By David Fagan & Libbie Canter

Last week, Congressman Bobby Rush (D-Ill.) reintroduced the Data Accountability and Trust Act (H.R. 1707).  During the 111th Congress, the House of Representatives approved the same measure by voice vote, but the legislation, introduced in the Senate by Senators Jay Rockefeller (D-WV) and Mark Pryor (D-Ark.), did not make it out of the Senate Commerce Committee before the end of the session.  The legislation would create a federal breach notification standard and authorize the FTC to promulgate information security and data disposal regulations.

• Scope.  The legislation covers persons engaged in interstate commerce, with certain additional requirements applicable to information brokers.  The provisions generally apply to the ownership or possession of personal information, which is defined as a person’s “first name or initial and last name, or address, or phone number, in combination with any 1 or more of [certain] data elements.”  Those data elements include social security number, driver’s license number, other government-issued identification numbers, and financial account numbers. 
• Breach Notification.  Following discovery of any unauthorized acquisition or access to electronic data containing personal information, businesses typically would be required to notify the FTC and any resident of the United States whose personal information was acquired or accessed.  Where notice is required to 5,000 or more individuals, the major credit reporting agencies would also need to be notified.
  • Timing.  Under the bill, notification would be required not later than 60 days following discovery of the breach, with a limited number of exceptions available.
  • Content Requirement.  Consumer notifications would be required to include the date of the breach; a description of the personal information accessed; a telephone number for further inquiries; notice that the individual is entitled to receive certain credit protection products at no charge (which the Act would require businesses to furnish); and contact information for the major credit reporting agencies and the FTC.
  • Obligation to Furnish Credit Products.  The bill indicates businesses will be required to provide or arrange for the provision of free consumer credit reports on a quarterly basis and credit monitoring to affected individuals for a period of two years following a breach.  The bill directs the FTC to promulgate rules with respect to the circumstances in which such credit products will be required to be offered.
  • Risk of Harm.  There is no notification requirement or other obligations on a business if it determines there is no reasonable risk of identity theft, fraud, or other unlawful conduct.  This is presumed to be the case if the data is encrypted or otherwise unreadable, although the bill directs the FTC to promulgate regulations on the technologies that adequately render data unreadable.
  • Service Providers.  Third parties contracted to maintain or process data and service providers would be required to notify the owner of the information, which would then have the obligation to notify the FTC and consumers.

• FTC Regulations.  The FTC would be required to promulgate regulations providing for the establishment and implementation of information security policies and procedures.  In accordance with the legislation, the promulgated rules would require companies to establish processes to monitor for and mitigate security breaches and vulnerabilities and to dispose permanently of electronic and non-electronic data.
• Information Brokers.  Additional obligations would be applicable to information brokers.  This term is defined to cover commercial entities whose business is to collect, assemble, or maintain personal information about individuals to sell such information to nonaffiliated third parties.  The heightened obligations applicable to information brokers would include an obligation to assure the accuracy of collected information and to make available a mechanism for individuals to review such information at least once per year.  The legislation would also impose a prohibition on obtaining information through pretextual means.
• Enforcement.  A violation of the Act would be treated as an unfair and deceptive act or practice enforceable by the same means and powers as other violations of the FTC Act.  Absent intervention from the FTC, state attorneys general would also have authority to bring civil actions on behalf of residents and would be authorized to obtain damages, restitution, or other compensation plus statutory civil penalties (the number of days of noncompliance or number of violations multiplied by an amount not greater than $11,000, but not to exceed $5 million for each violation).
• Preemption.  The Act would preempt state laws that require information security practices for personal information similar to those in the Act and would preempt state breach notification laws.  It specifically preserves state consumer protection law; trespass, contract, and tort law; and other state laws related to fraud.

As we have previously posted, Congresswoman Mary Bono Mack (R-Cal.), who chairs the House Subcommittee on Commerce, Manufacturing and Trade, has indicated that she plans to introduce her own data security and breach notification legislation.