Use of Information from Affiliates for Marketing

One of the FACT Act amendments puts restrictions on how financial institutions can use certain information they receive about a consumer from an affiliate of the institution. More specifically, the new provision says that an institution cannot use this information for marketing purposes unless the consumer about whom the information pertains receives a disclosure, an opportunity to prevent the use of the information, and has not taken action to prevent such use.

The information to which the restrictions apply is called “eligibility information.” It is defined in such a way as to include almost all information about a consumer that an institution might share with an affiliate.

The notice the consumer receives must be sent by an affiliate of the financial institution and the affiliate must have a pre-existing relationship with the consumer.

Here is an example of the operation of the rule:

A consumer has a homeowner’s insurance policy with an insurance company. The insurance company furnishes eligibility information about the consumer to its affiliated depository institution.

Based on that eligibility information, the depository institution wants to make a solicitation to the consumer about its home equity loan products. The depository institution does not have a pre-existing business relationship with the consumer and none of the other exceptions apply.

The depository institution is prohibited from using eligibility information received from its insurance affiliate to make solicitations to the consumer about its home equity loan products unless the consumer is given a notice and an opportunity to opt out and the consumer does not opt out.

The “exceptions” that the example refers to are situations in which a financial institution is not subject to the prohibition. For example, a financial institution is permitted to use information from affiliates to make solicitations to consumers with whom the financial institution has a pre-existing business relationship. Also, financial institutions are permitted to respond to consumer inquiries even if the response takes the form of a solicitation.

Here are citations to the Agencies’ regulations, which have a mandatory compliance date of October 1, 2008: