The CFPB recently published a circular confirming that covered persons and service providers under the Consumer Financial Protection Act (CFPA) may violate the CFPA’s prohibition against unfair acts or practices when they fail to adequately safeguard consumer information. However, the lack of clear substantive standards creates uncertainty as to what the CFPB would deem to be adequate data security practices.
Pursuant to the Gramm-Leach-Bliley Act, the FTC and federal banking agencies have promulgated rules and interagency guidelines requiring financial institutions to establish appropriate administrative, technical, and physical safeguards to protect the security and confidentiality of customer information. Such safeguards include restricted access to customer information, encryption of information, and periodic reports on the information security program to the board of directors, among other requirements. In the August 11, 2022 circular, the CFPB stated that failure to comply with these specific requirements may also be an unfair act or practice under the CFPA in certain circumstances, but “[w]hile these requirements often overlap, they are not coextensive.” This leaves open the question of what exact security measures companies would need to implement in order to avoid an unfairness violation under the CFPA.