Tag Archives: california consumer privacy act

What CCPA Press Release SHOULD Say

On Jan. 1, 2020, the California Consumer Privacy Act of 2018 (CCPA) is in effect. So, too, is the law governing so-called data brokers. To understand the CCPA, it is sometimes important to suspend belief. What follows is a parody, a form of communicating that seems particularly appropriate for the CCPA and its $55 billion compliance price tag.

California Attorney General Announces Issuance of Subpoenas Over Privacy Law Violations

Feb. 1, 2020

SACRAMENTO – The California Department of Justice today announced that North Pole Enterprises, LLC, dba “Santa Claus” has been issued an investigative subpoena to address concerns over widespread misuse and improper collection of personal information. The potential numerous violations of the California Consumer Privacy Act of 2018 (CCPA) include:

Improper collection of biometric data. Santa Claus is alleged to know when consumers are sleeping and when they are awake. When this biometric data, as defined in Civil Code § 1798.140(b) to include, “an individual’s physiological, biological or behavioral characteristics” is collected, upon information and belief, Santa Claus has shown a pattern and practice of failing to inform consumers as to the categories of personal information to be collected and the purposes for which the categories of personal information shall be used as required by Civil Code § 1798.100(b).

The violations of this part of the CCPA may also extend to biometric information indicating when California consumers are naughty or nice, are bad or good or are pouting or crying.

Improper collection of geolocation data. Santa Claus delivers gifts on Christmas Eve to consumers throughout California. To do this, Santa Claus has developed a comprehensive data base of consumers’ residential locations. This is within the definition of “personal information” as defined in Civil Code § 1798.140(o)(1)(G). Santa Claus obtains this personal information through soliciting and receiving “Christmas Lists” from California consumers, which generally contain attestations that the consumer has been “nice,” which is, and noted above, also biometric information.

See also: Vast Implications of the CCPA  

To the extent these lists and the personal information contained therein are generated by traffic through the Santa Claus website, upon information and belief there are no posted online privacy policies to advise consumers of their rights under the CCPA. This is a violation of Civil Code § 1798.130(a)(5).

Failure to provide notice of right to opt out. The gifts Santa Claus delivers on Christmas Eve are allegedly crafted in a workshop at the North Pole. Upon information and belief, the workshop is a cooperative corporation, “Santa’s Co-op Workshop” (SCW), located just outside Alturas in Humboldt County. As such, Santa Claus is selling personal information, as defined in Civil Code § 1798.140(t), to a third party without giving California consumers notice of their rights to opt out of the sale of their personal information. This is a violation of Civil Code § 1798.120 and Civil Code § 1798.130.

In addition, if Santa Claus is selling the personal information of California consumers to third parties, it is acting as a data broker and as such has failed to register with the Department of Justice as required by Civil Code § 1798.99.82.

To the extent Santa Claus is selling the personal information of minors to third parties, additional violations of the CCPA may have taken place. The Department of Justice reserves the right to revise its charges once there is compliance with the subpoena.

It should be noted that there is an allegation by the members of SCW that they are operating exclusively for and under the control of Santa Claus and as such are employees of Santa Claus per Assembly Bill 5 (Gonzalez). (See: “Potential Labor Law Violations”, below)

Denial of goods or services. Upon information and belief, Santa Claus may be engaged in a pattern of discrimination against California consumers who have not attested to being “nice” in their Christmas Lists as noted above. If Santa Claus is discriminating against California consumers because they have exercised their right not to disclose personal information, this may be a violation of Civil Code § 1798.125.

Potential labor law violations. Upon information and belief, SCW may not be a bona fide business, as that term is used in Labor Code § 2750.3(e). As such, per the Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903, and Assembly Bill 5 (Gonzalez), the Division of Labor Standards Enforcement (DLSE) has opened a concurrent investigation of Santa Claus for possible wage and hour violations and failure to maintain workers’ compensation insurance.

See also: How CCPA Will—and Won’t—Hit Insurance  

California takes its consumers’ privacy seriously, as it does the violations of its laws protecting workers. Potential penalties under the CCPA, if not cured, could reach $2,500 per violation. Because each California resident has had its personal information collected by Santa Claus, total penalties could be as high as $100 billion, assuming no violations were intentional.

We will keep you informed as events develop.

How CCPA Will—and Won’t—Hit Insurance

When the New Year arrives, so, too, will a new standard for privacy. The California Consumer Privacy Act—and its recent amendments and draft regulations—will soon govern how entities around the world are allowed to collect and process data. Although CCPA is limited to the data of California residents, the ultimate impact is much greater than it at first might seem. California represents the world’s fifth-largest economy and the nation’s first state to pass comprehensive privacy legislation. As a result, CCPA will likely influence privacy laws domestically and abroad, and could even begin the push toward federal regulation.

Much of CCPA is based on the European Union’s General Data Protection Regulation, but the two landmark privacy laws differ on an important issue. While GDPR requires individuals to provide consent before their data can be collected, CCPA instead assumes consent and requires it to be revoked if an individual wishes to opt out. In other words, entities can collect the data of California residents as a default, whereas those same entities would need permission before gathering information about EU residents. This key philosophical difference benefits businesses by putting the onus on consumers to manage their privacy preferences—and that’s not the only way the California law is pro-business.

The “financial institution” exemption

Originally drafted as a ballot initiative by real-estate-developer-turned-privacy-activist Alastair Mactaggart, CCPA was designed to protect the privacy of consumers against the financial interests of large technology corporations. CCPA allows individuals to prevent the selling of their data, creates greater transparency in companies’ data-collection practices and increases penalties for improper data-security measures. However, for some industries—such as financial services and insurance—where the collection and processing of personal information is necessary for operation, the law carves out exemptions for specific data types used in those instances.

See also: Vast Implications of the CCPA  

An example is the exemption of data that is considered “personal information collected, processed, sold or disclosed pursuant to the federal Gramm-Leach-Bliley Act, and implementing regulations,” as referenced in Cal. Civ. Code § 1798.145(e). Referred to as personally identifiable financial information (PIFI), this data is addressed specifically by the Gramm-Leach-Bliley Act (GLBA) and subject to its regulation. CCPA finds the controls laid out in GLBA to be sufficient and therefore allows itself to be superseded by the federal law. PIFI is defined as any information:

  • Provided by a consumer to acquire a financial product or service
  • Used or referenced to perform a financial transaction
  • Gathered during the process of provisioning a financial product or service

As one might gather, data that might qualify as PIFI in one instance is not guaranteed to be considered PIFI in another context. For example, only data collected and directly related to the provision of a product or service constitutes PIFI.

So, if that same data is collected solely for the purpose of marketing or business analytics, it would not be considered PIFI. Any non-PIFI data that “identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household” would be subject to CCPA, according to Cal. Civ. Code § 1798.140(o)(1).

As one might imagine, this distinction can become cloudy in some applications and results in considerable gray area. To address this uncertainty, it is recommended that organizations work with their legal teams to review all of the data in their possession and re-evaluate their regulatory compliance obligations under both CCPA and GLBA.

So, what is subject to CCPA?

Within the insurance industry, any type of personal information that does not fall within the parameters of PIFI is subject to CCPA—if the entity collecting it meets the law’s established criteria. According to CCPA, any organization that has a gross annual revenue of over $25 million, processes at least 50,000 California residents’ records for commercial purposes or can attribute half of its revenue to the selling of personal information must follow the requirements of CCPA—or risk facing substantial fines and other penalties. This likely includes most decent-sized insurance companies.

Although much of the information processed by providers is shielded against CCPA, the data possessed by policyholders is not. The total cost of cyber insurance premiums worldwide is projected to increase to $7.5 billion next year, and CCPA is a big reason. Because CCPA gives teeth to fines and other penalties for data breaches, many organizations will be looking to expand their cyber insurance coverage or purchase policies if they don’t have one already.

See also: Where to Turn for Cyber Assistance?

As the privacy landscape continues to shift with the development of new laws domestically and abroad, risk minimization must be prioritized by both insurance companies and their policyholders. Whether you’re concerned about CCPA compliance or preparing for the next wave of privacy regulations, we recommend deploying tokenization as a risk-reducing solution to protect sensitive data. When implemented properly, tokenization can significantly reduce the likelihood of a cyber event and, as a result, a claim. It’s an affordable investment that can better protect data and improve an insurer’s ability to provide reliable coverage.

Vast Implications of the CCPA

The California Department of Finance recently wrote a Standardized Regulatory Impact Assessment (SRIA) of the California Consumer Privacy Act of 2018 (CCPA). The SRIA was prepared for the Department of Justice, the primary regulatory body, whose work is hoped to provide some clarity over what remains a confusing array of obligations for most California businesses. The Department of Finance is required by law to do these assessments when the proposed regulation has an economic impact of over $50 million.

The Department of Finance went to great lengths to separate the cost of compliance with the CCPA as opposed to the costs generated by possible regulations from the Department of Justice. As to the former, per a letter dated Sept. 16 from the Department of Finance to the Department of Justice, “The SRIA estimates that the initial cost of compliance may be up to $55 billion.”

As noted in the report, “Small firms are likely to face a disproportionately higher share of compliance costs relative to larger enterprises.” The definition of small business in the full report appears to be based on an estimate of how many employees would need to generate the revenue necessary to constitute a business as defined in the CCPA. As a result of this calculation, it is estimated that a “small” business would have at least 250 employees.

This analysis, however, does not take into account the impact of the CCPA on a small business that acts as a service provider to a business but does not itself qualify as a business under the CCPA. Using the Finance methodology, this would mean any service provider with fewer than 250 employees that receives personal information from a business. These service providers will need to respond when their business customers start asking for revisions in contracts to meet CCPA obligations, and to show they are otherwise compliant with the obligations of service providers under the act.

See also: Keys to California’s Consumer Privacy Act  

The report also notes, looking to the experience of the European Union (EU) and the General Data Protection Regulation (GDPR): “Conventional wisdom may suggest that stronger privacy regulations will adversely impact large technology firms that derive the majority of their revenue from personal data, however evidence from the EU suggests the opposite may be true. Over a year after the introduction of the GDPR, concerns regarding its impact on larger firms appear to have been overstated, while many smaller firms have struggled to meet compliance costs.”

The Department of Finance makes the assumption there will be a fairly static compliance environment after Jan. 1, 2020. That may not be a correct assumption. Alastair Mactaggart, the father of the California Consumer Privacy Act of 2018 (CCPA), announced recently he will be going back to the ballot in 2020 with the cleverly named California Consumer Privacy Act of 2020. At least part of the motivation behind this, according to Mactaggart, is to keep the legislature from weakening privacy protections – a much more difficult task when a law is enacted as an initiative measure. Following his initial filing with the attorney general on Sept. 25, Mactaggart filed a slightly edited version of the proposal – now titled the California Privacy Rights and Enforcement Act of 2020 (CPREA) – on Oct. 2. The new moniker for this may have something to do with messaging in anticipation of a campaign next fall.

While the business community is attempting to negotiate with Mactaggart and his coalition in an effort to ameliorate the impact of this initiative, in the rapidly changing world of technological innovation nothing is static. The initiative process in California, however, is public process cast in quick-set concrete. Regardless of what is put into this ballot measure regarding future amendments in the legislature, the proponents of this law will invest in themselves the prerogative to decide what is “in furtherance of” their grand scheme. Their self-serving bureaucracy, the California Privacy Protection Agency (CPPA), is an effort to create a semi-autonomous state within but unaccountable to any of the apparatus of state government. While disdainful of the legislative process, this agency would be governed by a decidedly political five-member panel, two appointed by the governor, one by the president pro tem of the Senate, one by the assembly speaker and one by the attorney general.

No mention of the insurance commissioner — just in case you missed that omission.

See also: In Race to AI, Who Guards Our Privacy?  

Regardless of the fate of a ballot measure on privacy, we are now in an environment where multibillion-dollar compliance costs are table stakes. For those who can afford it, it will be business as usual, even if slightly disrupted. For those who cannot, compliance is a death knell to innovation. Promising technologies that are dependent on personal information will be stifled unless Big Tech can grab it and afford the cost of putting such innovations to market. This affects all aspects of California’s economy.

But when Big Government and Big Tech are the only easily identifiable winners in a public policy debate, can we expect anything more?

Keys to California’s Consumer Privacy Act

On June 26 of this year, Connecticut Gov. Ted Lamont signed HB 7424, the state budget bill. Among the provisions in this over 200-page piece of legislation: “The bill repeals the state’s information security program law, replacing it with provisions substantially similar to the National Association of Insurance Commissioners (NAIC) insurance data security model law.”

This is remarkable for two reasons. The first is Connecticut doing something no state west of the Mississippi has done – adopt the NAIC Model Law. The second is the Connecticut legislature actually repealed outdated laws before it adopted the new ones. Clearly, these people have never been to California.

Which brings us to the California Consumer Privacy Act of 2018, or what is now affectionately known as the CCPA. Insurance companies are anxiously anticipating the outcome of several assembly bills amending the CCPA that are awaiting action by the Senate, now that the legislature has returned from summer recess. Regardless of the changes, it remains likely – even though unnecessary – that the CCPA will “go live” on Jan. 1, 2020.

Given the number of cans kicked down the road by the legislature this year on important CCPA issues, it will be difficult for regulators to provide much needed clarity by the July 1, 2020 rule-making deadline. What regulations are adopted will likely be subject to quick change once the Jan. 1, 2021, iteration of the CCPA takes shape during next year’s legislative session. It will also be difficult for the attorney general to provide advice to businesses or third parties on how to comply with the CCPA, a requirement the attorney general feels, correctly, is a bit at odds with his obligation to enforce the CCPA. Maybe that, too, will be part of the 2020 agenda.

In the meantime, insurance companies are faced with an increasing number of privacy and data security requirements not associated with the CCPA. For insurers doing business in New York or states that have adopted a form of the NAIC Insurance Data Security Model Law, compliant practices are being developed right now. In the case of New York and its Cybersecurity Requirements for Financial Institutions, 23 NYCRR 500, the “go-live” date was March 1 of this year. The New York regulation became effective one year after publication but also had a two-year transitional period before full compliance was required. That implementation process could have been emulated for the CCPA. Instead, there appears to be a hard effective date of Jan. 1, 2020 even as key amendments are still being negotiated.

And remember, while the attorney general cannot bring an enforcement action until the earlier of July 1, 2020, or the adoption of regulations, lawsuits can happen right away. More accurately, lawsuits can commence after the 30-day notice and right-to-cure provisions are triggered.

The CCPA has a series of “data exceptions” that are evolving. While entities such as insurance companies are not exempt from the new law, certain personal information (PI) of “consumers” is. Among those exemptions is PI collected that is also subject to the Gramm-Leach-Bliley Act (GLBA), 1999 legislation that ushered in privacy protections and rules for the safeguarding of PI by financial institutions when the merger of banks, investment firms and insurance companies became authorized. GLBA also required states to undertake certain actions in terms of privacy of PI; if they did not, the information practices of insurers (and others) would be subject to federal regulation. States could provide greater protections than the federal law but not diminish them.

See also: First of Many Painful Privacy Laws  

So, the NAIC and the California Department of Insurance sprang into action. California adopted portions of NAIC model regulations governing privacy of financial and health information, and additional regulations governing the safeguarding of that information. While the Department of Insurance was adopting portions of these models, it also provided additional privacy protections and conformed the new privacy regulations to already existing statutory protections in the Insurance Information and Privacy Protection Act (IIPPA). In addition, the legislature adopted the California Financial Information Privacy Act (CFIPA) as part of providing greater privacy protections for California residents and customers of financial institutions (including insurers) than required under GLBA.

As part of the expansion of privacy protections beyond those contained in the federal law was the characterization of a workers’ compensation claimant as a “consumer” under certain circumstances. While this activity was going on, the Federal Trade Commission (FTC) adopted the Privacy Rule – relating to information practices and providing the ability for consumers to “opt out” of having their information shared. It also adopted the Safeguards Rule, requiring a financial institution to develop, implement and maintain a comprehensive information security program.

After this great rush of legislative and regulatory activity in Sacramento and Washington, D.C., during 2000-2002, the pace of new regulation of privacy practices of insurers slowed. Newer iterations of the NAIC model regulations were not adopted in California, and neither was the later iteration of the IIPPA. The legislature continued to push out privacy-related bills at a dizzying pace, including the California Online Privacy Protection Act (COPPA), 2003 legislation requiring operators of websites and online services that collect PI about the users of their site to conspicuously post their privacy policies on the website and comply with them. The COPPA has been amended several times to keep up with technology. It is not in conflict with the existing requirements of entities that fall under GLBA. Indeed, analyses of Assembly Bill 68 (Simitian), 2003 legislation creating the COPPA, suggest that part of the intent of this legislation was to have other businesses operating on the internet adopt the same policies and practices as financial institutions under GLBA.

The CCPA does not amend the COPPA, or even refer to it. Instead, the CCPA adds even more content on business’ websites so the new rights allowed under it can be exerted by consumers. Both the CCPA and COPPA want their notices to be “conspicuous” and on the business’ home page. It’s going to get crowded on home pages.

In March of this year, the Federal Trade Commission (FTC) announced it was proposing to revisit both the Privacy Rule and the Safeguards Rule under GLBA. The changes as they relates to the Safeguards Rule will closely track the NAIC Insurance Data Security Model Law and the New York Cybersecurity Regulation. Once adopted, the changes may result in more action from the NAIC. None of this will occur in 2019, and maybe not even in 2020, but the landscape for privacy protection and data security for insurers and insurance organizations will be in a state of flux at least through 2021.

The authors of the CCPA acknowledged that, within the patchwork of state and federal laws governing PI, some safeguards are adequate. The initiative measure upon which the CCPA is based provided data exceptions for PI covered by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). These data exceptions were expanded to include other laws, including GLBA and the CFIPA, during the legislative negotiations in 2018 that resulted in the initiative being withdrawn. In the rush to forestall an initiative and pass something to send to then-Gov.r Jerry Brown before the end of June last year, the California legislature did what it all too often does: add new laws without regard to existing ones addressing the same issues but in a different way.

Because only certain PI is exempted from the requirements of the CCPA, businesses that collect and disclose exempt data must nevertheless maintain the architecture of the CCPA for non-exempt data. Consumers who seek to exercise their rights – assuming they will read properly crafted notices on business websites – will access a series of links only to be told that the PI they are seeking to control or delete really isn’t PI, even though it includes the consumer’s name, address, Social Security number, etc. It’s just not CCPA PI. Well, that’s certainly enlightened public policy, isn’t it?

See also: In Race to AI, Who Guards Our Privacy?  

It is difficult to claim the current and evolving laws and regulations governing consumer control over and data security of PI collected by insurers is inadequate. Yes, there have been security breaches among financial institutions covered by GLBA. That, however, is not the exclusive measure of effective security. The CCPA acknowledges that “reasonable” security efforts will protect a business from liability if unencrypted or unredacted PI is improperly accessed. Clearly, that also sends a message as to what the legislature thinks is a minimum standard for what is “reasonable.”

Not good enough.

The IIPPA, GLBA, the Privacy and Safeguards Rules of the FTC, the Department of Insurance Privacy Regulation and continuing initiatives by the FTC and the NAIC demonstrate a decades-long history of developing strong laws to protect the privacy of insurance consumers. Advocates for the CCPA would do well to remember that not every business is unregulated when it comes to information practices and give the IIPPA and subsequent laws a level of earned deference in today’s digital debate. Or, to quote Jacob McCandles (John Wayne) in the movie “Big Jake,” “If you can’t respect your elders, I’ll just have to teach you to respect your betters.”

The CCPA gathers headlines because it is intended to empower individuals and their efforts to control their own PI. When PI is shared, policymakers want to make certain it is shared transparently and securely regardless of where the PI goes. This is a response to the use of PI by very large international companies that occupy an outsized space in what is purported to be a competitive digital marketplace. They are also the companies most able to afford the increasingly complex data security environment throughout the world and who can pay very large penalties for non-compliance. Good for them. This new and complex environment is where policymakers in Sacramento should focus for the remainder of 2019 and next year, when CCPA 3.0 will roll out. Unfortunately, they won’t.

CCPA: First of Many Painful Privacy Laws

The California Consumer Privacy Act (CCPA), which becomes law on New Year’s Day, is to this point the most important and influential piece of privacy legislation in the U.S. It’s designed to protect the privacy of consumers, and its effects far exceed the borders of the nation’s largest state—and the country, for that matter—by dictating how organizations around the world are allowed to collect and handle the data of Californians. Specifically, the law will give Californians the right to know what data of theirs is being collected and with whom it is being shared. It also gives them the right to refuse or opt out of any agreement that would allow their data to be collected (with a few exceptions) and to request that their data be deleted in the event that they do so.

Beyond those general considerations, the law aims to address demands for stricter regulations for businesses that collect customer information and stronger enforcement practices when those businesses improperly handle sensitive personal data. In this regard, the law is not unique but rather only the beginning of what’s become a nationwide crackdown on data collection and privacy. Nearly 20 states have passed or are in the process of passing comprehensive privacy legislation. Once enacted, these regulations will create a veritable minefield of privacy measures that vary from state to state, and the organizations whose business purposes compel them to trudge through it will need to protect themselves against the possibility of fines and other penalties. As a result, the need for cyberinsurance, specifically as it relates to fines for regulatory noncompliance, has never been higher.

Although organizations are exempt from the California law when “assembling or collecting information about natural persons for the primary purpose of providing the information to an insurance institution or agent for insurance transactions”—thanks to Assembly Bill 981, which was passed in May—organizations are still subject to its requirements when the scope and use of personal data exceeds those specific operations. In many cases, the compliance concerns of insurance companies will be solely with that of their policyholders, so it is in the best interest of both parties to ensure steadfast organizational compliance with an emphasis on reducing risk and anticipating future regulations.

See also: Blockchain, Privacy and Regulation  

Of particular importance to these insurers and their insureds is the controversial concept of private right of action, which allows individuals whose privacy has been violated to bring civil suits against noncompliant parties. Originally, this portion of the California law could have exponentially increased the financial consequences of a breach by subjecting violators to class-action claims of damages from victims, on top of the compliance-related fines levied by the state. It has since been limited to injunctive or declaratory relief, but other developing statutes include language similar to the original bill’s treatment of private right of action. Louisiana, Massachusetts, New York, North Dakota and Rhode Island all are working on bills that include a private right of action, with New York’s being especially expansive and potentially heavy-handed toward violators. In addition to including a private right of action, New York’s proposal has no minimum gross revenue requirement, meaning all companies—regardless of size—will be subject to the law’s rules and penalties. This has led critics to question the feasibility of fairly enforcing what they deem to be overly broad regulations aimed at punishing well-meaning organizations that cannot keep up with the evolving privacy space.

In terms of its impact on the insurance industry, the resulting legislative inconsistency will hit the big names the hardest, but it still does no favors for mid-size carriers struggling to keep up with their state or regional laws. In addition to meeting their own compliance obligations, they will have to accurately gauge the risk and potential penalties presented by the difficulty policyholders will have satisfying theirs. Insurers might not have to walk through the minefield, but they will have to clean up the mess inside it once something goes wrong.

As we discussed in a previous post, the difficulty insurance companies already experience when attempting to create reliable cyberinsurance policies is inhibiting the industry’s ability to provide much-needed coverage. The private right of action and other uncertain aspects of these laws further complicate the task of accurately estimating and pricing the cost of cyberinsurance coverage by expanding the potential recompense for breach victims. When coupled with the fact that no federal privacy law exists—allowing each state to establish its own set of rules for what constitutes personal data and how it should be protected—offering cyberinsurance can seem like an almost untenable prospect. However, a risk-reducing, compliance-enabling solution exists in the marketplace: tokenization.

See also: Mobile Apps and the State of Privacy  

Tokenization, such as that offered by the TokenEx Cloud Security Platform, especially excels at reducing risk through its use of pseudonymization and secure data vaults. Pseudonymization, also known as deidentification, is the process of desensitizing data to render it untraceable to its original data subject. It does so by replacing identifying elements of the data with a nonsensitive equivalent, or token, and storing the original data in a cloud-based data vault. This virtually eliminates the risk of theft in the event of a data breach, and, as a result, tokenization is recognized as an appropriate technical mechanism for protecting sensitive data in compliance with the CCPA and other regulatory compliance obligations. Because tokenization satisfies controls concerning the processing of sensitive data, it can prevent losses stemming from fines and other penalties as a result of noncompliance.

As new laws emerge and the privacy landscape in the U.S. continues to shift, it is crucial for both insurance companies and their policyholders to prioritize risk minimization. And tokenization is an essential tool for significantly reducing the likelihood of a cyber event, and as a result, a claim.