As passed by the House of Representatives on December 8, 2009, the Data Accountability and Trust Act would create federal data security standards, a national breach notification requirement, data destruction mandates, and special requirements for "information brokers." 

Thumbnail for version as of 23:34, 16 January 2008The Act will now move to the Senate, where it likely will be considered together with recent bills from various Senate Committees, two such bills we discussed in a recent post.

The Act would apply to each person engaged in interstate commerce that owns or possesses data in electronic form containing personal information (or contracts to have any third party entity maintain such data). In short, most businesses in the United States would be subject to the Act and required to establish and implement data security policies and procedures. Like other data security regulations, the Act would permit covered persons, when developing their policies and procedures, to take into account:

  • the size of, and the nature, scope, and complexity of the activities engaged in by, such person;
  • the current state of the art in administrative, technical, and physical safeguards for protecting such information; and
  • the cost of implementing such safeguards.

These new standards will be regulated by the Federal Trade Commission (FTC). Violations of the Act would be enforced primarily by state Attorneys General, although the FTC maintains a right to intervene in those actions. Penalties can be substantial. For example, in the case of a violation of the breach notification requirement, the penalty amount would be calculated by multiplying the number of violations by an amount not greater than $11,000. Each failure to send notification would be treated as a separate violation, with a maximum civil penalty of $5,000,000.

Of course, it will be some time before the Act would become effective, if at all, and it may be substantially modified prior to enactment. Still, recent actions by Congress (for example the enhancements to HIPAA under the American Recovery and Reinvestment Act of 2009) and the states suggest a national standard for protecting personal information is only a matter of time. Companies should be gearing up to deal with these emerging information risks.

For purposes of the Act, the term ‘personal information’ means an individual’s first name or initial and last name, or address, or phone number, in combination with any 1 or more of the following data elements for that individual:

  • Social Security number.
  • Driver’s license number or other State identification number.
  • Financial account number, or credit or debit card number, and any required security code, access code, or password that is necessary to permit access to an individual’s financial account.

The Act would require a covered person to establish policies and procedures that include:

  • A policy concerning the collection, use, sale, other dissemination, and maintenance of such personal information.
  • Naming an officer or other point person concerning the management of information security.
  • Developing a process for identifying and assessing any reasonably foreseeable vulnerabilities in the person’s electronic systems, include regularly monitoring for breaches of security.
  • Having a process for taking preventive and corrective action to mitigate against any such vulnerabilities.
  • Implementing a process for disposing of obsolete data in electronic form containing personal information.

The Act also would establish a nationwide data breach notification standard. The new standard would be similar in overall format to existing state breach notification laws and the new notification requirement under the HIPAA privacy regulations. While the Act would require notice only if there is a reasonable risk of identity theft, fraud, or other unlawful conduct, persons required to provide notification under the Act must assist affected persons with obtaining certain credit information.

Specifically, upon request of an individual whose personal information was included in the breach, the covered person must provide, or arrange for the provision of, to each such individual and at no cost, consumer credit reports from at least one of the major credit reporting agencies beginning not later than 2 months following the discovery of a breach of security and continuing on a quarterly basis for a period of 2 years thereafter.

The new law would also impose heightened requirements to safeguard personal information on “information brokers”:

commercial entities whose business is to collect, assemble, or maintain personal information concerning individuals who are not current or former customers of such entity in order to sell such information or provide access to such information to any nonaffiliated third party in exchange for consideration, whether such collection, assembly, or maintenance of personal information is performed by the information broker directly, or by contract or subcontract with any other entity.

These heightened requirements would include, among other things, a post-breach audit, procedures to verify accuracy of personal information, audit logs for information accessed or transmitted, and prohibitions on pretexting. 

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Photo of Joseph J. Lazzarotti Joseph J. Lazzarotti

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP)…

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals. Trained as an employee benefits lawyer, focused on compliance, Joe also is a member of the firm’s Employee Benefits practice group.

In short, his practice focuses on the matrix of laws governing the privacy, security, and management of data, as well as the impact and regulation of social media. He also counsels companies on compliance, fiduciary, taxation, and administrative matters with respect to employee benefit plans.

Privacy and cybersecurity experience – Joe counsels multinational, national and regional companies in all industries on the broad array of laws, regulations, best practices, and preventive safeguards. The following are examples of areas of focus in his practice:

  • Advising health care providers, business associates, and group health plan sponsors concerning HIPAA/HITECH compliance, including risk assessments, policies and procedures, incident response plan development, vendor assessment and management programs, and training.
  • Coached hundreds of companies through the investigation, remediation, notification, and overall response to data breaches of all kinds – PHI, PII, payment card, etc.
  • Helping organizations address questions about the application, implementation, and overall compliance with European Union’s General Data Protection Regulation (GDPR) and, in particular, its implications in the U.S., together with preparing for the California Consumer Privacy Act.
  • Working with organizations to develop and implement video, audio, and data-driven monitoring and surveillance programs. For instance, in the transportation and related industries, Joe has worked with numerous clients on fleet management programs involving the use of telematics, dash-cams, event data recorders (EDR), and related technologies. He also has advised many clients in the use of biometrics including with regard to consent, data security, and retention issues under BIPA and other laws.
  • Assisting clients with growing state data security mandates to safeguard personal information, including steering clients through detailed risk assessments and converting those assessments into practical “best practice” risk management solutions, including written information security programs (WISPs). Related work includes compliance advice concerning FTC Act, Regulation S-P, GLBA, and New York Reg. 500.
  • Advising clients about best practices for electronic communications, including in social media, as well as when communicating under a “bring your own device” (BYOD) or “company owned personally enabled device” (COPE) environment.
  • Conducting various levels of privacy and data security training for executives and employees
  • Supports organizations through mergers, acquisitions, and reorganizations with regard to the handling of employee and customer data, and the safeguarding of that data during the transaction.
  • Representing organizations in matters involving inquiries into privacy and data security compliance before federal and state agencies including the HHS Office of Civil Rights, Federal Trade Commission, and various state Attorneys General.

Benefits counseling experience – Joe’s work in the benefits counseling area covers many areas of employee benefits law. Below are some examples of that work:

  • As part of the Firm’s Health Care Reform Team, he advises employers and plan sponsors regarding the establishment, administration and operation of fully insured and self-funded health and welfare plans to comply with ERISA, IRC, ACA/PPACA, HIPAA, COBRA, ADA, GINA, and other related laws.
  • Guiding clients through the selection of plan service providers, along with negotiating service agreements with vendors to address plan compliance and operations, while leveraging data security experience to ensure plan data is safeguarded.
  • Counsels plan sponsors on day-to-day compliance and administrative issues affecting plans.
  • Assists in the design and drafting of benefit plan documents, including severance and fringe benefit plans.
  • Advises plan sponsors concerning employee benefit plan operation, administration and correcting errors in operation.

Joe speaks and writes regularly on current employee benefits and data privacy and cybersecurity topics and his work has been published in leading business and legal journals and media outlets, such as The Washington Post, Inside Counsel, Bloomberg, The National Law Journal, Financial Times, Business Insurance, HR Magazine and NPR, as well as the ABA Journal, The American Lawyer, Law360, Bender’s Labor and Employment Bulletin, the Australian Privacy Law Bulletin and the Privacy, and Data Security Law Journal.

Joe served as a judicial law clerk for the Honorable Laura Denvir Stith on the Missouri Court of Appeals.