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The following report describes information security and data breach notification requirements
included in the Privacy Act, the Federal Information Security Management Act, Office of
Management and Budget Guidance, the Veterans Affairs Information Security Act, the Health
Insurance Portability and Accountability Act, the Gramm-Leach-Bliley Act, the Federal Trade
Commission Act, and the Fair Credit Reporting Act. Also included in this report is a brief
summary of the Payment Card Industry Data Security Standard (PCI DSS), an industry regulation
developed by VISA, MasterCard, and other bank card distributors.
Information security laws are designed to protect personally identifiable information from
compromise, unauthorized disclosure, unauthorized acquisition, unauthorized access, or other
situations where unauthorized persons have access or potential access to personally identifiable
information for unauthorized purposes. Data breach notification laws typically require covered
entities to implement a breach notification policy, and include requirements for incident reporting
and handling and external breach notification.
During the 110th Congress, three data security bills—S. 239 (Feinstein), S. 495 (Leahy), and S.
1178 (Inouye)—were reported favorably out of Senate committees. Those bills include
information security and data breach notification requirements. Several other data security bills
were also introduced. The 109th and 110th Congresses did not pass data security legislation. In the
111th Congress, expectations are that efforts to move data security legislation will continue this
year.
As part of H.R. 1, the American Recovery and Reinvestment Act of 2009, the 111th
Congress is considering legislation to promote the widespread adoption of health
information technology (HIT). H.R. 1 includes provisions dealing with the security of
health information, and requires covered entities to notify affected persons in cases of
breach of protected health information.
For related reports, see the Current Legislative Issues Web page for “Privacy and Data Security”
available at http://www.crs.gov. This report will be updated.
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Background ..................................................................................................................................... 1
Federal Information Security and Data Breach Notification Laws ................................................. 3
Federal Sector............................................................................................................................ 3
Privacy Act.......................................................................................................................... 4
Federal Information Security Management Act.................................................................. 5
Office of Management and Budget “Breach Notification Policy”...................................... 6
Veterans Affairs Information Security Act.......................................................................... 7
Private Sector ............................................................................................................................ 9
Health Insurance Portability and Accountability Act........................................................ 10
Privacy Standard......................................................................................................... 10
Security Standard........................................................................................................ 12
Gramm-Leach-Bliley Act.................................................................................................. 13
Privacy Rule ............................................................................................................... 13
FTC Safeguards Rule.................................................................................................. 14
Information Security Guidelines................................................................................. 14
Response Programs for Unauthorized Access to Customer Information and
Customer Notice...................................................................................................... 15
Federal Trade Commission Act......................................................................................... 16
Fair Credit Reporting Act, as amended by the Fair and Accurate Transactions Act ......... 17
Payment Card Industry Data Security Standard ............................................................................ 18
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Author Contact Information .......................................................................................................... 19
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Because of questions about the security of sensitive personal information, this report provides an
overview of federal information security and data breach notification laws that are applicable to
certain entities that collect, maintain, own, possess, or license sensitive personal information.1
Information security laws are designed to protect personally identifiable information or sensitive
personal information from compromise, and from unauthorized disclosure, acquisition, access, or
other situations where unauthorized persons have access or potential access to personally
identifiable information for unauthorized purposes. Data breach notification laws typically
require covered entities to implement a breach notification policy, and include requirements for
incident reporting and handling and external breach notification. A data breach occurs when there
is a loss or theft of, or other unauthorized access to, data containing sensitive personal
information that results in the potential compromise of the confidentiality or integrity of data.
Data breach notification laws typically cover “personally identifiable information” or
“individually identifiable information.”
No single federal law or regulation governs the security of all types of sensitive personal
information. Determining which federal law, regulation, and guidance is applicable depends in
part on the entity or sector that collected the information, and the type of information collected
and regulated. Under federal law certain sectors are legally obligated to protect certain types of
sensitive personal information. These obligations were created, in large part, when federal privacy
legislation was enacted in the credit, financial services, health care, government, securities, and
Internet sectors. Federal regulations were issued to require certain entities to implement
information security programs and provide breach notice to affected persons.2
For example, there are federal information security requirements applicable to all federal
government agencies (FISMA) and a federal information security law applicable to a sole federal
department (Veterans Affairs). In the private sector, different laws apply to private sector entities
engaged in different businesses. This is what is commonly referred to as a sectoral approach to
the protection of personal information.
Some critics say that current laws focus too closely on industry-specific uses of information, like
credit reports or medical data, rather than on protecting the privacy of individuals.3 Others believe
the sectoral approach to the protection of personal information reflects not only variations in the
types of information collected (e.g., government, private sector, health, financial, etc.), but also
1 For a discussion of Section 222 of the Communications Act of 1934, as amended (47 U.S.C. 222), which establishes a
duty for telecommunications carrier to protect the confidentiality of customers’ customer proprietary network
information (CPNI), see CRS Report RL34409, Selected Laws Governing the Disclosure of Customer Phone Records
by Telecommunications Carriers, by Kathleen Ann Ruane. For a discussion of Sections 302 and 404 of the Sarbanes-
Oxley Act of 2002, P.L. 107-204, which require public companies to ensure that they have implemented appropriate
information security controls with respect to their financial information, see CRS Report RS22482, Section 404 of the
Sarbanes-Oxley Act of 2002 (Management Assessment of Internal Controls): Current Regulation and Congressional
Concerns, by Michael V. Seitzinger.
2 Thomas J. Smedinghoff, “The New Law of Information Security: What Companies Need To Do Now,” 22 The
Computer & Internet Lawyer 9 (November 2005).
3 Tom Zeller, Jr., “Breach Points Up Flaws in Privacy Laws,” N.Y. Times, Feb. 24, 2005 at A1.
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differences in the regulatory framework for particular sectors. Others advocate a national standard
for entities that maintain personal information in order to harmonize legal obligations.4
In the absence of a comprehensive federal data breach notification law, the majority of states have
passed bills to require businesses and/or government agencies to notify persons affected by
breaches involving their sensitive personal information, and in some cases to implement
information security programs to protect the security, confidentiality, and integrity of data.5 As of
December 16, 2008, 44 states, the District of Columbia, Puerto Rico, and the Virgin Islands have
enacted legislation requiring notification of security breaches involving personal information.6
Several states have reportedly considered legislation to hold retailers liable for third party
companies’ costs arising from data breaches (California, Connecticut, Illinois, Massachusetts,
Minnesota, New Jersey, Texas, and Wisconsin).7 Many states provide a safe harbor for an entity
that is regulated by state or federal law and maintains procedures pursuant to such laws, rules,
regulations, or guidelines.
Numerous data breaches and computer intrusions have been disclosed by the nation’s largest data
brokers, retailers, educational institutions, government agencies, health care entities, financial
institutions, and Internet businesses. The Privacy Rights Clearinghouse chronicles and reports
that over 251 million records containing sensitive personal information8 were involved in security
breaches in the U.S. since January 2005.9 From February 2005 to December 2006, 100 million
personal records were reportedly lost or exposed.10 In 2006 the personal data of 26.5 million
veterans was breached when a VA employee’s hard drive was stolen from his home. In 2007 the
retailer TJX Companies revealed that 46.2 million credit and debit cards may have been
compromised during the breach of its computer network by unauthorized individuals.11 In 2008
the Hannaford supermarket chain revealed that approximately 4 million debit and credit card
numbers were compromised when Hannaford’s computer systems were illegally accessed while
the cards were being authorized for purchase. There were 1,800 reported cases of fraud connected
to the computer intrusion.
Data breaches involving sensitive personal information may result in identity theft and financial
crimes (e.g., credit card fraud, phone or utilities fraud, bank fraud, mortgage fraud, employment-
related fraud, government documents or benefits fraud, loan fraud, and health-care fraud).
4 The President’s Identity Theft Task Force, Combating Identity Theft: A Strategic Plan, April 2007 at
http://www.identitytheft.gov/reports/StrategicPlan.pdf.
5 See Consumers Union, Notice of Security Breach State Laws (Last updated August 21, 2007) at
http://www.consumersunion.org/campaigns/Breach_laws_May05.pdf.
6 See State Security Breach Notification Laws, National Conference of State Legislatures at
http://www.ncsl.org/programs/lis/cip/priv/breachlaws.htm.
7 See Timothy P. Tobin, In Response To TJX Data Breach, One State Enacts Legislation Imposing New Security and
Liability Obligations; Similar Bills Pending in Five Other States, at http://privacylaw.proskauer.com/. The Minnesota
bill was signed into law on May 21, 2007. 2007 Minn. Laws Ch. 108, H.F. 1758.
8 Sensitive personal information generally includes an individual’s name, address, or telephone number, in conjunction
with the individual’s Social Security number, driver’s license number, account number, credit or debit card number, or
a personal identification number or password.
9 Privacy Rights Clearinghouse, A Chronology of Data Breaches, at http://www.privacyrights.org/ar/
ChronDataBreaches.htm.
10 Tom Zeller, An Ominous Milestone: 100 Million Data Leaks, N. Y. Times, Dec. 18, 2006, at C3.
11 U.S. Securities and Exchange Commission, Form 10-K Annual Report: The TJX Cos., Inc., http://www.sec.gov/
Archives/edgar/data/109198/000095013507001906/b64407tje10vk.htm.
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Identity theft involves the misuse of any identifying information, which could include name,
SSN, account number, password, or other information linked to an individual, to commit a
violation of federal or state law.12 According to the Federal Trade Commission, identity theft is
the most common complaint from consumers in all 50 states, and accounts for over 35% of the
total number of complaints the Identity Theft Data Clearinghouse received for calendar years
2004, 2005, and 2006. In calendar year 2006,13 of the 674,354 complaints received, 246,035 or
36% were identity theft complaints.14 With continued media reports of data security breaches,15
concerns about new cases of identity theft are widespread.
These public disclosures have heightened interest in the security of sensitive personal
information;16 security of computer systems; applicability of federal laws to the protection of
sensitive personal information; adequacy of enforcement tools available to law enforcement
officials and federal regulators; business and regulation of data brokers;17 liability of retailers,
credit card issuers, payment processors, banks, and furnishers of credit reports for costs arising
from data breaches; remedies available to individuals whose personal information was accessed
without authorization;18 prosecution of identity theft crimes related to data breaches; and criminal
liability of persons responsible for unauthorized access to computer systems.19
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The following report describes information security and data breach notification requirements
included in the Privacy Act, the Federal Information Security Management Act, Office of
Management and Budget Guidance, the Veterans Affairs Information Security Act, the Health
Insurance Portability and Accountability Act, the Gramm-Leach-Bliley Act, the Federal Trade
Commission Act, and the Fair Credit Reporting Act.
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A newly enacted federal law and recently issued federal guidance require federal agencies that
collect sensitive personal information to implement enhanced information security programs and
provide notice to persons affected by data security breaches. The Veterans Affairs Information
12 P.L. 105-318, Identity Theft Assumption and Deterrence Act; 18 U.S.C. § 1028.
13 The last year for which Identity Theft Victim Complaint Data is available.
14 Federal Trade Commission, Identity Theft Victim Complaint Data, Feb. 7, 2007, at http://www.ftc.gov/bcp/edu/
microsites/idtheft/downloads/clearinghouse_2006.pdf.
15 See Nancy Trejos, “Identity Theft Gets Personal: When a Debit Card Number Is Stolen, America’s New Crime Wave
Hits Home,” Washington Post at F01 (Jan. 13, 2008).
16 BNA Privacy & Security Law Report, Data Security Legislation Expected to Face Big Challenges, 8 PVLR 51, Jan.
12, 2009.
17 See U.S. Government Accountability Office, Personal Information: Key Federal Privacy Laws Do Not Require
Information Resellers to Safeguard All Sensitive Data 56, GAO-06-674, June 26, 2006, at http://www.gao.gov/
new.items/d06674.pdf.
18 See CRS Report RL31919, Federal Laws Related to Identity Theft, updated by Gina Marie Stevens.
19 See CRS Report 97-1025, Cybercrime: An Overview of the Federal Computer Fraud and Abuse Statute and Related
Federal Criminal Laws, by Charles Doyle.
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Security Act of 2006 was enacted to prevent and respond to data breaches in the Department of
Veterans Affairs. The 2007 Office of Management and Budget memorandum on “Safeguarding
Against and Responding to the Breach of Personally Identifiable Information” requires all federal
agencies to implement a breach notification policy to safeguard personally identifiable
information.
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The Privacy Act is the principal law governing the federal government’s information privacy
program. Other relevant federal laws include the Computer Matching and Privacy Protection Act
of 1988,20 and Section 208 of the E-Government Act of 2002 which requires agencies to conduct
privacy impact assessments on new information technology systems and electronic information
collections.21 The Privacy Act of 197422 governs the collection, use, and dissemination of a
“record”23 about an “individual”24 maintained by federal agencies in a “system of records.”25 The
act defines a “record” as any item, collection, or grouping of information about an individual that
is maintained by an agency and contains his or her name or another personal identifier. In order
for an agency record to be protected by the Privacy Act, it must be retrieved by individual name
or individual identifier. The Privacy Act also applies to systems of records created by government
contractors.26 The Privacy Act does not apply to private databases.
The Privacy Act prohibits the disclosure of any record maintained in a system of records to any
person or agency without the written consent of the record subject, unless the disclosure falls
within one of twelve statutory exceptions. The act allows most individuals to seek access to
records about themselves, and requires that personal information in agency files be accurate,
complete, relevant, and timely.27 The subject of a record may challenge the accuracy of
information. The Privacy Act requires that when agencies establish or modify a system of records,
they publish a “system-of-records notice” in the Federal Register.28
Each agency that maintains a system of records is required to “establish appropriate
administrative, technical, and physical safeguards to insure the security and confidentiality of
records and to protect against any anticipated threats or hazards to their security or integrity
which could result in substantial harm, embarrassment, inconvenience, or unfairness to any
individual ... ”29
20 5 U.S.C. § 552a note.
21 44 U.S.C. § 3501 note.
22 5 U.S.C. § 552a.
23 5 U.S.C. § 552a(a)(4).
24 “The term “individual” means a citizen of the United States or an alien lawfully admitted for permanent residence.” 5
U.S.C. § 552a(2).
25 The act defines “system of records” as a group of records under the control of any agency from which information is
retrieved by the name of the individual or by an individual identifier. Id at § 552a(a)(5).
26 5 U.S.C. § 552(m).
27 5 U.S.C. § 552a(e)(5).
28 The Federal Register notice must identify, among other things, the type of data collected, the types of individuals
about whom information is collected, the intended “routine” uses of data, and procedures that individuals can use to
review and correct personal information. 5 U.S.C. § 552e(4).
29 5 U.S.C. § 552a(e)(10).
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The Privacy Act provides legal remedies that permit an individual to seek enforcement of the
rights granted under the act. The individual may bring a civil suit against the agency. The court
may order the agency to amend the individual’s record, enjoin the agency from withholding the
individual’s records, and may award actual damages of $1,000 or more to the individual for
intentional or wilful violations.30 Courts may also assess attorneys fees and costs. The act also
contains criminal penalties; federal employees who fail to comply with the act’s provisions may
be subjected to criminal penalties.
The Office of Management and Budget (OMB) is required to prescribe guidelines and regulations
for the use by agencies in implementing the act, and provide assistance to and oversight of the
implementation of the act.31
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FISMA is the principal law governing the federal government’s information security program.
Title III of the E-Government Act of 2002, the Federal Information Security Management Act of
2002 (FISMA),32 requires federal government agencies to provide information security
protections for agency information and information systems.33 Agencies are required to develop,
document, and implement an agency wide program “providing information security protections
commensurate with the risk and magnitude of the harm resulting from unauthorized access, use,
disclosure, disruption, modification, or destruction of (i) information collected or maintained by
or on behalf of the agency; and (ii) information systems used or operated by an agency or by a
contractor of an agency or other organization on behalf of an agency.”34
The agency’s information security plan also must include procedures for detecting, reporting, and
responding to security incidents; notifying and consulting with the Federal information security
incident center and with law enforcement agencies and relevant Offices of Inspector General.35
The National Institute of Standards and Technology (NIST) is responsible for developing
standards and guidelines for providing adequate information security for all agency operations
and assets, except for national security systems. Agencies are required to comply with the
information security standards developed by NIST.36 Agencies must also conduct, annually, an
independent evaluation of their security programs. The evaluations are forwarded to the Director
of the Office of Management and Budget, for an annual report to Congress.37 The Director’s
authorities do not include national security systems.38
30 Shortly after the breach of the personal data of 26.5 million veterans in 2006 by the Department of Veterans Affairs,
veterans groups filed a class-action lawsuit alleging violations of the Administrative Procedure Act and the Privacy
Act. Vietnam Veterans of America, Inc. et al. V. Nicholson, No. 1:06-cv-01038-JR (D. D.C. filed June 6, 2006).
31 5 U.S.C. § 552a(v). 40 Fed. Reg. 28976 (July 9, 1975).
32 Title III of the E-Government Act of 2002, P.L. 107-347; 44 U.S.C. § 3541 et seq.; see CRS Report RL32357,
Computer Security: A Summary of Selected Federal Laws, Executive Orders, and Presidential Directives, by John D.
Moteff.
33 Information security means protecting information and information systems from unauthorized access, use,
disclosure, disruption, modification, or destruction in order to provide integrity, confidentiality, and availability. 44
U.S.C. § 3542.
34 44 U.S.C. § 3544(a)(1)(A).
35 44 U.S.C. § 3544(b)(7).
36 44 U.S.C. § 3544(a)(1)(B); 40 U.S.C. § 11331.
37 See generally Information Security: Agencies Report Progress, but Sensitive Data Remain at Risk: Hearings Before
(continued...)
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Agency heads are responsible for compliance with FISMA’s requirements and related information
security policies, procedures, standards, and guidelines, and for ensuring that senior agency
officials provide information security. The authority to ensure compliance is delegated to the
agency Chief Information Officer (CIO). FISMA also assigns specific policy and oversight
responsibilities to the Office of Management and Budget (OMB).
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In response to recommendations from the President’s Identity Theft Task Force,39 the Office of
Management and Budget issued guidance in May 2007 for federal agencies on “Safeguarding
Against and Responding to the Breach of Personally Identifiable Information.”40 The OMB
Memorandum M-07-16 requires all federal agencies to implement a breach notification policy to
safeguard “personally identifiable information” by August 22, 2007 to apply to both electronic
systems and paper documents.41 To formulate their policy, agencies are directed to review
existing privacy and security requirements, and include requirements for incident reporting and
handling and external breach notification. In addition, agencies are required to develop policies
concerning the responsibilities of individuals authorized to access personally identifiable
information.
Attachment 1 of the OMB memorandum, Safeguarding Against the Breach of Personally
Identifiable Information, reemphasizes agencies’ responsibilities under existing law (e.g., the
Privacy Act and FISMA), executive orders, regulations, and policy to safeguard personally
identifiable information and train employees. Two new privacy requirements and five new
security requirements are established. To implement the new privacy requirements, agencies are
required to review current holdings of all personally identifiable information to ensure that they
(...continued)
the Subcomms. of the House Comm. on Oversight and Government Reform, 110th Cong. 6-8 (2007), available at
http://www.gao.gov/new.items/d07935t.pdf.
38 FISMA defines a national security system, in statute, as:
Any computer system (including any telecommunications system) used or operated by an agency or by a contractor of
an agency, or other organization on behalf of an agency—
(i) the function of which—
(I) involves intelligence activities;
(II) involves cryptologic activities related to national security;
(III) involves command and control of military forces;
(IV) involves equipment that is an integral part of a weapon or weapons system;
(V) ...is critical to the direct fulfillment of military or intelligence missions; or
(ii) is protected at all times by procedures established for information that have been specifically authorized under
criteria established by an Executive Order or an Act of Congress to be kept classified in the interest of national defense
or foreign policy.
The definition explicitly excludes systems that are used for routine administrative and business applications (including
payroll, finance, logistics, and personnel management applications). P.L. 107-347,§ 301(b)(1).
39 Exec. Order No. 13,402, 71 FR 27945 (2006).
40 http://www.whitehouse.gov/omb/memoranda/fy2007/m07-16.pdf.
41 The memo defines the term “personally identifiable information” as “information which can be used to distinguish or
trace an individual’s identity, such as their name, social security number, biometric records, etc. alone, or when
combined with other personal or identifying information which is linked or linkable to a specific individual, such as
date and place of birth, mother’s maiden name, etc.” Id.
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are accurate, relevant, timely, and complete, and reduced to the minimum necessary amount.
Within 120 days, agencies must establish a plan to eliminate the unnecessary collection and use
of social security numbers within eighteen months. Agencies must implement the following five
new security requirements (applicable to all federal information): encrypt all data on mobile
computers/devices carrying agency data; employ two-factor authentication for remote access; use
a “time-out” function for remote access and mobile devices; log and verify all computer-readable
data extracts from databases holding sensitive information; and ensure that individuals and
supervisors with authorized access to personally identifiable information annually sign a
document describing their responsibilities.42
Attachment 2 of the OMB Memorandum, Incident Reporting and Handling Requirements, applies
to the breach of personally identifiable information in electronic or paper format. Agencies are
required to report all incidents involving personally identifiable information within one hour of
discovery/detection; and publish a “routine use”43 under the Privacy Act applying to the
disclosure of information to appropriate persons in the event of a data breach.44
Attachment 3, External Breach Notification, identifies the factors agencies should consider in
determining when notification outside the agency should be given and the nature of the
notification. Notification may not be necessary for encrypted information. Each agency is
directed to establish an agency response team. Agencies must assess the likely risk of harm
caused by the breach and the level of risk. Agencies should provide notification without
unreasonable delay following the detection of a breach, but are permitted to delay notification for
law enforcement, national security purposes, or agency needs. Attachment 3 also includes
specifics as to the content of the notice, criteria for determining the method of notification, and
the types of notice that may be used.
Attachment 4, Rules and Consequences Policy, directs each agency to develop and implement a
policy outlining rules of behavior and identifying consequences and corrective actions available
for failure to follow these rules. Supervisors may be subject to disciplinary action for failure to
take appropriate action upon discovering the breach or failure to take required steps to prevent a
breach from occurring. Rules of behavior and corrective actions should address the failure to
implement and maintain security controls for personally identifiable information; exceeding
authorized access to, or disclosure to unauthorized persons of, personally identifiable
information; failure to report any known or suspected loss of control or unauthorized disclosure
of personally identifiable information; and for managers, failure to adequately instruct, train, or
supervise employees in their responsibilities. Consequences may include reprimand, suspension,
removal, or other actions in accordance with applicable law and agency policy.
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Title IX of P.L. 109-461,45 the Veterans Affairs Information Security Act, requires the Veterans
Administration (VA) to implement agency-wide information security procedures to protect the
42 The first four information security requirements were adopted in an earlier memorandum, See OMB Memo 06-16,
“Protection of Sensitive Agency Information” at http://www.whitehouse.gov/omb/memoranda/fy2006/m06-16.pdf.
43 The Privacy Act defines a routine use to mean “with respect to the disclosure of a record, the use of such record for a
purpose which is compatible with the purpose for which it was collected.” 5 U.S.C. § 552a(a)(7).
44 OMB Memorandum M-07-16, p.11.
45 The Veterans Benefits, Health Care, and Information Technology Act of 2006, P.L. 109-461 (December 22, 2006);
(continued...)
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VA’s “sensitive personal information” (SPI)46 and VA information systems. P.L. 109-461 was
enacted to respond to the May 2006 breach of the personal data of 26.5 million veterans caused
by the theft of a VA employee’s hard drive from his home.47
Pursuant to P.L. 109-461, the VA’s information security program is to provide for the
development and maintenance of cost effective security controls to protect VA information, in any
medium or format, and VA information systems.48 The information security program is required
to include the following elements: periodic assessments of the risk and magnitude of harm that
could result from the unauthorized access, use, disclosure, disruption, modification, or destruction
of VA information and information systems; policies and procedures based on risk assessments
that cost-effectively reduce security risks and ensure information security; implementation of
security controls to protect the confidentiality, integrity, and availability of VA information and
information systems; plans for security for networks, facilities, systems, or groups of information
systems; annual security awareness training for employees and contractors and users of VA
information and information systems; periodic testing of security controls; a process for remedial
actions; procedures of detecting, reporting, and responding to security incidents; and plans and
procedures to ensure continuity of operations. Additionally, the VA Secretary is directed to
comply with FISMA, and other security requirements issued by NIST and OMB. The law also
establishes specific information security responsibilities for the VA Secretary, information
technology and information security officials, VA information owners, other key officials, users
of VA information systems, and the VA Inspector General.
P.L. 109-461 requires that in the event of a “data breach”49 of sensitive personal information
processed or maintained by the VA Secretary, the Secretary must ensure that as soon as possible
after discovery that either a non-VA entity or the VA’s Inspector General conduct an independent
risk analysis of the data breach to determine the level of risk associated with the data breach for
the potential misuse of any sensitive personal information.50 Based upon the risk analysis, if the
Secretary determines that a reasonable risk exists of the potential misuse of sensitive personal
information, the Secretary must provide credit protection services in accordance with regulations
issued by the VA Secretary.51
The VA Secretary is required to report to the Veterans Committees the findings of the independent
risk analysis for each data breach, the Secretary’s determination regarding the risk for potential
(...continued)
38 U.S.C. §§ 5722 et seq.
46 “The term “sensitive personal information”, with respect to an individual, means any information about the
individual maintained by an agency, including the following: (A) Education, financial transactions, medical history,
and criminal or employment history. (B) Information that can be used to distinguish or trace the individual’s identity,
including name, social security number, date and place of birth, mother’s maiden name, or biometric records.” P.L.
109-461, § 902.
47 See CRS Report RL33612, Department of Veterans Affairs: Information Security and Information Technology
Management Reorganization, by Sidath Viranga Panangala.
48 38 U.S.C. § 5722.
49 “Data breach means the loss or theft of, or other unauthorized access to, other than an unauthorized access incidental
to the scope of employment, data containing sensitive personal information, in electronic or printed form, that results in
the potential compromise of the confidentiality or integrity of the data.” 38 U.S.C. § 5727(4).
50 38 U.S. C. § 5724(a)(1).
51 38 U.S. C. § 5724(a)(2).
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misuse of sensitive personal data, and the provision of credit protection services.52 If the breach
involved the sensitive data of DOD civilian or enlisted personnel the Secretary must also report to
the Armed Services Committees.53 In addition, quarterly reports are to be submitted by the VA
Secretary to the Veterans Committees of Congress on any data breach of sensitive personal
information processed or maintained by the VA during that quarter.54 With respect to the breach of
SPI that the VA Secretary determines to be significant, notice must be provided promptly
following the discovery of such data breach to the Veterans Committees, and if the breach
involved the SPI of DOD civilian or enlisted personnel also to the Armed Service Committees.55
P.L. 109-461 also requires the VA to include data security requirements in all contracts with
private-sector service providers that require access to sensitive personal information.56 All
contracts involving access to sensitive personal information must include a prohibition of the
disclosure of such information unless the disclosure is lawful and expressly authorized under the
contract; and the condition that the contractor or subcontractor notify the Secretary of any data
breach of such information. In addition, each contract must provide for liquidated damages to be
paid by the contractor to the Secretary in the event of a data breach with respect to any sensitive
personal information, and that money shall be made available exclusively for the purpose of
providing credit protection services.
P.L. 109-461 requires the Secretary of the VA within 180 days of enactment (by June 22, 2007) to
issue interim regulations concerning notification, data mining, fraud alerts, data breach analysis,
credit monitoring, identity theft insurance, and credit protection services.57 Interim final
regulations were issued by the VA Deputy Secretary on June 22, 2007 to address data breach
security regarding sensitive personal information processed or maintained by the VA.58 The final
regulations, issued April 2008, adopted the interim rule without change.59 The regulations do not
supercede the requirements imposed by other laws such as the Privacy Act, the Health Insurance
Portability and Accountability Act, the Fair Credit Reporting Act, and their implementing rules.
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Other federal laws, such as the Health Insurance Portability and Accountability Act and the
Gramm-Leach-Bliley Act, require private sector covered entities to maintain administrative,
technical, and physical safeguards to ensure the confidentiality, integrity, and availability of
personal information.
52 38 U.S.C. § 5724(c)(1).
53 38 U.S.C. § 5724(c)(2).
54 38 U.S.C. § 5726.
55 38 U.S.C. § 5724(b).
56 38 U.S.C. § 5725.
57 38 U.S. C. § 5724(b).
58 72 Fed. Reg. 34395 (2007), 38 C.F.R. § 75, Subpart B. The interim final regulations implement the sections of P.L.
109-461 on data breaches, credit protections services, and reporting requirements. A separate rulemaking will be
commenced to issue regulations to implement sections of P.L. 109-461 requiring a VA information security program
and establishing information security responsibilities. Id.
59 73 Fed. Reg. 19747 (Apr. 11, 2008).
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Part C of the Health Insurance Portability and Accountability Act of 1996 (HIPAA),60 requires
“the development of a health information system through the establishment of standards and
requirements for the electronic transmission of certain health information.”61 These
“Administrative Simplification” provisions require the Secretary of Health and Human Services
to adopt national standards to: facilitate the electronic exchange of information for certain
financial and administrative transactions; establish code sets for data elements; protect the privacy
of individually identifiable health information; maintain administrative, technical, and physical
safeguards for the security of health information; provide unique health identifiers; and to adopt
procedures for the use of electronic signatures.62
HIPAA covered entities—health plans, health care clearinghouses, and health care providers who
transmit financial and administrative transactions electronically—are required to comply with the
national standards and regulations promulgated pursuant to Part C.63 Under HIPAA, the Secretary
is required to impose a civil monetary penalty on any person failing to comply with the
Administrative Simplification provisions in Part C.64 The maximum civil money penalty (i.e., the
fine) for a violation of an administrative simplification provision is $100 per violation and up to
$25,000 for all violations of an identical requirement or prohibition during a calendar year.65
HIPAA also establishes criminal penalties for any person who knowingly and in violation of the
Administrative Simplification provisions of HIPAA uses a unique health identifier, or obtains or
discloses individually identifiable health information.66 Enhanced criminal penalties may be
imposed if the offense is committed under false pretenses, with intent to sell the information or
reap other personal gain. The penalties include (1) a fine of not more than $50,000 and/or
imprisonment of not more than one year; (2) if the offense is under false pretenses, a fine of not
more than $100,000 and/or imprisonment of not more than five years; and (3) if the offense is
with intent to sell, transfer, or use individually identifiable health information for commercial
advantage, personal gain, or malicious harm, a fine of not more than $250,000 and/or
imprisonment of not more than 10 years.67 These penalties do not affect other penalties imposed
by other federal programs.
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HIPAA also addressed the privacy of individually identifiable health information and required
adoption of a national privacy standard.68 HHS issued final Standards for Privacy of Individually
60 P.L. 104-191, 110 Stat. 1936 (1996), codified in part at 42 U.S.C. §§ 1320d et seq.; see CRS Report RL33989,
Enforcement of the HIPAA Privacy Rule, by Gina Marie Stevens.
61 42 U.S.C. §§ 1320d—1320d-8.
62 42 U.S.C. §§ 1320d-2(a)-(d). HHS has issued final regulations to adopt national standards for transactions and code
sets, privacy, security, and employer identifiers.
63 42 U.S.C. § 1320d-4(b) requires compliance with the regulations within a certain time period by “each person to
whom the standard or implementation specification [adopted or established under sections 1320d-1 and 1320d-2]
applies.
64 42 U.S.C. § 1320d-5(a).
65 42 U.S.C. § 1320d-5(a)(1).
66 42 U.S.C. § 1320d-6.
67 42 U.S.C. § 1320d-6(b).
68 HIPAA required a privacy standard that would address the rights of the subject of individually identifiable health
(continued...)
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Identifiable Health Information, known as the Privacy Rule, on April 14, 2003.69 The HIPAA
Privacy Rule is applicable to health plans, health care clearinghouses, and health care providers
who transmit financial and administrative transactions electronically. The rule regulates protected
health information that is “individually identifiable health information”70 transmitted by or
maintained in electronic, paper, or any other medium.71 The definition of PHI excludes
individually identifiable health information contained in certain education records and
employment records held by a covered entity in its role as employer.
The HIPAA Privacy Rule limits the circumstances under which an individual’s protected health
information may be used or disclosed by covered entities. A covered entity is permitted to use or
disclose protected health information without patient authorization for treatment, payment, or
health care operations.72 For other purposes, a covered entity may only use or disclose PHI with
patient authorization subject to certain exceptions.73 Exceptions permit the use or disclosure of
PHI without patient authorization or prior agreement for public health, judicial, law enforcement,
and other specialized purposes.74 In certain situations that would otherwise require authorization,
a covered entity may use or disclose PHI without authorization provided that the individual is
given the opportunity to object or agree prior to the use or disclosure.75
The HIPAA Privacy Rule also provides for accounting of certain disclosures;76 requires covered
entities to make reasonable efforts to disclose only the minimum information necessary; requires
most covered entities to provide a notice of their privacy practices;77 establishes individual rights
to review and obtain copies of protected health information;78 requires covered entities to
safeguard protected health information from inappropriate use or disclosure; and gives
individuals the right to request changes to inaccurate or incomplete protected health
information.79
The HIPAA Privacy Rule requires a covered entity to maintain reasonable and appropriate
administrative, technical, and physical safeguards to prevent use or disclosure of protected health
information in violation of the Privacy Rule.80 The Office of Civil Rights (OCR) in HHS enforces
the Privacy Rule.81
(...continued)
information, the procedures established for the exercise of such rights, and authorized or required uses and disclosures
of such information. P.L. 104-191, Title II, § 264, Aug. 21, 1996, 110 Stat. 2033, 42 U.S.C. § 1320d-2 (note).
69 45 C. F.R. Part 164 Subpart E—Privacy of Individually Identifiable Health Information.
70 45 C.F.R. § 160.103.
71 See South Carolina Medical Assoc. v. Thompson, 327 F.3d 346 (4th Cir. 2003)(HIPAA could be interpreted to
include non-electronic medical records).
72 45 C.F.R. § 164.506.
73 45 C.F.R. § 164.508.
74 45 C.F.R. § 164.512(a)-(l).
75 45 C.F.R. § 164.510.
76 45 C.F.R. § 164.528.
77 45 C.F.R. § 164.520.
78 45 C.F.R. § 164.524.
79 45 C. F.R. § 164.526.
80 45 C.F.R. § 164.530(c).
81 65 Fed. Reg. 82381.
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Regulations governing security standards under HIPAA require health care covered entities to
maintain administrative, technical, and physical safeguards to ensure the confidentiality, integrity,
and availability of electronic “protected health information”82; to protect against any reasonably
anticipated threats or hazards to the security or integrity of such information, as well as protect
against any unauthorized uses or disclosures of such information.83 The Centers for Medicare and
Medicaid Services (CMS) has been delegated authority to enforce the HIPAA Security Standard.84
The Security Rule applies only to protected health information in electronic form (EPHI), and
requires a covered entity to ensure the confidentiality, integrity, and availability of all EPHI the
covered entity creates, receives, maintains, or transmits. Covered entities must protect against any
reasonably anticipated threats or hazards to the security or integrity of such information, and any
reasonably anticipated uses or disclosures of such information that are not permitted or required
under the Privacy Rule; and ensure compliance by its workforce.85
The Security Rule allows covered entities to consider such factors as the cost of a particular
security measure, the size of the covered entity involved, the complexity of the approach, the
technical infrastructure and other security capabilities in place, and the nature and scope of
potential security risks. The Security Rule establishes “standards” that covered entities must meet,
accompanied by implementation specifications for each standard. The Security Rule identifies
three categories of standards: administrative, physical, and technical.
The Security Rule requires covered entities to enter into agreements with business associates who
create, receive, maintain or transmit EPHI on their behalf. Under such agreements, the business
associate must: implement administrative, physical and technical safeguards that reasonably and
appropriately protect the confidentiality, integrity and availability of the covered entity’s
electronic protected health information; ensure that its agents and subcontractors to whom it
provides the information do the same; and report to the covered entity any security incident of
which it becomes aware. The contract must also authorize termination if the covered entity
determines that the business associate has violated a material term. A covered entity is not liable
for violations by the business associate unless the covered entity knew that the business associate
was engaged in a practice or pattern of activity that violated HIPAA, and the covered entity failed
to take corrective action.
82 “The term “individually identifiable health information” means any information, including demographic information
collected from an individual, that - (A) is created or received by a health care provider, health plan, employer, or health
care clearinghouse; and (B) relates to the past, present, or future physical or mental health or condition of an individual,
the provision of health care to an individual, or the past, present, or future payment for the provision of health care to
an individual, and - (i) identifies the individual; or (ii) with respect to which there is a reasonable basis to believe that
the information can be used to identify the individual. 42 U.S.C. § 1320d(6).
83 HIPAA Security Standards for the Protection of Electronic Personal Health Information, 45 C.F.R. Part 164
(February 20, 2003).
84 See generally, Centers for Medicare and Medicaid Services, Security Materials at http://www.cms.hhs.gov/
EducationMaterials/04_SecurityMaterials.asp#TopOfPage.
85 45 C.F.R. § 164.306(a).
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Title V of the Gramm-Leach-Bliley Act of 1999 (GLBA) requires financial institutions to provide
customers with notice of their privacy policies, and requires financial institutions to safeguard the
security and confidentiality of customer information, to protect against any anticipated threats or
hazards to the security or integrity of such records; and to protect against unauthorized access to
or use of such records or information which could result in substantial harm or inconvenience to
any customer.86 Financial institutions are defined as businesses that are engaged in certain
“financial activities” described in Section 4(k) of the BankHolding Company Act of 1956 and
accompanying regulations.87 Such activities include traditional banking, lending, and insurance
functions, along with other financial activities. Financial institutions are prohibited from
disclosing “nonpublic personal information”88 to non-affiliated third parties without providing
customers with a notice of privacy practices and an opportunity to opt-out of the disclosure. A
number of statutory exceptions are provided to this disclosure rule, including that financial
institutions are permitted to disclose nonpublic personal information to a non-affiliated third party
to perform services for or functions on behalf of the financial institution.
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Regulations implementing GLBA’s privacy requirements published by the federal banking
regulators govern the treatment of nonpublic personal information about consumers by financial
institutions,89 require a financial institution in specified circumstances to provide notice to
customers about its privacy policies and practices, describe the conditions under which a financial
institution may disclose nonpublic personal information about consumers to nonaffiliated third
parties, and provide a method for consumers to prevent a financial institution from disclosing that
information to most nonaffiliated third parties by “opting out” of that disclosure, subject to
exceptions.90
86 15 U.S.C. § 6801 - 6809.
87 12 U.S.C. § 1843(k).
88 (4) Nonpublic personal information.
(A) The term “nonpublic personal information” means personally identifiable financial information—
(i) provided by a consumer to a financial institution;
(ii) resulting from any transaction with the consumer or any service performed for the consumer; or
(iii) otherwise obtained by the financial institution.
(B) Such term does not include publicly available information, as such term is defined by the regulations prescribed
under section 6804 of this title.
(C) Notwithstanding subparagraph (B), such term—
(i) shall include any list, description, or other grouping of consumers (and publicly available information pertaining to
them) that is derived using any nonpublic personal information other than publicly available information; but
(ii) shall not include any list, description, or other grouping of consumers (and publicly available information pertaining
to them) that is derived without using any nonpublic personal information. 15 U.S.C. § 6809(4).
89 16 C.F.R. Part 13 (FTC); 12 C.F.R. Parts 40 (OCC), 216 (FRB), 332 (FDIC), 573 (OTS), and 716 (NCUA).
90 See generally, 12 C.F.R. 225.28, 225.86.
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This rule implements GLBA’s requirements for entities under FTC jurisdiction. The Safeguards
Rule applies to all businesses, regardless of size, that are “significantly engaged” in providing
financial products or services. These include, for example, check-cashing businesses, payday
lenders, mortgage brokers, nonbank lenders, real estate appraisers, and professional tax preparers.
The Safeguards Rule also applies to companies like credit reporting agencies and ATM operators
that receive information about the customers of other financial institutions. The rule requires
financial institutions to have an information security plan that “contains administrative, technical,
and physical safeguards” to “insure the security and confidentiality of customer information:
protect against any anticipated threats or hazards to the security or integrity of such information;
and protect against unauthorized access to or use of such information that could result in
substantial harm or inconvenience to any customer.”91 Using its authority under the Safeguards
Rule, the Commission has brought a number of enforcement actions to address the failure to
provide reasonable and appropriate security to protect consumer information.92
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Section 501(b) of GLBA requires the banking agencies to establish standards for financial
institutions relating to administrative, technical, and physical safeguards to ensure the security,
confidentiality, and integrity of customer information, protect against any anticipated threats or
hazards to the security or integrity of such information, and protect against unauthorized access to
or use of such information that could result in substantial harm or inconvenience to any customer.
Interagency Guidance issued by the federal banking regulators93 applies to customer information
which is defined as “any record containing nonpublic personal information ... about a customer,
whether in paper, electronic, or other form, that is maintained by or on behalf of” a financial
institution.”94 The security guidelines direct each financial institution to assess the risks of
reasonably foreseeable threats that could result in unauthorized disclosure, misuse, alteration, or
destruction of customer information and customer information systems, the likelihood and
potential damage of threats, and the sufficiency of policies, procedures, customer information
systems, and other controls. Following the assessment of risks, the security guidelines require a
financial institution to manage and control the risk through the design of a program to address the
identified risks, train staff to implement the program, regularly test the key controls, systems, and
procedures of the information security program, and develop and maintain appropriate measures
to dispose of customer information. The security guidelines also direct every financial institution
to require its service providers by contract to implement appropriate measures designed to protect
against unauthorized access to or use of customer information that could result in substantial
harm or inconvenience to any customer. Each financial institution is required to monitor,
91 Standards for Insuring the Security, Confidentiality, Integrity and Protection of Customer Records and Information,
16 C.F.R. Part 314.
92 For information on enforcement actions the Commission has brought involving the privacy of consumer information
under Section 5 of the FTC Act, see http://www.ftc.gov/privacy/privacyinitiatives/safeguards_enf.html.
93 See 12 C.F.R. Part 30, App. B (national banks); 12 C.F.R. Part 208App. D-2 and Part 255, App. F (state member
banks and holding companies); 12 C.F.R. Part 364, App. B (state non-member banks); 12 C.F.R. Part 570, App. B
(savings associations; 12 C.F.R. Part 748, App. A (credit unions).
94 See Board of Governors Federal Reserve System, The Commercial Bank Examination Manual, Supp. 27, 984-1034
(May 2007), at http://www.federalreserve.gov/boarddocs/SupManual/cbem/200705/0705cbem.pdf.
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evaluate, and adjust its information security program as necessary. Finally, each financial
institution is required to report to its board at least annually on its information security program,
compliance with the security guidelines, and issues such as risk assessment, risk management and
control decisions, service provider arrangements, results of testing, security breaches or violations
and management’s responses, and recommendations for changes in the information security
program.
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The security guidelines recommend implementation of a risk-based response program, including
customer notification procedures, to address unauthorized access to or use of customer
information maintained by a financial institution or its service provider that could result in
substantial harm or inconvenience to any customer, and require disclosure of a data security
breach if the covered entity concludes that “misuse of its information about a customer has
occurred or is reasonably possible.”95 Pursuant to the guidance, substantial harm or inconvenience
is most likely to result from improper access to “sensitive customer information.”96
At a minimum, an institution’s response program should contain procedures for: assessing the
nature and scope of an incident and identifying what customer information systems and types of
customer information have been accessed or misused; notifying its primary federal regulator
when the institution becomes aware of an incident involving unauthorized access to or use of
sensitive customer information; consistent with the Agency’s Suspicious Activity Report (“SAR”)
regulations, notifying appropriate law enforcement authorities; taking appropriate steps to contain
and control the incident to prevent further unauthorized access to or use of customer information
(e.g., by monitoring, freezing, or closing affected accounts and preserving records and other
evidence); and notifying customers when warranted.
The security guidelines note that financial institutions have an affirmative duty to protect their
customers’ information against unauthorized access or use, and that customer notification of a
security breach involving the customer’s’s information is a key part of that duty. The guidelines
prohibit institutions from forgoing or delaying customer notification because of embarrassment or
inconvenience.
The guidelines provide that when a financial institution becomes aware of an incident of
unauthorized access to sensitive customer information, the institution should conduct a reasonable
investigation to promptly determine the likelihood that the information has been or will be
misused. If the institution determines that misuse has occurred or is reasonably possible, it should
notify the affected customer as soon as possible. Customer notice may be delayed if an
95 Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer
Notice, Part III of Supplement A to Appendix, at 12 C.F.R. Part 30 (OCC), Supplement A to Appendix D-2, at 12
C.F.R. Part 208 (Federal Reserve System), 12 C.F.R. Part 364 (FDIC), and 12 C.F.R. Part 568 (Office of Thrift
Supervision), 70 Fed. Reg. 15736 - 15754 (March 29, 2005).
96 “Sensitive customer information means a customer’s name, address, or telephone number, in conjunction with the
customer’s social security number, driver’s license number, account number, credit or debit card number, or a personal
identification number or password that would permit access to the customer’s account. Sensitive customer information
also includes any combination of components of customer information that would allow someone to log onto or access
the customer’s account, such as user name and password or password and account number.” 70 Fed. Reg. 15736-15754
(March 29, 2005).
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appropriate law enforcement agency determines that notification will interfere with a criminal
investigation and provides the institution with a written request for the delay. The institution
should notify its customers as soon as notification will no longer interfere with the investigation.
If a financial institution can determine which customers’ information has been improperly
accessed, it may limit notification to those customers whose information it determines has been
misused or is reasonably likely to be misused. In situations where the institution determines that a
group of files has been accessed improperly, but is unable to identify which specific customers’
information has been accessed, and the institution determines that misuse of the information is
reasonably possible, it should notify all customers in the group. The guidelines also address what
information should be included in the notice sent to the financial institution’s customers.
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The Federal Trade Commission (FTC), an independent agency of the U.S. government, was
established by the Federal Trade Commission Act of 1914 (FTCA).97 Its principal mission is the
promotion of consumer protection and the elimination and prevention of anticompetitive business
practices. The Commission’s jurisdiction extends to a variety of entities and individuals operating
in commerce. The FTC has taken a multi-faceted approach to protecting the privacy and security
of consumers’ personal information. Its enforcement tools include laws and regulations such as
the Safeguards Rule issued under the Gramm-Leach-Bliley Act, which requires financial
institutions to take reasonable measures to protect customer data, and the Disposal Rule under the
FACT Act which requires companies to dispose of credit report data in accord with a set of
practices designed to prevent others from using that data without authorization.98
Section 5 of the FTC Act prohibits “unfair or deceptive acts or practices in or affecting
commerce.”99 Unfair practices are practices that cause or are likely to cause consumers
substantial injury that is neither reasonably avoidable by consumers not offset any countervailing
benefit to consumers or competition.100 A representation, omission, or practice is deceptive if (1)
it is likely to mislead consumers acting reasonably under the circumstances; and (2) it is
material—likely to affect consumers’ conduct or decisions with respect to the product at issue.101
The Commission has used Section 5 to challenge deceptive claims companies have made about
the privacy and security of their customers’ personal information. In deceptive security claims
cases the FTC alleged that the companies had made promises to take reasonable steps to protect
sensitive consumer information, and that they did not implement reasonable and appropriate
measures to protect the sensitive personal information obtained from customers against
unauthorized access.102 In unfair practices cases, the FTC has alleged that a company’s failure to
employ reasonable and appropriate security measures to protect consumers’ personal information
97 15 U.S.C. §§ 41-58.
98 See CRS Report RL32535, Implementation of the Fair and Accurate Credit Transactions (FACT) Act of 2003, by
Angie A. Welborn and Grace Chu.
99 15 U.S.C. §§ 45(a).
100 15 U.S.C. § 45(n).
101 Cliffdale Associates Inc., 103 F.T.C. 110(1984).
102 For information on enforcement actions involving the privacy of consumer information under Section 5 of the FTC
Act, see http://www.ftc.gov/privacy/privacyinitiatives/promises_enf.html.
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caused or was likely to cause substantial injury to consumers that was not offset by countervailing
benefits to consumers or competition and was not reasonably avoidable by consumers.
In cases where the FTC did not have authority to assess civil money penalties, the FTC entered
into consent orders requiring the defendants to implement information security programs (e.g.,
B.J.’s Wholesale Club, DSW, Inc., and Card Systems). In a recent case where violations of the
Federal Trade Commission Act and the Fair Credit Reporting Act were alleged, the largest civil
money penalty ever by the FTC ($10 million) was assessed.
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The Fair Credit Reporting Act of 1970 (FCRA) regulates credit bureaus, entities or individuals
who uses credit reports, and businesses that furnish information to credit bureaus.103 “[A] major
purpose of the Act is the privacy of a consumer’s credit-related data.”104 Consumer reporting
agencies, also known as credit bureaus, have particular responsibilities with respect to ensuring
that a consumer’s information is used only for purposes that are permissible under the act,105 for
ensuring that “reasonable procedures” are employed (including making reasonable efforts to
verify the identity of each new prospective user of consumer report information and the uses
certified by each prospective user prior to furnishing such user a consumer report) to ensure that
consumer reports are supplied only to those with a permissible purpose,106 and for correcting
information in a consumer’s report that may be incorrect or the result of fraud.107 Permissible
purposes include decisions involving credit, insurance, or employment.108 A consumer reporting
agency is also permitted to provide reports to persons having “a legitimate business need” for the
information in connection with a consumer-oriented transaction. The Act and its requirements
only apply to entities that fall within the definition of a “consumer reporting agency,”109 and only
to products that fall within the definition of a “consumer report.”110
The Fair and Accurate Transactions Act (“FACT Act”) amended FCRA, adding requirements
designed to prevent identity theft and assist identity theft victims. The FACT Act also included a
103 15 U.S.C. §§ 1681 - 1681x, as amended.
104 Trans Union Corp. v. FTC, 81 F.3d 228, 234 (D.C. Cir. 1996).
105 15 U.S.C. § 1681e(a).
106 15 U.S.C. § 1681e.
107 For a detailed discussion of the Fair Credit Reporting Act, see CRS Report RL31666, Fair Credit Reporting Act:
Rights and Responsibilities, by Margaret Mikyung Lee.
108 15 U.S.C. § 1681b.
109 The FCRA defines “consumer reporting agency” as “any person which, for monetary fees, dues, or on a cooperative
nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit
information or other information on consumers for the purpose of furnishing consumer reports to third parties, and
which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.”
15 U.S.C. § 1681a(f).
110 A “consumer report” is “any written, oral, or other communication of any information by a consumer reporting
agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation,
personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the
purpose of serving as a factor in establishing the consumer’s eligibility for credit or insurance to be used primarily for
personal, family, or household purposes; employment purposes; or any other purpose authorized under section 604 [of
the FCRA].” 15 U.S.C. § 1681a(d).
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provision requiring financial regulatory111 agencies and the FTC to promulgate a coordinated rule
designed to prevent unauthorized access to consumer report information by requiring reasonable
procedures for the proper disposal of such information.
The Federal Trade Commission enforces the FCRA. A violation under the FCRA is deemed to be
an unfair or deceptive act or practice in violation of section 5(a) of the FTC Act. There are various
penalties for violating the FCRA, the applicability of a particular provision depends on such
factors as who brings the action and the degree of the violator’s noncompliance. For example, the
Act imposes liability for both willful noncompliance and negligent noncompliance.112 The
monetary penalties include actual damages sustained by a consumer, plus costs and attorneys
fees. In the case of willful violations, the court may also award punitive damages to a consumer.
Any person who procures a consumer report under false pretenses, or knowingly without a
permissible purpose, is liable for $1000 or actual damages (whichever is greater) to both the
consumer and to the consumer reporting agency.113 Also, the Act governs enforcement actions
brought by the Commission, other agencies, and the states, and provides for various monetary and
injunctive penalties.114 For those who knowingly violate the FCRA, the monetary penalties
include up to $2500 per violation in a civil action brought by the Commission.115
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The payment card industry has also issued security standards and reporting requirements for
organizations that handle bank cards.116 The Payment Card Industry Data Security Standard (PCI
DSS) is an industry regulation developed by VISA, MasterCard, and other bank card distributors.
It requires organizations that handle bank cards to conform to security standards and follow
certain leveled requirements for testing and reporting. The core of the PCI DSS is a group of
principles and accompanying requirements designed to build and maintain a secure network,
protect cardholder data, maintain a vulnerability management program, implement strong access
control measures, monitor and test networks, and maintain an information security policy. PCI
DSS went into effect December 31, 2006. On October 1, 2008, the PCI Security Standards
Council (PCI SSC) announced general availability of version 1.2 of the PCI DSS that does not
introduce any new major requirements to the existing standard, but does change some practices.
Entities that fail to comply with PCI DSS face fines and increases in the rates that the credit card
companies charge for transactions, and potentially can have their authorization to process
payment cards revoked. Legislation has been passed in the Texas House mandating compliance
with the PCI DSS standard.117
111 P.L. 108-159, 117 Stat. 1952.
112 15 U.S.C. § 1681n(a).
113 15 U.S.C. § 1681n(b).
114 15 U.S.C. § 1681s.
115 15 U.S.C. § 1681s(2)(A).
116 Available at https://www.pcisecuritystandards.org/security_standards/pci_dss.shtml.
117 See, 2007 Tex. H. B. No. 3222 which mandates PCI DSS compliance, and provides a safe harbor under the statute if
the business that suffered the data breach was in compliance with PCI DSS 90 days before the date of the security
breach.
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Gina Stevens
Legislative Attorney
gstevens@crs.loc.gov, 7-2581
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