Proposed FTC Amendments May Impede Lenders’ Use of Aggregators

Proposed Federal Trade Commission amendments to a rule governing consumer data protection “could significantly affect the activities and contracting process” between lenders and lead aggregators, said Quyen Truong, a partner at Stroock & Stroock & Lavan.

If the amendments are implemented, lenders will need to ensure that aggregators — which fall into the category of “finders” — are complying with the Safeguards Rule, as it’s called. “The cost of data-breach litigation can be catastrophic, even if you are successful,” said Virginia Flynn, a consumer financial services lawyer at Troutman Sanders LLP. “To the extent there is liability for a lender, if an associated finder does not comply with the privacy rules, this would clearly be a source of concern.”

Last week, the FTC released a statement seeking comment on proposed changes to the Safeguards Rule, which is part of the Gramm-Leach Bliley Act. The FTC outlined examples of what the proposed prescriptive changes would look like — mandatory encryption of all customer data, multi-factor authentication, and implementation of controls to prevent unauthorized users from accessing consumer data.

Read more: FTC Proposes Amendments to Safeguards and Privacy Rules

“I don’t think it would prevent the exchange and use of [consumer] information, but it could dramatically change how it’s done depending on the rule change,” Truong said. Specifically, depending on the language in the amendments, lenders may be limited in the consumer information they can receive from aggregators and the ways they can use that data, Truong said.

The changes could also increase the cost of doing business. “Erecting new roadblocks in the form of potentially burdensome privacy requirements could pose a challenge to auto lenders’ desire to digitize their consumer-facing processes,” Flynn said.

For now, the industry will have to wait until the rule is revised and implemented, which could take years, Truong said. The comment period for the proposed amendments will close 60 days after it is published in the Federal Register.

For more content like this, check out our upcoming event Auto Finance Accelerate, May 13-16 at the Omni San Diego. Visit www.AutoFinanceAccelerate.com to register.