CUNA Comment Letter
NCUA FACT Act Affiliate Marketing Rule
August 13, 2004
Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428
Re: Proposed Rule Part 717, Fair Credit Reporting- Affiliate Marketing
Dear Ms. Baker:
The Credit Union National Association (CUNA) is pleased to respond to the National Credit Union Administrations (NCUAs) proposed rule implementing provisions of the Fair and Accurate Credit Transactions (FACT) Act that will provide consumers with the opportunity to opt-out before information is shared between federal credit unions and affiliates, namely credit union service organizations (CUSOs), for purposes of marketing products or services. By way of background, CUNA is the largest credit union trade association, representing more than 90% of our nations nearly 9,800 state and federal credit unions. The following comments were developed by CUNA with input from credit unions, credit union leagues, and CUNAs Consumer Protection Subcommittee.
These FACT Act restrictions will apply to eligibility information, which generally means information bearing on the consumers credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living that is expected to be collected or used to at least some extent as a factor in establishing credit or insurance eligibility. NCUAs proposed rule, issued jointly with the other financial institution regulators, will apply to federal credit unions, while the Federal Trade Commissions recent, similar proposal will apply to state-chartered and privately insured credit unions.
Summary of CUNAs Position
- CUNA does not believe NCUA should determine which party should be responsible for providing the notice. That decision should be made by the credit unions and CUSOs in a manner that will ensure compliance with the final rule, while minimizing the burden on the relationship between these parties.
- Inquiries from consumers may be considered an exception to the requirement to provide a notice and opportunity to opt-out of certain marketing information. NCUA should remove the restrictions to this exception, such as the requirement that the inquiry be an affirmative request for information and that the consumer provide contact information.
- Another exception to the requirement to provide consumers with a notice and opportunity to opt-out is when the information is used in response to a communication initiated by the consumer. CUNA does not believe NCUA should impose the requirement that there be a request for information related to the product or service that is being solicited.
- CUNA believes oral opt-out notices should be permitted.
- It should be the decision of the credit union as to whether it wants to disclose in their opt-out notices the amount of time the consumer has to respond to the notice, as well as whether the credit union wants to disclose the period of time that the consumers decision to opt-out will be honored.
- Credit unions should not be required to provide an electronic means to opt-out if the notice is delivered electronically, and credit unions should not be required to provide an envelope if they provide a written method for opting out.
- If the member terminates his or her relationship, NCUA has proposed that the opt-out in force at that time will continue to apply indefinitely, unless revoked by the member. This will be burdensome for credit unions to track without any corresponding benefits for members, as they will not likely receive solicitations after they terminate their member relationship.
- After the opt-out period expires, an extension notice and a new opportunity to opt-out must be provided to members before such solicitations may be made. NCUA has outlined a format for these extension notices that is different than the initial notice. CUNA believes credit unions should have the option to use the same format for the extension notice that they used for the initial notice, as this should be sufficient for providing members with a reasonable opportunity to extend their opt-out decision.
- CUNA urges NCUA to delay the mandatory compliance date for a reasonable period of time beyond the effective date, which will be only six months after the final version of this rule is issued. Because credit unions may elect to include these opt-out notices with the Gramm-Leach-Bliley Act (GLBA) privacy notices, we believe the mandatory compliance date could be tailored to take this into account. Specifically, credit unions should be permitted to include the initial opt-out notice with the annual privacy notice that will be distributed in the one-year period after the effective date.
Delivery of the opt-out notice
NCUA has proposed that the one communicating the information about a consumer to the affiliate that plans to send the solicitation should be the one responsible for providing the notice to the consumer. This may be provided by the entity, the entitys agent, or through a joint notice with one or more affiliates. If sent by an agent, the opt-out notice must be in the name of the entity or common corporate name, and the entity, not the agent, assumes responsibility for failure to comply with the notice requirements.
We do not believe NCUA should determine which party should be responsible for providing the notice. That decision should be made by the affiliated parties in a manner that provides the required notice, while minimizing the burden on the relationship between these parties. The FACT Act does not mandate which party should provide the notice, and we believe the intent was to leave this decision to the affiliated parties.
Although the proposed rule permits notices to be issued by an agent of the entity responsible for providing the notice, which presumably may include the entity receiving the information, it appears that under the rule the entity communicating the information would be liable for complying with these requirements, an example being if the recipient used the information to make a solicitation before the consumer received the notice. We believe the liability should be imposed on the party providing the notice, whether it is the one communicating or receiving the information and, again, the parties themselves should make that decision.
If the receiving entity provides the notice, we believe the notice should not be separate from the solicitation. Credit union members receiving such information may be uncertain as to what information the opt-out would apply. Sending the notice with the solicitation will help members decide whether to opt-out, as they will have an example of the types of information that would be covered under the opt-out.
Exceptions for providing the opt-out notice
The FACT Act and the proposed rule provide a number of exceptions to the requirement to provide consumers with a notice and opportunity to opt-out. One exception is when the affiliated party receiving the information has a pre-existing business relationship with the consumer. Such a relationship can be established in a number of ways, one of which is when an inquiry or application by the consumer regarding a product or service has been made during the three-month period before the marketing solicitation was sent to the consumer. Under the proposed rule, an inquiry includes any affirmative request by a consumer for information, such that the consumer would reasonably expect to receive information about products or services, and would also require the consumer to provide contact information.
We believe the FACT Act does not require such an affirmative request or require the consumer to provide contact information. Although we understand the objective of providing members with the opportunity to limit marketing solicitations, we do not believe restricting the term inquiry in this manner is necessary. It is our understanding that the intent of these provisions of the FACT Act was to limit solicitations initiated by businesses, not solicitations that may arise based on communications initiated by the consumer, which occurs when the consumer makes the original inquiry.
It is also not practical to require the consumer to provide contact information. The problem here is that there may be times when a consumer would be receptive to receiving marketing information for certain products or services when he or she calls the affiliated party, and the consumer may not know that he or she would have to provide contact information in order to receive such information. Also, the rule requires that contact information be provided during each inquiry. This is not practical as the consumer may assume that the affiliated party already has the contact information and that it would be unnecessary to provide it again, especially if the consumer has made multiple inquiries over a period of time.
Another exception to the requirement to provide consumers with a notice and opportunity to opt- out will be when the information is used in response to a communication initiated by the consumer. NCUA has determined that this must include a request for information related to the product or service that is being solicited.
The FACT Act does not include the requirement that there be a relationship to the product or service being solicited, and NCUA should not include such a requirement in the proposed rule. Again, for the reasons described above regarding pre-existing business relationships, we believe it should be permissible to solicit consumers when they initiate contact with the affiliated party, regardless of the reason for the contact. We believe this will not place significant burdens on credit union members. As not-for-profit financial institutions, credit unions are primarily interested in providing products and services that the members may want or need. It is important that members are aware of their financial options, and credit unions respect their members wishes regarding their decisions on these options.
Form and format of the opt-out notice
Credit unions have a number of concerns regarding the form and format of the opt-out notices. As proposed, oral opt-out notices would not be permitted, and NCUA has requested comment on this issue. We believe oral opt-out notices should be permitted. The Fair Credit Reporting Act currently permits notices to be delivered orally, and this should apply to the opt-out notices on affiliate marketing, especially if careful records are compiled to indicate those that have elected to opt-out of receiving the information. We also note that the FACT Act does not prohibit oral notices. It may very well be that credit unions will prefer that such notices be provided in writing, but the choice should be made by the credit union, not NCUA.
Credit unions also believe that it should be their decision as to whether they want to disclose in their opt-out notices the amount of time that the member has to respond and indicate that they want to opt-out of receiving the marketing information. The FACT Act does not require that such a time period be stated in the notice, and it is also not required for the privacy notices under the GLBA. We believe these provisions of the FACT Act and the GLBA should be consistent to the extent possible, since credit unions may elect to include these opt-out notices as part of their annual privacy notices, as NCUA has envisioned.
It is also possible that members may be led to believe that they will not be permitted to opt- out after the deadline indicated in the notice, which would not be true as members will always have the right to opt-out, regardless of when they choose to exercise this right. We also see little harm if credit unions or CUSOs were to send solicitations if the member has not opted out after a certain period of time, since he or she always retains the right to opt-out of receiving this type of marketing information.
Under the proposed rule, a members decision to opt-out must be honored for at least five years. We do not believe it is necessary to indicate in the notice how long this decision will be honored as such information will provide little value for members since they will receive another notice and opportunity to extend their opt-out decision.
Such a requirement may actually create unnecessary problems. As NCUA has indicated, it may be easier for an affiliated entity to not place an expiration date on the decision to opt-out, as this will alleviate the need to provide notices at a later time to extend the opt-out period and will also make this process more consistent with the opt-out provisions of the GLBA privacy notices. However, if a credit union or CUSO were to initially impose a five-year time period and was required to disclose this, then it may send an additional notice if it decided to remove the expiration period to avoid the possibility that such a change would be subject to claims that the initial notice was misleading. This unnecessary burden of providing these additional notices can be avoided if there is not a requirement to disclose when the opt-out decision will expire.
We are also concerned about the requirement to provide consumers with an electronic means to opt-out if they received the notices electronically after agreeing to receive them in this manner. This will prevent credit unions or CUSOs from requesting that a member opt-out through other means, such as in writing or by calling a toll-free telephone number, if the member received the notice electronically. Again, such a requirement is not required for the GLBA privacy notices, which will create another unnecessary difficulty in combining these FACT Act notices with the annual privacy notices. NCUA has also proposed that the notice include an envelope for those electing to opt-out in writing, which is also not required for the GLBA privacy notices.
Duration and extension of the opt-out period
If a member terminates his or her relationship, NCUA has proposed that the opt-out in force at that time will continue to apply indefinitely, unless he or she revokes it. For those that may impose time periods regarding the duration of the opt-out period, we are concerned that it may be burdensome to track such terminations and to make the necessary adjustments. We see no corresponding benefits for members, as they will not likely receive solicitations after they terminate their member relationship.
If a credit union or CUSO chooses to impose a time period regarding the duration of the opt-out period, which must be at least five years, it must provide the member with another notice and opportunity to extend the opt-out period before sending marketing information after the opt-out period lapses. The proposed rule outlines the format for these notices. Although similar to the initial notice, the extension notice must include language indicating that the members opt-out period has or is about to expire. This difference between the initial and extension notice is not required under the FACT Act. We believe it would be burdensome to require different formats, and there would not be any additional benefits for members. Providing another copy of the initial notice may be less burdensome and should be sufficient for providing members with a reasonable opportunity to extend their opt-out decision.
Delay of the mandatory compliance date
NCUA has requested comment as to whether the mandatory compliance date for this rule should be different than the effective date, which will be six months after the rule is issued in final form. We strongly urge that the mandatory compliance date be delayed by a reasonable amount of time. Since these opt-out notices may be included with the GLBA privacy notices, we believe the mandatory compliance date should be tailored to take this into account. Specifically, NCUA should allow the initial opt-out notices to be included with the annual privacy notices that will be distributed in the one-year period after the effective date. This will give all credit unions and CUSOs at least six months to comply with the final rule, while also ensuring that they will not have to issue opt-out notices separately from their privacy notices if they choose to combine these two notices.
Thank you for the opportunity to comment on the proposed rule implementing the FACT Act provisions on affiliate marketing. If you have questions about our comments, please contact Associate General Counsel Mary Dunn or me at (202) 638-5777.
Assistant General Counsel