous, and concise,'' and that the

    method for opting out must be ``simple.'' Specifically, section

    162.5(a)(1)(i)(A) provides that all opt-out notices must identify, by

    name, the affiliate that has or previously had a pre-existing business

    relationship with a consumer and is providing the notice. Section

    162.5(a)(1)(B) provides that a group of affiliates may jointly provide

    the notice. If the notice is provided jointly by multiple affiliates

    and each affiliate shares a common name, then the notice may indicate

    that it is being provided by multiple companies with the same name or

    multiple companies in the same group or family of companies. Acceptable

    ways of identifying the multiple affiliates providing the notice

    include stating that the notice is provided by ``all of the XYZ

    companies,'' or by listing the name of each affiliate providing the

    notice. A representation that the notice is provided by ``the XYZ

    commodity trading advisors and commodity pools'' applies to all

    companies in those categories, not just some of those companies. But if

    the affiliates providing the notice do not all share a common name,

    then the notice must either separately identify each affiliate by name

    or identify each of the common names used by those affiliates.

    Proposed section 162.5(a)(1)(ii) provides that an opt-out notice

    must contain a list of the affiliates or types of affiliates covered by

    the notice. The notice may apply to multiple affiliates and to

    companies that become affiliates after the notice is provided to the

    consumer. The rule for identifying the affiliates covered by the notice

    is substantially similar to the rule for identifying the affiliates

    providing the notice in section 162.5(a)(i), as described in the

    previous paragraph.

    Proposed sections 162.5(a)(1)(iii)-(vii), respectively, require the

    opt-out notice to include the following: A general description of the

    types of eligibility information that may be used to make solicitations

    to the consumer; a statement that the consumer may elect to limit the

    use of eligibility information to make solicitations to the consumer; a

    statement that the consumer's election will apply for the specified

    period of time stated in the notice and, if applicable, that the

    consumer will be allowed to renew the election once that period

    expires; if the notice is provided to consumers who may have previously

    opted out, that the consumer who has chosen to limit marketing offers

    does not need to act again until the consumer receives a renewal

    notice; and a reasonable and simple method for the consumer to opt out.

    Proposed section 162.5(a)(2) provides that the opt-out notice must

    specify the length of the opt-out period, if the consumer is granted an

    opt-out period longer than five years. Proposed section 162.5(a)(3),

    however, provides that a company that subsequently chooses to increase

    the duration of the opt-out period that it previously disclosed or

    honor the opt out in perpetuity has no obligation to provide a revised

    notice to the consumer. In that case, the result is the same as if the

    company established a five-year opt-out period and then did not send a

    renewal notice at the end of that period. So long as no solicitations

    are made using eligibility information received from an affiliate,

    there would be no violation of the statute or regulation for failing to

    send a renewal notice in this situation. A covered affiliate receiving

    eligibility information from an affiliate would be prohibited from

    using that information to make solicitations to a consumer unless a

    renewal notice is first provided to the consumer and the consumer does

    not renew the opt out.

    Use of the model form in Appendix A, in appropriate circumstances,

    would comply with paragraph (a), but is not required.

    Joint Relationships

    Proposed section 162.5(b) sets out a rule that would apply when two

    or more consumers jointly obtain a financial product or service from an

    affiliate subject to the rule (referred to in the proposed regulation

    as ``joint consumers''). Under the proposal, an affiliate subject to

    the rule could provide a single opt-out notice to joint consumers. The

    notice would have had to indicate whether the affiliate would consider

    an opt out by a joint consumer as an opt out by all of the associated

    consumers, or whether each consumer would have to opt out separately.

    The affiliate could not require all consumers to opt out before

    honoring an opt-out election by one of the joint consumers. The revised

    provision is substantively similar to the joint relationships provision

    of the GLB Act privacy rule in Part 160, except to the extent that rule

    refers to the sharing of information among affiliates. The Commission

    requests comments on whether information about a joint account should

    be allowed to be used for making solicitations to a joint consumer who

    has not opted out.

    Alternative Contents

    Proposed paragraph (c) provides that if the consumer is afforded an

    alternative but broader right to opt out of receiving marketing than is

    required by this subpart, the requirements of proposed section 162.5(a)

    may be satisfied by providing the consumer with a clear, conspicuous,

    and concise notice that accurately discloses the consumer's opt-out

    rights.

    Consolidated and Equivalent Notices

    Proposed section 162.5(d) provides that an opt-out notice required

    by this subpart could be coordinated and consolidated with any other

    notice or disclosure required to be issued under any other provision of

    law, including but not limited to the notice required by Title V of the

    GLB Act. In addition, proposed section 162.5(e) provides that a notice

    or other disclosure that is equivalent to the notice required by this

    subpart, and that is provided to a consumer together with disclosures

    required by any other provision of law, would satisfy the requirements

    of this section.

    Including an affiliate marketing opt-out notice under this subpart

    and an initial or annual notice under the GLB Act raises special

    issues, however, because GLB Act notices typically state that the

    consumer does not need to opt out again if the consumer previously

    opted-out. This statement would be accurate if the company and its

    affiliates choose to make the affiliate marketing opt out effective in

    perpetuity. However, if the opt-out period is limited to a defined

    period of five years or more, such a statement would not be accurate

    with respect to the extension notice, and the notice would have to make

    clear to the consumer the necessity of opting-out again in order to

    extend the opt-out election.

    The Commission solicits comments on the consolidation of the

    affiliate marketing notice under this subpart with the GLB Act privacy

    notices in Part 160.

    Model Notices

    Proposed section 162.5(f) states that proposed model notices are

    provided in Appendix A of Part 162. The Commission has provided these

    proposed model notices to facilitate compliance with the proposed rule.

    It should be noted, however, that the

    [[Page 66028]]

    proposed rule does not require use of the model notices.

    Section 162.6--Reasonable Opportunity to Opt Out

    Proposed paragraph (a) sets forth the general rule prohibiting

    covered affiliates from using eligibility information about a consumer

    received from an affiliate to make a solicitation to such consumer

    about the covered affiliate's financial products or services, unless

    the consumer is provided a reasonable opportunity to opt out, as

    required by the proposed regulation. The general rule does not set a

    mandatory waiting period in all cases. Instead, proposed paragraph (b)

    sets forth several examples illustrating what constitutes a reasonable

    opportunity to opt out. Paragraph (b) does maintain, however, a safe

    harbor of 30 days to provide certainty to entities that choose to

    follow the 30-day waiting period. Although 30 days is a safe harbor in

    all cases, an affiliate subject to the rule providing an opt-out notice

    may decide, at its option, to give consumers more than 30 days in which

    to decide whether to opt out. A shorter waiting period could be

    adequate in certain situations, depending on the circumstances, in

    accordance with the general test for a reasonable opportunity to opt

    out.

    Section 162.7--Reasonable and Simple Methods of Opting Out

    Section 624 of the FCRA requires that consumers are given

    reasonable and simple methods of opting out. Proposed paragraph (a)

    prohibits covered affiliates from using eligibility information about a

    consumer received from an affiliate to make a solicitation to such

    consumer about the financial products or services of the covered

    affiliate, unless the consumer is provided a reasonable and simple

    method to opt out, as required by this proposed regulation.

    Proposed paragraph (b) sets forth reasonable and simple methods of

    opting out. Such methods include designating a check-off box in a

    prominent position on an opt-out election form, including a reply form

    and a self-addressed envelope (in a mailing), providing an electronic

    means that can be electronically mailed or processed through an

    Internet Web site, providing a toll-free telephone number, or

    exercising an opt-out election through whatever means are acceptable

    under a consolidated privacy notice required under other laws.

    Proposed paragraph (c) clarifies that each consumer may be required

    to opt out through a specific medium, as long as that medium is

    reasonable and simple for that consumer.

    Section 162.8--Acceptable Delivery of Opt-Out Notices

    Proposed section 162.8(a) provides that an affiliate that has or

    previously had a pre-existing business relationship with a consumer

    must deliver an opt-out notice so that each consumer can reasonably be

    expected to receive actual notice. For opt-out notices that are

    delivered electronically at the consumer's election, proposed section

    162.8(b) provides that opt-out notices may be delivered either in

    accordance with the electronic disclosure provisions in section 101 of

    the Electronic Signatures in Global and National Commerce Act, 15

    U.S.C. 7001 et seq. or in accordance with CFTC Regulation 1.4.

    Section 162.9--Renewal of Opt Out

    Proposed section 162.9 describes the procedures for renewal or

    extension of an opt-out election. Proposed subparagraph (a)(1) provides

    that, after the opt-out period expires, and unless an exception in

    section 162.3(c) applies, a covered affiliate may not make a

    solicitation to a consumer based on eligibility information received by

    an affiliate unless: The consumer has been given a renewal notice that

    complies with requirements of this section and the other sections 162.6

    through 162.8; the consumer is given a reasonable opportunity and a

    reasonable and simple to renew the opt-out election; and the consumer

    does not opt out. Proposed subparagraph (a)(2) provides that the

    renewal period for each renewal shall be a period of not less than five

    years. Proposed subparagraph (a)(3) outlines which affiliates may

    provide notice required by this section. A renewal notice must be

    provided either by: The affiliate that provided the previous opt-out

    notice or its successor; or as part of a joint renewal notice from two

    or more members of an affiliated group of companies, or their

    successors, that jointly provided the previous opt-out notice. The

    Commission believes that this subparagraph will provide flexibility to

    account for changes in the corporate structure, which may result from

    mergers and acquisitions, corporate names changes, and other events.

    Proposed paragraph (b) addresses the contents of a renewal or

    extension notice. The Commission recognizes that the content of the

    renewal notice differs from the content of the initial notice. Nothing

    in the FCRA, however, requires identical content in the initial and

    renewal notices. Moreover, the FCRA requires the Commission to provide

    specific guidance to ensure that opt-out notices are clear, conspicuous

    and concise. The Commission believes that it is unreasonable to expect

    consumers, upon receipt of a renewal notice, to remember that they

    previously opted out five years ago (or longer) or, even if they do

    remember, to know that they must opt out again in order to renew their

    opt-out election. Therefore, to ensure that the renewal notice is

    meaningful, the Commission is proposing that the renewal notice must

    remind the consumer he or she must opt out again to renew the opt-out

    election and continue to limit the solicitations from covered

    affiliates. In addition, proposed paragraph (b) requires that the

    notice must accurately disclose the same items required to be disclosed

    in the initial opt-out notice under proposed section 162.5(a), along

    with a statement explaining that the consumer's prior opt-out election

    has expired or is about to expire, as applicable, and that if the

    consumer wishes to keep the consumer's opt-out election in force, the

    consumer must opt out again.

    Proposed paragraph (c) addresses the timing of the renewal notice

    and provides that a renewal notice can be given to the consumer either

    a reasonable period of time before the expiration of the opt-out

    period, or any time after the expiration of the opt-out period but

    before solicitations that would have been prohibited by the expired

    opt-out election are made to the consumer. Providing the renewal notice

    to a consumer within a reasonable period of time before the expiration

    of the opt-out period is appropriate to facilitate the smooth

    transition of consumers that choose to change their election. A renewal

    notice given too far in advance of the expiration of the opt-out

    period, however, may be confusing to consumers. The Commission does not

    propose to set a fixed time for what would constitute a reasonable

    period of time before the expiration of the opt-out period to send a

    renewal notice, because a reasonable period of time may depend upon the

    amount of time afforded to the consumer for a reasonable opportunity to

    opt out, the amount of time necessary to process opt outs, and other

    factors. Nevertheless, providing a renewal notice on or with the last

    annual privacy notice required by the GLB Act privacy provisions sent

    to the consumer before the expiration of the opt-out period shall be

    deemed reasonable in all cases.

    Proposed paragraph (d) clarifies that sending a renewal notice to

    the consumer before the expiration of the opt-out period does not

    shorten the five-

    [[Page 66029]]

    year opt-out period, even if the consumer does not renew the opt-out

    election.

    B. Disposal Rules

    As noted above, section 1088 of the Dodd-Frank Act also amends

    section 628 of the FCRA, which directs the Commission to adopt

    comparable and consistent rules with the Agencies regarding the

    disposal of sensitive consumer report information. The purpose of these

    rules is to reduce the risk of identity theft and other consumer harm

    from improper disposal of a consumer report or any record derived from

    one. The proposed disposal rules apply to any CFTC registrant that, for

    a business purpose, maintains or otherwise possesses such consumer

    report information.

    The general disposal requirement provides that CFTC registrants

    covered by the proposed regulation ``take reasonable measures to

    protect against unauthorized access to or use of the information in

    connection with its disposal.'' The standard for disposal is flexible

    to allow CFTC registrants to determine what measures are reasonable

    based on the sensitivity of the information, the costs and benefits of

    different disposal methods, and relevant changes in technology over

    time. The proposed disposal rule's flexibility should also facilitate

    compliance for smaller CFTC registrants.

    In the discussion that follows, the Commission solicits comment on

    specific aspects of the proposed disposal rules on a section-by-section

    basis.

    Section 162.2--Definitions

    In addition to the definitions previously discussed above, the

    proposed regulations to implement section 628 of the FCRA require the

    addition of the following terms to the definition section of the new

    Part 162.

    Consumer Information

    Proposed paragraph (h) defines the term ``consumer information'' to

    mean any record about an individual, whether in paper, electronic, or

    other form that is a consumer report or is derived from a consumer

    report.\14\ Consumer information also means a compilation of such

    records. Consumer information does not include information that does

    not identify individuals, such as aggregate information or blind data.

    The Commission believes that a broad definition of the term, which

    includes all types of records that are consumer reports, or contain

    consumer information derived from consumer reports, will best

    effectuate the purposes of the FCRA. However, under this definition,

    information which does not identify a particular consumer would not be

    included. The Commission believes that limiting the definition to

    information which identifies particular consumers is consistent with

    the purpose of the FCRA.

    ---------------------------------------------------------------------------

    \14\ The term ``consumer report'' is defined in section

    603(d)(1) of the FCRA as ``any written, oral, or other communication

    of any information by a consumer reporting agency bearing on a

    consumer's credit worthiness, credit standing, credit capacity,

    character, general reputation, personal characteristics, or mode of

    living which is used or expected to be used or collected in whole or

    in part for the purpose of serving as a factor in establishing the

    consumer's eligibility for [several purposes, including employment,

    the provision of credit or insurance].''

    ---------------------------------------------------------------------------

    Dispose or Disposal

    Proposed paragraph (i) defines the terms ``dispose'' or

    ``disposal'' to mean the discarding or abandonment of consumer

    information or the sale, donation, or transfer of any medium, including

    computer equipment, upon which consumer information is stored. The

    sale, donation, or transfer of consumer information would not be

    considered ``disposal'' under the proposed regulation. For example, an

    entity subject to the proposed disposal rule that transfers consumer

    information to a third party for marketing purposes would not be

    discarding the information for the purposes of the proposed disposal

    rule. If the entity donates computer equipment on which consumer

    information is stored, however, the donation would be considered a

    disposal under the proposed disposal rule. The Commission requests

    comments on this definition.

    Section 162.21--Disposal Rules

    Proposed section 162.21 implements section 628(a)(1) of the FCRA.

    Proposed paragraph (a) would require any covered affiliate to adopt

    must adopt reasonable, written policies and procedures that address

    administrative, technical, and physical safeguards for the protection

    of consumer information. The proposal requires these written policies

    and procedures to be reasonably designed to: (1) Insure the security

    and confidentiality of consumer information; (2) protect against any

    anticipated threats or hazards to the security or integrity of consumer

    information; and (3) protect against unauthorized access to or use of

    consumer information that could result in substantial harm or

    inconvenience to any consumer.

    Proposed paragraph (b) would require that any person that maintains

    or otherwise possesses consumer information to take ``reasonable

    measures to protect against unauthorized access to or use of the

    information in connection with its disposal.'' The Commission

    recognizes that there are few foolproof methods of record destruction.

    Therefore, the proposed regulation does not require persons subject to

    the rule to ensure perfect destruction of consumer information in every

    instance; rather, it requires covered entities to take reasonable

    measures to protect against unauthorized access to or use of the

    information in connection with its disposal.

    In determining what measures are ``reasonable'' under this subpart,

    the Commission expects that entities within the scope of the proposed

    regulation would consider the sensitivity of the consumer information,

    the nature and size of the entity's operations, the costs and benefits

    of different disposal methods, and relevant technological changes.

    ``Reasonable measures'' are very likely to require elements such as the

    establishment of policies and procedures governing disposal, as well as

    appropriate employee training.

    The flexible standard for disposal in the proposed rule would allow

    persons subject to the rule to make decisions appropriate to their

    particular circumstances and should minimize the disruption of existing

    practices to the extent that they already provide appropriate

    protections for consumers. It is also intended to minimize the burden

    of compliance for smaller entities.

    Despite the benefits of a flexible ``reasonableness'' standard, the

    Commission recognizes that such a standard could leave entities within

    the scope of the proposed regulations with some uncertainty about

    compliance. While each entity would have to evaluate what is

    appropriate for its size and the complexity of its operations, proposed

    paragraph (c) sets forth the following examples of what the Commission

    believes constitute ``reasonable'' disposal measures for purposes of

    the proposed regulation:

    Implementing and monitoring compliance with policies and

    procedures that require the burning, pulverizing, or shredding of

    papers containing consumer information so that the information cannot

    practicably be read or reconstructed;

    Implementing and monitoring compliance with policies and

    procedures that require the destruction or erasure of electronic media

    containing consumer information so

    [[Page 66030]]

    that the information cannot practically be read or reconstructed; and

    After due diligence, entering into and monitoring

    compliance with a written contract with another party engaged in the

    business of record destruction to dispose of consumer information in a

    manner that is consistent with this rule.

    The Commission invites comment on the proposed standard for

    disposal. In particular, the Commission seeks comment on whether the

    proposed ``reasonableness'' standard provides sufficient guidance to

    CFTC registrants. The Commission also seeks comment on whether the

    proposed disposal rule should include alternative standards, specify

    particular disposal methods, or should provide examples, and what those

    examples should be.

    Proposed paragraph (d) makes clear that nothing in the proposed

    disposal rule is intended to create a requirement that a covered entity

    maintain or destroy any record pertaining to an individual. The rule

    also is not intended to affect any requirement imposed under any other

    provision of law to maintain or destroy such records, particularly the

    record keeping requirements located in Part 1 of the Commission's

    Regulations.

    C. Effective Date

    Pursuant to section 1100H of the Dodd-Frank Act, the Commission

    proposes to make the proposed regulations--the affiliate marketing

    rules and the disposal rules--become effective on the ``designated

    transfer date'' of authority from various Federal agencies to the

    Bureau. Section 1062 of the Dodd-Frank Act provides that the

    ``designated transfer date'' is a date designated in the Federal

    Register no later than 60 days after the enactment of the Dodd-Frank

    Act by the Secretary of the Treasury, the Chairman of the Board of

    Governors, the Chairman of the Federal Trade Commission, and several

    other Federal agencies.\15\ On September 20, 2010, these Federal

    agencies issued a notice designating July 21, 2011 as the designated

    transfer date.\16\ As a result, the Commission proposes to adopt the

    affiliate marketing rules and the disposal rules on that date.

    ---------------------------------------------------------------------------

    \15\ The heads of the other Federal agencies are: The

    Comptroller of the Currency; the Director of the Office of Thrift

    Supervision; the Secretary of the Department of Housing and Urban

    Development; the Director of the Office of Management and Budget;

    the Chairman of the National Credit Union Administration Board; and

    the Chairperson of the Corporation.

    \16\ See 75 FR 57252-02 (Sept. 20, 2010).

    ---------------------------------------------------------------------------

    III. Cost-Benefit Analysis

    Section 15(a) of the CEA \17\ requires the Commission to consider

    the costs and benefits of its actions before issuing an order under the

    CEA. By its terms, section 15(a) does not require the Commission to

    quantify the costs and benefits of an order or to determine whether the

    benefits of the order outweigh its costs; rather, it requires that the

    Commission ``consider'' the costs and benefits of its actions. Section

    15(a) further specifies that the costs and benefits shall be evaluated

    in light of five broad areas of market and public concern: (1)

    Protection of market participants and the public; (2) efficiency,

    competitiveness and financial integrity of futures markets; (3) price

    discovery; (4) sound risk management practices; and (5) other public

    interest considerations. The Commission may in its discretion give

    greater weight to any one of the five enumerated areas and could in its

    discretion determine that, notwithstanding its costs, a particular

    order is necessary or appropriate to protect the public interest or to

    effectuate any of the provisions or accomplish any of the purposes of

    the CEA.

    ---------------------------------------------------------------------------

    \17\ 7 U.S.C. 19(a).

    ---------------------------------------------------------------------------

    The proposed regulations would implement new statutory provisions

    enacted by Title X of the Dodd-Frank Act. These proposed regulations

    would require CFTC registrants to do two things with respect to certain

    consumer information. First, the proposed regulations would require

    CFTC registrants to provide consumers with the opportunity to prohibit

    affiliates from using certain information to make marketing

    solicitations to consumers. Second, the proposed rules would require

    CFTC registrants that possess or maintain consumer report information

    in connection with their business activities to develop and implement a

    written program for the proper disposal of such information.

    With respect to costs, the Commission has determined that costs to

    market participants would be de minimis because: (1) The Commission is

    providing model notices in the proposed regulations in order to assist

    these participants in complying with the affiliate marketing rules; (2)

    the affiliate marketing rules only require periodic notice (i.e., at a

    maximum, companies would have to provide notice to a consumer once

    every five years; at a minimum, companies would have to provide notice

    only once per consumer); (3) market participants can file consolidated

    and equivalent notices in order to comply with the affiliate marketing

    rules; and (4) the disposal rules were designed to provide market

    participants with the greatest flexibility in the development and

    implementation of a disposal program (which may vary according to a

    company's size and the complexity of its operations, the costs and

    benefits of available disposal methods, and the sensitivity of

    information involved). The Commission also has determined that the

    costs to the general public are: (1) Absent the implementation of the

    affiliate marketing rules, consumers would have no control over both

    the use of their personal information, and the number of solicitations

    such consumers would receive from affiliates of company with which they

    have a pre-existing business relationship; and (2) absent the

    implementation of the disposal rules, would increase the chances that

    consumer information would be accessible to third parties who may use

    such information for identity theft or other unlawful purposes.

    With respect to benefits, the Commission has determined that,

    through the implementation of the affiliate marketing rules, consumers

    generally will be able to opt out of receiving unsolicited and targeted

    materials from businesses with which the consumers have no pre-existing

    business relationship. In addition, the Commission has determined that,

    as a result of the implementation of the disposal rules, the potential

    for the misuse of consumer information will greatly decrease.

    The Commission invites public comment on its cost-benefit

    considerations. Commenters are also are invited to submit any data or

    other information that they may have quantifying or qualifying the

    costs and benefits of the proposed regulations with their comment

    letters.

    IV. Paperwork Reduction Act

    Provisions of proposed Part 162 would result in new collection of

    information requirements within the meaning of the Paperwork Reduction

    Act of 1995 (``PRA''). The Commission therefore is submitting this

    proposal to the Office of Management and Budget (``OMB'') for review in

    accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for this

    collection of information is ``Part 162--Protection of Consumer

    Information Under the Fair Credit Reporting Act.'' If adopted,

    responses to this new collection of information would be mandatory. The

    Commission will protect proprietary information according to the

    Freedom of

    [[Page 66031]]

    Information Act and 17 CFR part 145, ``Commission Records and

    Information.'' In addition, section 8(a)(1) of the CEA strictly

    prohibits the Commission, unless specifically authorized by the CEA,

    from making public ``data and information that would separately

    disclose the business transactions or market positions of any person

    and trade secrets or names of customers.'' The Commission also is

    required to protect certain information contained in a government

    system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.

    1. Information Provided by Reporting Entities/Persons

    Under proposed Part 162, reporting or recordkeeping CFTC

    registrants, which presently would include approximately 3,172 persons

    (including an estimate of the number of new CFTC registrants pursuant

    to Title VII of the Dodd-Frank Act),\18\ would be required to collect

    information and keep records for the purposes of providing opt-out

    notices to consumers at a maximum of at least every five years. The

    proposed collection for the affiliate marketing rules is estimated to

    involve 0.01 burden hours per report or record. The estimated number of

    opt-out notices per five-year period is 412,000. The estimated

    aggregate number of burden hours each five-year period is 13,068.64

    burden hours for the affiliate marketing rules.

    ---------------------------------------------------------------------------

    \18\ See the National Futures Association's (``NFA'') Internet

    Web site at: http://www.nfa.futures.org/NFA-registration/NFA-

    membership-and-dues.HTML for the most up-to-date number of CFTC

    registrants. For the purposes of the PRA calculation, Commission

    staff used the number of registered futures commission merchants,

    commodity trading advisors, commodity pool operators and introducing

    brokers on the NFA's Web site as of August 31, 2010.

    Commission staff estimated the number of swap dealers and major

    swap participants, which staff believes will register with the

    Commission following the issuance of final rules under the Dodd-

    Frank Act further defining the terms ``swap dealers'' and ``major

    swap participants'' and setting forth a registration regime for

    these entities. While staff believes that there may likely be

    approximately 200 swap dealers, we have taken a conservative

    approach in estimating that there will be 250 swap dealers for

    Paperwork Reduction Act purposes.

    Some of the entities that were registered as futures commission

    merchants as of August 31, 2010 will soon register as retail foreign

    exchange dealers. Consequently, the total number of CFTC registrants

    will not be affected as a result of the change in registration from

    future commission merchants to retail foreign exchange dealers.

    ---------------------------------------------------------------------------

    The same number of persons would be required to develop written

    disposal plans only once. The proposed collection for the disposal

    rules is estimated to involve between three to 10 burden hours per

    plan, at an average of 3.5 burden hours, for an aggregate of 11,102

    burden hours.

    2. Information Collection Comments

    The Commission invites the public and other Federal agencies to

    comment on any aspect of the reporting and recordkeeping burdens

    discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission

    solicits comments in order to: (i) Evaluate whether the proposed

    collection of information is necessary for the proper performance of

    the functions of the Commission, including whether the information will

    have practical utility; (ii) evaluate the accuracy of the Commission's

    estimate of the burden of the proposed collection of information; (iii)

    determine whether there are ways to enhance the quality, utility, and

    clarity of the information to be collected; and (iv) minimize the

    burden of the collection of information on those who are to respond,

    including through the use of automated collection techniques or other

    forms of information technology.

    Comments may be submitted directly to the Office of Information and

    Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at

    OIRAsubmissions@omb.eop.gov. Please provide the Commission with a copy

    of submitted comments so that all comments can be summarized and

    addressed in the final rule preamble. Refer to the ADDRESSES section of

    this notice of proposed rulemaking for comment submission instructions

    to the Commission. A copy of the supporting statements for the

    collections of information discussed above may be obtained by visiting

    RegInfo.gov. OMB is required to make a decision concerning the

    collection of information between 30 and 60 days after publication of

    this release. Consequently, a comment to OMB is most assured of being

    fully effective if received by OMB (and the Commission) within 30 days

    after publication of this notice of proposed rulemaking.

    V. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \19\ requires that

    agencies consider whether the regulations they propose will have a

    significant economic impact on a substantial number of small entities

    and, if so, provide a regulatory flexibility analysis respecting the

    impact.\20\ The regulations proposed by the Commission shall affect

    only futures commission merchants, introducing brokers, commodity

    trading advisors, commodity pool operators, swap dealers and major swap

    participants. The Commission has determined that the notice obligations

    under this proposed regulation will not create a significant economic

    impact on a substantial number of small entities. Moreover, the

    Commission previously has determined that futures commission merchants

    and commodity pool operators are not small entities for purposes of the

    RFA.\21\ Accordingly, the Chairman, on behalf of the Commission, hereby

    certifies pursuant to 5 U.S.C. 605(b) that the proposed rules, will not

    have a significant impact on a substantial number of small entities.

    ---------------------------------------------------------------------------

    \19\ 5 U.S.C. 601 et seq.

    \20\ 5 U.S.C. 601 et seq.

    \21\ Previous determinations for FCMs at 47 FR 18618, 18619

    (1982) and CPOs at 47 FR 18618, 18619 (1982).

    ---------------------------------------------------------------------------

    VI. Text of Proposed Rules

    List of Subjects in 17 CFR Part 162

    Consumer protection, Privacy.

    For the reasons stated in the preamble, the Commodity Futures

    Trading Commission proposes to add 17 CFR part 162 to read as follows:

    PART 162--PROTECTION OF CONSUMER INFORMATION UNDER THE FAIR CREDIT

    REPORTING ACT

    Sec.

    162.1 Purpose and scope.

    162.2 Definitions.

    Subpart A--Business Affiliate Marketing Rules

    162.3 Affiliate marketing opt out and exceptions.

    162.4 Scope and duration of opt out.

    162.5 Contents of opt-out notice; consolidated and equivalent

    notices.

    162.6 Reasonable opportunity to opt out.

    162.7 Reasonable and simple methods of opting out.

    162.8 Delivery of opt-out notices

    162.9 Renewal of opt out.

    162.10-162.20 [Reserved]

    Subpart B--Disposal Rules

    162.21 Proper disposal of consumer information.

    Authority: Sec. 1088, Pub. L. 111-203; 124 Stat. 1376 (2010).

    Sec. 162.1 Purpose and scope.

    (a) Purpose. The purpose of this part is to implement various

    provisions in the Fair Credit Reporting Act, 15 U.S.C. 1681, et seq.

    (``FCRA''), which provide certain protections to consumer information.

    (b) Scope. This part applies to certain consumer information held

    by the entities listed below. This part shall apply to futures

    commission merchants, retail foreign exchange dealers, commodity

    trading advisors, commodity pool operators, introducing brokers,

    [[Page 66032]]

    swap dealers and major swap participants, regardless of whether they

    are required to register with the Commission. This part does not apply

    to foreign futures commission merchants, foreign retail foreign

    exchange dealers, commodity trading advisors, commodity pool operators,

    introducing brokers, swap dealers and major swap participants unless

    such entity registers with the Commission. Nothing in this part

    modifies limits or supersedes the requirements set forth in Part 160 of

    this title.

    (c) Examples. The examples in this part are not exclusive.

    Compliance with an example, to the extent applicable, constitutes

    compliance with this part. Examples in a section illustrate only the

    issue described in the section and do not illustrate any other issue

    that may arise in this part.

    Sec. 162.2 Definitions.

    (a) Affiliate. The term ``affiliate'' of a means any company that

    is under common ownership or common corporate control with a covered

    affiliate.

    (b) Clear and conspicuous. The term ``clear and conspicuous'' means

    reasonably understandable and designed to call attention to the nature

    and significance of the information presented in the notice.

    (c) Common ownership or common corporate control. The term ``common

    ownership or common corporate control'' means the power to exercise a

    controlling influence over the management or policies of a company

    whether through ownership of securities, by contract, or otherwise. Any

    person who owns beneficially, either directly or through one or more

    controlled companies, more than 25 percent of the voting securities of

    any company is presumed to control the company. Any person who does not

    own more than 25 percent of the voting securities of a company will be

    presumed not to control the company.

    (d) Company. The term ``company'' means any corporation, limited

    liability company, business trust, general or limited partnership,

    association, or similar organization.

    (e) Concise.--

    (1) In general. The term ``concise'' means a reasonably brief

    expression or statement.

    (2) Combination with other required disclosures. A notice required

    by this part may be concise even if it is combined with other

    disclosures required or authorized by Federal or state law.

    (f) Consumer. The term ``consumer'' means an individual person.

    (g) Consumer information. The term ``consumer information'' means

    any record about an individual, whether in paper, electronic, or other

    form, that is a consumer report or is derived from a consumer report.

    Consumer information also means a compilation of such records. Consumer

    information does not include information that does not identify

    individuals, such as aggregate information or blind data.

    (h) Covered affiliate. The term ``covered affiliate'' means a

    futures commission merchant, retail foreign exchange dealer, commodity

    trading advisor, commodity pool operator, introducing broker, swap

    dealer or major swap participant, which is subject to the jurisdiction

    of the Commission.

    (i) Dispose or Disposal.--

    (1) In general. The terms ``dispose'' or ``disposal'' means:

    (i) The discarding or abandonment of consumer information; or

    (ii) The sale, donation, or transfer of any medium, including

    computer equipment, upon which consumer information is stored.

    (2) Sale, donation, or transfer of consumer information. The sale,

    donation, or transfer of consumer information is not considered

    disposal for the purposes of subpart B.

    (j) Dodd-Frank Act. The term ``Dodd-Frank Act'' means the Dodd-

    Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203,

    124 Stat. 1376 (2010)).

    (k) Eligibility information. The term ``eligibility information''

    means any information that would be a consumer report if the exclusions

    from the definition of ``consumer report'' in section 603(d)(2)(A) of

    the FCRA did not apply. Examples of the type of information that would

    fall within the definition of eligibility information includes an

    affiliate's own transaction or experience information, such as

    information about a consumer's account history with that affiliate, and

    other information, such as information from credit bureau reports or

    applications. Eligibility information does not include aggregate or

    blind data that does not contain personal identifiers such as account

    numbers, names, or addresses.

    (l) FCRA. The term ``FCRA'' means the Fair Credit Reporting Act (15

    U.S.C. 1681 et seq.).

    (m) Financial product or service. The term ``financial product or

    service'' means any product or service that a futures commission

    merchant, retail foreign exchange dealer, commodity trading advisor,

    commodity pool operator, introducing broker, major swap participant or

    swap dealer could offer that is subject to the Commission's

    jurisdiction.

    (n) GLB Act. The term ``GLB Act'' means the Gramm-Leach-Bliley Act

    (Pub. L. No. 106-102, 113 Stat. 1338 (1999)).

    (o) Major swap participant. The term ``major swap participant'' has

    the same meaning as in section 1a(33) of the Commodity Exchange Act, 7

    U.S.C. 1 et seq., as may be further defined by this title, and includes

    any person registered as such thereunder.

    (p) Person. The term ``person'' means any individual, partnership,

    corporation, trust, estate, cooperative, association, or other entity.

    (q) Pre-existing business relationship. The term ``pre-existing

    business relationship'' means a relationship between a person, or a

    person's licensed agent, and a consumer based on--

    (1) A financial contract between the person and the consumer which

    is in force on the date on which the consumer is sent a solicitation by

    this part;

    (2) The purchase, rental, or lease by the consumer of a persons'

    services or a financial transaction (including holding an active

    account or policy in force or having another continuing relationship)

    between the consumer and the person, during the 18-month period

    immediately preceding the date on which the consumer is sent a

    solicitation covered by this part; or

    (3) An inquiry or application by the consumer regarding a financial

    product or service offered by that person during the three-month period

    immediately preceding the date on which the consumer is sent a

    solicitation covered by this part.

    (r) Solicitation--(1) In general. The term ``solicitation'' means

    the marketing of a financial product or service initiated by an

    affiliate to a particular consumer that is--

    (i) Based on eligibility information communicated to that covered

    affiliate by an affiliate that has or previously had the pre-existing

    business relationship with a consumer as described in this part; and

    (ii) Intended to encourage the consumer to purchase or obtain such

    financial product or service.

    A solicitation does not include marketing communications that are

    directed at the general public.

    (2) Examples. Examples of what communications constitute a

    solicitation include communications such as a telemarketing

    solicitation, direct mail, or e-mail, when those communications are

    directed to a specific consumer based on eligibility information. A

    solicitation does not

    [[Page 66033]]

    include communications that are directed at the general public without

    regard to eligibility information, even if those communications are

    intended to encourage consumers to purchase financial products and

    services from the affiliate initiating the communications.

    (s) Swap dealer. The term ``swap dealer'' has the same meaning as

    in section 1a(49) of the Commodity Exchange Act, 7 U.S.C. 1 et seq., as

    may be further defined by this title, and includes any person

    registered as such thereunder.

    Subpart A--Business Affiliate Marketing Rules

    Sec. 162.3 Affiliate marketing opt out and exceptions.

    (a) Initial notice and opt out. A covered affiliate may not use

    eligibility information about a consumer that the covered affiliate

    receives from an affiliate with the consumer to make a solicitation for

    marketing purposes to such consumer unless--

    (1) It is clearly and conspicuously disclosed to the consumer in

    writing or if the consumer agrees, electronically, in a concise notice

    that the person may use shared eligibility information about that

    consumer received from an affiliate to make solicitations for marketing

    purposes to such consumer;

    (2) The consumer is provided a reasonable opportunity and a

    reasonable and simple method to opt out, or prohibit the covered

    affiliate from using eligibility information to make solicitations for

    market purposes to the consumer; and

    (3) The consumer has not opted out.

    (b) Persons responsible for satisfying the notice requirement. The

    notice required by this section must be provided:

    (1) By an affiliate that has or previously had a pre-existing

    business relationship with a consumer; or

    (2) As part of a joint notice from two or more members of an

    affiliated group of companies, provided that at least one of the

    affiliates on the joint notice has or previously had a pre-existing

    business relationship with the consumer.

    (c) Exceptions. These proposed regulations would not apply to the

    following covered affiliate:

    (1) A covered affiliate that has a pre-existing business

    relationship with a consumer;

    (2) Communications between an employer and employee-consumer (or

    his or her beneficiary) in connection with an employee benefit plan;

    (3) A covered affiliate that is currently providing services to the

    consumer;

    (4) If the consumer initiated the communication with the covered

    affiliate by oral, electronic, or written means;

    (5) If the consumer authorized or requested the covered affiliate's

    solicitation; or

    (6) If compliance by a person with these regulations would prevent

    that person's compliance with state insurance laws pertaining to unfair

    discrimination.

    (d) Making solicitations.

    (1) When a solicitation occurs. A covered affiliate makes a

    solicitation for marketing purposes if the person--

    (i) Receives eligibility information from an affiliate;

    (ii) Uses that eligibility information to do one or more of the

    following:

    (A) Identify the consumer or type of consumer to receive a

    solicitation;

    (B) Establish criteria used to select the consumer to receive a

    solicitation about the covered affiliate's financial products or

    services; or

    (C) Decide which of the services or contracts to market to the

    consumer or tailor the solicitation to that consumer; and

    (iii) As a result of the covered affiliate's use of the eligibility

    information, the consumer is provided a solicitation.

    (2) Receipt of eligibility information. A covered affiliate may

    receive eligibility information from an affiliate in various ways,

    including when the affiliate places that information into a common

    database that the covered affiliate may access.

    (3) Service Providers. Except as provided in paragraph (d)(5) of

    this section, a covered affiliate receives or uses an affiliate's

    eligibility information if a service provider acting on the covered

    affiliate's behalf (regardless of whether such service provider is a

    third party or an affiliate of the covered affiliate) receives or uses

    that information in the manner described in paragraph (d)(1)(i) or

    (d)(1)(ii) of this section. All relevant facts and circumstances will

    determine whether a service provider is acting on behalf of a covered

    affiliate when it receives or uses an affiliate's eligibility

    information in connection with marketing the covered affiliate's

    financial products or services.

    (4) Use by an affiliate of its own eligibility information. Unless

    a covered affiliate uses eligibility information that the covered

    affiliate receives from an affiliate in the manner described in

    paragraph (d)(2) of this section, the covered affiliate does not make a

    solicitation subject to this subpart:

    (i) Uses its own eligibility information that it obtained in

    connection with a pre-existing business relationship it has or

    previously had with the consumer to market the covered affiliate's

    financial products or services to the consumer; or

    (ii) Directs its service provider to use the affiliate's own

    eligibility information that it obtained in connection with a pre-

    existing business relationship it has or previously had with the

    consumer to market the covered affiliate's financial products or

    services to the consumer, and the covered affiliate does not

    communicate directly with the service provider regarding that use.

    (5) Use of eligibility information by a service provider--(i) In

    general. A covered affiliate does not make a solicitation subject to

    this subpart if a service provider (including an affiliated or third-

    party service provider that maintains or accesses a common database

    that the covered affiliate may access) receives eligibility information

    from an affiliate that has or previously had a pre-existing business

    relationship with the consumer and uses that eligibility information to

    market the covered affiliate's financial products or services to the

    consumer, so long as--

    (A) The affiliate controls access to and use of its eligibility

    information by the service provider (including the right to establish

    the specific terms and conditions under which the service provider may

    use such information to market the covered affiliate's financial

    products or services);

    (B) The affiliate establishes specific terms and conditions under

    which the service provider may access and use such affiliate's

    eligibility information to market the covered affiliate's financial

    products and services (or those of affiliates generally) to the

    consumer, such as the identity of the affiliated companies whose

    financial products or services may be marketed to the consumer by the

    service provider, the types of financial products or services of

    affiliated companies that may be marketed, and the number of times the

    consumer may receive marketing materials, and periodically evaluates

    the service provider's compliance with those terms and conditions;

    (C) The affiliate requires the service provider to implement

    reasonable policies and procedures designed to ensure that the service

    provider uses such affiliate's eligibility information in accordance

    with the terms and conditions established by such affiliate relating to

    the marketing of the covered affiliate's financial products or

    services;

    (D) The affiliate is identified on or with the marketing materials

    provided to the consumer; and

    (E) The covered affiliate does not directly use its affiliate's

    eligibility

    [[Page 66034]]

    information in the manner described in paragraph (b)(1)(ii) of this

    section.

    (ii) Writing requirements. (A) The requirements of paragraphs

    (b)(5)(i)(A) and (C) of this section must be set forth in a written

    agreement between the affiliate that has or previously had a pre-

    existing business relationship with the consumer and the service

    provider; and

    (B) The specific terms and conditions established by the affiliate

    as provided in paragraph (b)(5)(i)(B) of this section must be set forth

    in writing.

    (e) Relation to affiliate-sharing notice and opt out. Nothing in

    this rulemaking will limit the responsibility of a covered affiliate to

    comply with the notice and opt-out provisions under other privacy rules

    under the FCRA, the GLB Act or the CEA.

    Sec. 162.4 Scope and duration of opt out.

    (a) Scope of opt-out election--(1) In general. The consumer's

    election to opt out prohibits any covered affiliate subject to the

    scope of the opt-out notice from using eligibility information received

    from another affiliate to make solicitations to the consumer.

    (2) Continuing relationship--(i) In general. If the consumer

    establishes a continuing relationship with a covered affiliate or its

    affiliate, an opt-out notice may apply to eligibility information

    obtained in connection with--

    (A) A single continuing relationship or multiple continuing

    relationships that the consumer establishes with a covered affiliate or

    its affiliates, including continuing relationships established

    subsequent to delivery of the opt-out notice, so long as the notice

    adequately describes the continuing relationships covered by the opt

    out; or

    (B) Any other transaction between the consumer and the covered

    affiliate or its affiliates as described in the notice.

    (ii) Examples of a continuing relationship. A consumer has a

    continuing relationship with a covered affiliate or its affiliate if:

    (A) The covered affiliate is a futures commission merchant through

    whom a consumer has opened an account, or that carries the consumer's

    account on a fully-disclosed basis, or that effects or engages in

    commodity interest transactions with or for a consumer, even if the

    covered affiliate does not hold any assets of the consumer;

    (B) The covered affiliate is an introducing broker that solicits or

    accepts specific orders for trades;

    (C) The covered affiliate is a commodity trading advisor with whom

    a consumer has a contract or subscription, either written or oral,

    regardless of whether the advice is standardized, or is based on, or

    tailored to, the commodity interest or cash market positions or other

    circumstances or characteristics of the particular consumer;

    (D) The covered affiliate is a commodity pool operator, and accepts

    or receives from the consumer, funds, securities, or property for the

    purpose of purchasing an interest in a commodity pool;

    (E) The covered affiliate holds securities or other assets as

    collateral for a loan made to the consumer, even if the covered

    affiliate did not make the loan or do not affect any transactions on

    behalf of the consumer; or

    (F) The covered affiliate regularly effects or engages in commodity

    interest transactions with or for a consumer even if the covered

    affiliate does not hold any assets of the consumer.

    (3) No continuing relationship--(i) In general. If there is no

    continuing relationship between a consumer and the covered affiliate or

    its affiliate, and the covered affiliate or its affiliate obtain

    eligibility information about a consumer in connection with a

    transaction with the consumer, such as an isolated transaction or a

    credit application that is denied, an opt-out notice provided to the

    consumer only applies to eligibility information obtained in connection

    with that transaction.

    (ii) Examples of no continuing relationship. A consumer does not

    have a continuing relationship with a covered affiliate or its

    affiliate if:

    (A) The covered affiliate has acted solely as a ``finder'' for a

    futures commission merchant, and the covered affiliate does not solicit

    or accept specific orders for trades; or

    (B) The covered affiliate has solicited the consumer to participate

    in a pool or to direct his or her account and he or she has not

    provided the covered affiliate with funds to participate in a pool or

    entered into any agreement with the covered affiliate to direct his or

    her account.

    (4) Menu of alternatives. A consumer may be given the opportunity

    to choose from a menu of alternatives when electing to prohibit

    solicitations, such as by electing to prohibit solicitations from

    certain types of affiliates covered by the opt-out notice but not other

    types of affiliates covered by the notice, electing to prohibit

    solicitations based on certain types of eligibility information but not

    other types of eligibility information, or electing to prohibit

    solicitations by certain methods of delivery but not other methods of

    delivery. However, one of the alternatives must allow the consumer to

    prohibit all solicitations from all of the affiliates that are covered

    by the notice.

    (5) Special rule for a notice following termination of all

    continuing relationships. A consumer must be given a new opt-out notice

    if, after all continuing relationships with the covered affiliate or

    its affiliate(s) are terminated, the consumer subsequently establishes

    another continuing relationship with the covered affiliate or its

    affiliate(s) and the consumer's eligibility information is to be used

    to make a solicitation. The new opt-out notice must apply, at a

    minimum, to eligibility information obtained in connection with the new

    continuing relationship. Consistent with paragraph b of this section,

    the consumer's decision not to opt out after receiving the new opt-out

    notice would not override a prior opt-out election by the consumer that

    applies to eligibility information obtained in connection with a

    terminated relationship, regardless of whether the new opt-out notice

    applies to eligibility information obtained in connection with the

    terminated relationship.

    (b) Duration of opt-out election. An opt-out election must be

    effective for a period of at least five years beginning when the

    consumer's opt-out election is received and implemented, unless the

    consumer subsequently revokes the opt-out election in writing or, if

    the consumer agrees, electronically. An opt-out election may be

    established for a period of more than five years or for an indefinite

    period unless revoked.

    (c) Time period in which a consumer can opt out. A consumer may opt

    out at any time.

    (d) No effect on opt-out period. An opt-out period may not be

    shortened by sending a renewal notice to the consumer before expiration

    of the opt-out period, even if the consumer does not renew the opt out.

    Sec. 162.5 Contents of opt-out notice; consolidated and equivalent

    notices.

    (a) Contents of the opt-out notice-- (1) In general. An opt-out

    notice must be in writing, be clear and conspicuous, as well as

    concise, and must accurately disclose the following:

    (i)(A) The name of the affiliate that has or previously had a pre-

    existing business relationship with a consumer, which is providing the

    notice; or

    (B) If jointly provided jointly by multiple affiliates and each

    affiliate shares a common name, then the notice may indicate that it is

    being provided by multiple companies with the same name or multiple

    companies in the same group or family of companies. If the affiliates

    providing the notice do not share a common name, then the notice must

    either separately identify each

    [[Page 66035]]

    affiliate by name or identify each of the common names used by those

    affiliates;

    (ii) The list of affiliates or types of affiliates whose use of

    eligibility information is covered by the notice, which may include

    companies that become affiliates after the notice is provided to the

    consumer;

    (iii) A general description of the types of eligibility information

    that may be used to make solicitations to the consumer;

    (iv) A statement that the consumer may elect to limit the use of

    eligibility information to make solicitations to the consumer;

    (v) A statement that the consumer's election will apply for the

    specified period of time and, if applicable, that the consumer will be

    allowed to renew the election once that period expires;

    (vi) If the notice is provided to consumers who have previously

    elected to opt out, that such consumer does not need to act again until

    the consumer receives a renewal notice; and

    (vii) A reasonable and simple method for the consumer to opt out.

    (2) Specifying length of time period. If consumer is granted an

    opt-out period longer than a five-year duration, the opt-out notice

    must specify the length of the opt-out period.

    (3) No revised notice for extension of opt-out period. The duration

    of an opt-out period may be increased for a period longer than the

    period specified in the opt-out notice without having to provide a

    revised notice of the increase to the consumer.

    (b) Joint relationships. (1) If two or more consumers jointly

    obtain a financial product or service, a single opt-out notice may be

    provided to joint consumers.

    (2) Any of the joint consumers may exercise the right to opt out on

    behalf of each joint consumer.

    (3) The opt-out election notice must explain how an opt-out

    election by a joint consumer will be treated. That is, the notice

    should specify whether an opt-out election by a joint consumer will be

    treated as applying to all of the associated joint consumers, or as

    applying to each joint consumer separately.

    (4) If the opt-out election notice provides that each joint

    consumer is permitted to opt out separately, one of the joint consumers

    must be permitted to opt out on behalf of all of the joint consumers

    and the joint consumer must be permitted to exercise his or her

    separate rights to opt out in a single response.

    (5) A covered affiliate cannot require all joint consumers to opt

    out before implementing any opt-out election.

    (c) Alternative contents. If the consumer is afforded a broader

    right to opt out of receiving marketing than is required by this

    subpart, the requirements of this section may be satisfied by providing

    the consumer with a clear, conspicuous, and concise notice that

    accurately discloses the consumer's opt-out rights.

    (d) Coordinated and consolidated consumer notices. A notice

    required by this subpart may be coordinated and consolidated with any

    other notice or disclosure required to be issued under any other

    provision of law by the covered affiliate providing the notice,

    including but not limited to notices in the FCRA or the GLB Act privacy

    notices.

    (e) Equivalent notices. A notice or disclosure that is equivalent

    to the notice required by this part in terms of content, and that is

    provided to a consumer together with a notice required by any other

    provision of law, satisfies the requirements of this section.

    (f) Model notices. Model notices are provided in Appendix A of this

    part. These notices were meant to facilitate compliance with this

    subpart; provided, however, that nothing herein shall be interpreted to

    require persons subject to this part to use the model notices.

    Sec. 162.6 Reasonable opportunity to opt out.

    (a) In general. A covered affiliate must not use eligibility

    information about a consumer that the covered affiliate receives from

    an affiliate to make a solicitation to such consumer about the covered

    affiliate's financial products or services, unless the consumer is

    provided a reasonable opportunity to opt out, as required by this

    subpart.

    (b) Examples. A reasonable opportunity to opt out under this

    subpart is:

    (1) If the opt-out notice is mailed to the consumer, the consumer

    has 30 days from the date the notice is mailed to opt out.

    (2) If the opt-out notice is sent via electronic means to the

    consumer, the consumer has 30 days from the date the consumer

    acknowledges receipt to elect to opt out by any reasonable method.

    (3) If the opt-out notice is sent via e-mail (where the consumer

    has agreed to receive disclosures by e-mail), the consumer is given 30

    days after the e-mail is sent to elect to opt out by any reasonable

    method.

    (4) If the opt-out notice provided to the consumer at the time of

    an electronic transaction, the consumer is required to decide, as a

    necessary part of proceeding with the transaction, whether to opt out

    before completing the transaction.

    (5) If the opt-out notice is provided during an in-person

    transaction, the consumer is required to decide, as a necessary part of

    completing the transaction, whether to opt out through a simple

    process.

    (6) If the opt-out notice is provided in conjunction with other

    privacy notices required by law, the consumer is allowed to exercise

    the opt-out election within a reasonable period of time and in the same

    manner as the opt out under that privacy notice.

    Sec. 162.7 Reasonable and simple methods of opting out.

    (a) In general. A covered affiliate shall be prohibited from using

    eligibility information about a consumer received from an affiliate to

    make a solicitation to the consumer about the covered affiliate's

    financial products or services, unless the consumer is provided a

    reasonable and simple method to opt out, as required by this subpart.

    (b) Examples. Reasonable and simple methods of opting out include:

    (1) Designating a check-off box in a prominent position on an opt-

    out election form;

    (2) Including a reply form and a self-addressed envelope (in a

    mailing);

    (3) Providing an electronic means, if the consumer agrees, that can

    be electronically mailed or processed through an Internet Web site;

    (4) Providing a toll-free telephone number; or

    (5) Exercising an opt-out election through whatever means are

    acceptable under a consolidated privacy notice required under other

    laws.

    (c) Specific opt-out method. Each consumer may be required to opt

    out through a specific method, as long as that method is acceptable

    under this subpart.

    Sec. 162.8 Acceptable delivery methods of opt-out notices.

    (a) In general. The opt-out notice must be provided so that each

    consumer can reasonably be expected to receive actual notice.

    (b) Electronic notices. For opt-out notices provided

    electronically, the notice may be provided in compliance with either

    the electronic disclosure provisions in Sec. 1.4 of this title or the

    provisions in section 101 of the Electronic Signatures in Global and

    National Commerce Act, 15 U.S.C. 7001 et seq.

    Sec. 162.9 Renewal of opt out.

    (a) Renewal notice and opt-out requirement--(1) In general. Since

    the

    [[Page 66036]]

    FCRA provides that opt-out elections can expire in a period of no less

    than five years, an affiliate that has or previously had a pre-existing

    business relationship with a consumer must provide a renewal notice to

    the consumer after such time in order to allow its affiliates to make

    solicitations. After the opt-out election period expires, its

    affiliates may make solicitations unless:

    (i) The consumer has been given a renewal notice that complies with

    the requirements of this section and Secs. 162.6 through 162.8 of this

    subpart, and a reasonable opportunity and a reasonable and simple

    method to renew the opt-out election, and the consumer does not renew

    the opt out; or

    (ii) An exception in Sec. 162.3(c) of this subpart applies.

    (2) Renewal period. Each opt-out renewal must be effective for a

    period of at least five years as provided in Sec. 162.4(b) of this

    subpart.

    (3) Affiliates who may provide the renewal notice. The notice

    required by this paragraph must be provided:

    (i) By the affiliate that provided the previous opt-out notice, or

    its successor; or

    (ii) As part of a joint renewal notice from two or more members of

    an affiliated group of companies, or their successors, that jointly

    provided the previous opt-out notice.

    (b) Contents of renewal or extension notice. The contents of the

    renewal notice must include all of the same contents of the initial

    notices, but also must include:

    (1) A statement that the consumer previously elected to limit the

    use of certain information to make solicitations to the consumer;

    (2) A statement that the consumer may elect to renew the consumer's

    previous election; and

    (3) If applicable, a statement that the consumer's election to

    renew will apply for a specified period of time stated in the notice

    and that the consumer will be allowed to renew the election once that

    period expires.

    (c) Timing of renewal notice. Renewal notices must be provided in a

    reasonable period of time before the expiration of the opt-out election

    period or any time after the expiration of the opt-out period, but

    before solicitations that would have been prohibited by the expired

    opt-out election are made to the consumer.

    (d) No effect on opt-out period. An opt-out period may not be

    shortened by sending a renewal notice to the consumer before the

    expiration of the opt-out period, even if the consumer does not renew

    the opt-out election.

    Sec. Sec. 162.10-162.20 [Reserved]

    Subpart B--Disposal Rules

    Sec. 162.21 Proper disposal of consumer information.

    (a) In general. Any covered affiliate must adopt must adopt

    reasonable, written policies and procedures that address

    administrative, technical, and physical safeguards for the protection

    of consumer information. These written policies and procedures must be

    reasonably designed to:

    (1) Insure the security and confidentiality of consumer

    information;

    (2) Protect against any anticipated threats or hazards to the

    security or integrity of consumer information; and

    (3) Protect against unauthorized access to or use of consumer

    information that could result in substantial harm or inconvenience to

    any consumer.

    (b) Standard. Any covered affiliate under this part who maintains

    or otherwise possesses consumer information for a business purpose must

    properly dispose of such information by taking reasonable measures to

    protect against unauthorized access to or use of the information in

    connection with its disposal pursuant to a written disposal plan.

    (c) Examples. The following examples are ``reasonable'' disposal

    measures for the purposes of this subpart--

    (i) Implementing and monitoring compliance with policies and

    procedures that require the burning, pulverizing, or shredding of

    papers containing consumer information so that the information cannot

    practicably be read or reconstructed;

    (ii) Implementing and monitoring compliance with policies and

    procedures that require the destruction or erasure of electronic media

    containing consumer information so that the information cannot

    practically be read or reconstructed; and

    (iii) After due diligence, entering into and monitoring compliance

    with a written contract with another party engaged in the business of

    record destruction to dispose of consumer information in a manner that

    is consistent with this rule.

    (d) Relation to other laws. Nothing in this section shall be

    construed:

    (1) To require a person to maintain or destroy any record

    pertaining to a consumer that is imposed under Sec. 1.31 or any other

    provision of law; or

    (2) To alter or affect any requirement imposed under any other

    provision of law to maintain or destroy such a record.

    Appendix A to Part 162--Sample Clauses

    A. Although use of the model forms is not required, use of the

    model forms in this Appendix (as applicable) complies with the

    requirement in section 624 of the FCRA for clear, conspicuous, and

    concise notices.

    B. Certain changes may be made to the language or format of the

    model forms without losing the protection from liability afforded by

    use of the model forms. These changes may not be so extensive as to

    affect the substance, clarity, or meaningful sequence of the

    language in the model forms. Persons making such extensive revisions

    will lose the safe harbor that this Appendix provides. Acceptable

    changes include, for example:

    1. Rearranging the order of the references to ``your income'',

    ``your account history'', and ``your credit score''.

    2. Substituting other types of information for ``income'',

    ``account history'', or ``credit score'' for accuracy, such as

    ``payment history'', ``credit history'', or ``claims history''.

    3. Substituting a clearer and more accurate description of the

    affiliates providing or covered by the notice for phrases such as

    ``the [ABC] group of companies,'' including without limitation a

    statement that the entity providing the notice recently purchased

    the consumer's account.

    4. Substituting other types of affiliates covered by the notice

    for ``commodity advisor'', ``futures clearing merchant'', or ``swap

    dealer'' affiliates.

    5. Omitting items that are not accurate or applicable. For

    example, if a person does not limit the duration of the opt-out

    period, the notice may omit information about the renewal notice.

    6. Adding a statement informing consumers how much time they

    have to opt out before shared eligibility information may be used to

    make solicitations to them.

    7. Adding a statement that the consumer may exercise the right

    to opt out at any time.

    8. Adding the following statement, if accurate: ``If you

    previously opted out, you do not need to do so again.''

    9. Providing a place on the form for the consumer to fill in

    identifying information, such as his or her name and address.

    A-1 Model Form for Initial Opt-out notice (Single-

    Affiliate Notice)

    A-2 Model Form for Initial Opt-out notice (Joint

    Notice)

    A-3 Model Form for Renewal Notice (Single-Affiliate

    Notice)

    A-4 Model Form for Renewal Notice (Joint Notice)

    A-5 Model Form for Voluntary ``No Marketing'' Notice

    A-1 Model Form for Initial Opt-Out Notice (Single-Affiliate Notice)

    [Your Choice To Limit Marketing]/[Marketing Opt Out]

    --[Name of Affiliate] is providing this notice.

    --[Optional: Federal law gives you the right to limit some but not

    all marketing from our affiliates. Federal law also requires us to

    give you this notice to tell you about your choice to limit

    marketing from our affiliates.]

    [[Page 66037]]

    --You may limit our affiliates in the [ABC] group of companies, such

    as our [commodity advisor, futures clearing merchant, and swap

    dealer] affiliates, from marketing their financial products or

    services to you based on your personal information that we collect

    and share with them. This information includes your [income], your

    [account history with us], and your [credit score].

    --Your choice to limit marketing offers from our affiliates will

    apply [until you tell us to change your choice]/[for x years from

    when you tell us your choice]/[for at least 5 years from when you

    tell us your choice]. [Include if the opt-out period expires.] Once

    that period expires, you will receive a renewal notice that will

    allow you to continue to limit marketing offers from our affiliates

    for [another x years]/[at least another 5 years].

    --[Include, if applicable, in a subsequent notice, including an

    annual notice, for consumers who may have previously opted out.] If

    you have already made a choice to limit marketing offers from our

    affiliates, you do not need to act again until you receive the

    renewal notice.

    To limit marketing offers, contact us [include all that apply]:

    --By telephone: 1-877--

    --On the Web: www._.com

    --By mail: check the box and complete the form below, and send the

    form to:

    --[Company name]

    --[Company address]

    ------ Do not allow your affiliates to use my personal information

    to market to me.

    A-2 Model Form for Initial Opt-out Notice (Joint Notice)

    [Your Choice To Limit Marketing]/[Marketing Opt Out]

    --The [ABC group of companies] is providing this notice.

    --[Optional: Federal law gives you the right to limit some but not

    all marketing from the [ABC] companies. Federal law also requires us

    to give you this notice to tell you about your choice to limit

    marketing from the [ABC] companies.]

    --You may limit the [ABC companies], such as the [ABC commodity

    advisor, futures clearing merchant, and swap dealer] affiliates,

    from marketing their financial products or services to you based on

    your personal information that they receive from other [ABC]

    companies. This information includes your [income], your [account

    history], and your [credit score].

    --Your choice to limit marketing offers from the [ABC] companies

    will apply [until you tell us to change your choice]/[for x years

    from when you tell us your choice]/[for at least 5 years from when

    you tell us your choice]. [Include if the opt-out period expires.]

    Once that period expires, you will receive a renewal notice that

    will allow you to continue to limit marketing offers from the [ABC]

    companies for [another x years]/[at least another 5 years].

    --[Include, if applicable, in a subsequent notice, including an

    annual notice, for consumers who may have previously opted out.] If

    you have already made a choice to limit marketing offers from the

    [ABC] companies, you do not need to act again until you receive the

    renewal notice.

    To limit marketing offers, contact us [include all that apply]:

    By telephone: 1-877--

    On the Web: www._.com

    By mail: check the box and complete the form below, and send the

    form to:

    [Company name]

    [Company address]

    ------Do not allow any company [in the ABC group of companies] to

    use my personal information to market to me.

    A-3 Model Form for Renewal Notice (Single-Affiliate Notice)

    [Renewing Your Choice To Limit Marketing]/[Renewing Your Marketing Opt

    Out]

    --[Name of Affiliate] is providing this notice.

    --[Optional: Federal law gives you the right to limit some but not

    all marketing from our affiliates. Federal law also requires us to

    give you this notice to tell you about your choice to limit

    marketing from our affiliates.]

    --You previously chose to limit our affiliates in the [ABC] group of

    companies, such as our [commodity advisor, futures clearing

    merchant, and swap dealer] affiliates, from marketing their

    financial products or services to you based on your personal

    information that we share with them. This information includes your

    [income], your [account history with us], and your [credit score].

    --Your choice has expired or is about to expire.

    To renew your choice to limit marketing for [x] more years,

    contact us [include all that apply]:

    By telephone: 1-877--

    On the Web: www._.com

    By mail: check the box and complete the form below, and send the

    form to:

    [Company name]

    [Company address]

    ------Renew my choice to limit marketing for [x] more years.

    A-4 Model Form for Renewal Notice (Joint Notice)

    [Renewing Your Choice To Limit Marketing]/[Renewing Your Marketing Opt

    Out]

    --The [ABC group of companies] is providing this notice.

    --[Optional: Federal law gives you the right to limit some but not

    all marketing from the [ABC] companies. Federal law also requires us

    to give you this notice to tell you about your choice to limit

    marketing from the [ABC] companies.]

    --You previously chose to limit the [ABC companies], such as the

    [ABC commodity advisor, futures clearing merchant, and swap dealer]

    affiliates, from marketing their financial products or services to

    you based on your personal information that they receive from other

    [ABC] companies. This information includes your [income], your

    [account history], and your [credit score].

    --Your choice has expired or is about to expire.

    To renew your choice to limit marketing for [x] more years,

    contact us [include all that apply]:

    By telephone: 1-877--

    On the web: www._.com

    By mail: check the box and complete the form below, and send the

    form to:

    [Company name]

    [Company address]

    ------Renew my choice to limit marketing for [x] more years.

    A-5 Model Form for Voluntary ``No Marketing'' Notice

    [Your Choice To Stop Marketing]

    --[Name of Affiliate] is providing this notice. You may choose to

    stop all marketing from us and our affiliates.

    To stop all marketing offers, contact us [include all that

    apply]:

    By telephone: 1-877--

    On the Web: www._.com

    By mail: check the box and complete the form below, and send the

    form to:

    [Company name]

    [Company address]

    ------Do not market to me.

    By the Commission,

    Dated: October 19, 2010.

    David A. Stawick,

    Secretary.

    Statement of Chairman Gary Gensler

    Business Affiliate Marketing and Disposal of Consumer Information Rules

    October 19, 2010

    I support today's Commission vote on the proposed rulemaking

    providing privacy protections to nonpublic, consumer information

    held by entities that are subject to the jurisdiction of the

    Commission. The proposed rulemaking provides customers of

    Commission-regulated entities with the same privacy protections now

    enjoyed by the customers of entities regulated by other Federal

    agencies.

    The proposal includes two important rules. The first allows

    customers to prohibit Commission-regulated entities from using

    certain consumer information obtained from an affiliate to make

    solicitations to that customer for marketing purposes. This will be

    done by means of a customer opt out. The second rule requires

    Commission-regulated entities to develop and implement a written

    program and procedures for the proper disposal of consumer

    information. I believe that these rules will help prevent the

    unauthorized use and disclosure of nonpublic, consumer information.

    [FR Doc. 2010-26893 Filed 10-26-10; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: October 27, 2010