[Federal Register Volume 69, Number 134 (Wednesday, July 14, 2004)]
[Proposed Rules]
[Pages 42302-42322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15875]



[[Page 42301]]

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Part IV





Securities and Exchange Commission





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17 CFR Part 247



Limitations on Affiliate Marketing (Regulation S-AM); Proposed Rule

  Federal Register / Vol. 69, No. 134 / Wednesday, July 14, 2004 / 
Proposed Rules  

[[Page 42302]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 247

[Release Nos. 34-49985, IC-26494, IA-2259; File No. S7-29-04]
RIN 3235-AJ24


Limitations on Affiliate Marketing (Regulation S-AM)

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
publishing for comment proposed rules to implement the affiliate 
marketing provisions in Section 214 of the Fair and Accurate Credit 
Transactions Act of 2003, which amends the Fair Credit Reporting Act. 
Section 214 requires the Commission and other Federal agencies to adopt 
rules implementing limitations on a person's use of certain information 
received from an affiliate to solicit a consumer for marketing 
purposes, unless the consumer has been given notice and an opportunity 
to opt out of having the information used for those purposes.

DATES: Comments should be received on or before August 13, 2004.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number S7-29-04 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number S7-29-04. This file 
number should be included on the subject line if e-mail is used. To 
help us process and review your comments more efficiently, please use 
only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/proposed/shtml). Comments are also available for public inspection and copying 
in the Commission's Public Reference Room, 450 Fifth Street, NW., 
Washington, DC 20549. All comments received will be posted without 
change; we do not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly.

FOR FURTHER INFORMATION CONTACT: For information regarding the proposed 
rules as they relate to brokers, dealers, or transfer agents contact 
Catherine McGuire, Chief Counsel, Brian Bussey, Assistant Chief 
Counsel, or Tara Prigge, Attorney, Office of Chief Counsel, at the 
Division of Market Regulation, (202) 942-0073, or regarding the 
proposed rules as they relate to investment companies or investment 
advisers, contact Penelope W. Saltzman, Branch Chief, or Hugh Lutz, 
Attorney, Office of Regulatory Policy, at the Division of Investment 
Management, (202) 942-0690, Securities and Exchange Commission, 450 
Fifth Street, NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing for public 
comment Regulation S-AM, 17 CFR 247.1 through 247.27, under Section 214 
of the Fair and Accurate Credit Transactions Act of 2003 (``FACT 
Act'').\1\
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    \1\ Pub. L. 108-159, section 214, 117 Stat. 1952 (2003).
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Table of Contents

I. Background
II. Explanation of the Proposed Rules
III. Section-by-Section Analysis
IV. General Request for Comment
V. Costs and Benefits of the Proposed Rule
VI. Paperwork Reduction Act
VII. Initial Regulatory Flexibility Analysis
VIII. Analysis of Effects on Efficiency, Competition, and Capital 
Formation
IX. Statutory Authority and Text of Proposed Rules

I. Background

    The FACT Act was signed into law on December 4, 2003.\2\ Section 
214 of the FACT Act adds a new Section 624 to the Fair Credit Reporting 
Act (``FCRA'').\3\ This new provision gives consumers the right to 
restrict a person from making marketing solicitations to them using 
certain information about them obtained from the person's affiliate.
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    \2\ Id.
    \3\ 15 U.S.C. 1681-1681x. The FCRA sets standards for the 
collection, communication, and use of information bearing on a 
consumer's credit worthiness, credit standing, credit capacity, 
character, general reputation, personal characteristics, or mode of 
living.
    A portion of Section 214 of the FACT Act amends the FCRA to add 
a new Section 624, while other provisions of Section 214 are not 
incorporated into the FCRA. Throughout this release, references to 
``Section 214 of the FACT Act'' or ``Section 624 of the FCRA'' are 
used depending on the portion of Section 214 to which the reference 
relates.
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    Section 214 requires the Office of the Comptroller of the Currency, 
the Board of Governors of the Federal Reserve System, the Federal 
Deposit Insurance Corporation, the Office of Thrift Supervision 
(collectively, the ``Banking Agencies''), the National Credit Union 
Administration, the Federal Trade Commission (collectively with the 
Banking Agencies, the ``Agencies''), and the Commission, in 
consultation and coordination with one another, to issue implementing 
rules. These rules must be issued in final form not later than nine 
months after the date of enactment,\4\ and must become effective not 
later than six months after issuance.\5\
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    \4\ See FACT Act sections 214(b)(2) and (3), 15 U.S.C. 1681s-3 
note.
    \5\ See FACT Act section 214(b)(4), 15 U.S.C. 1681s-3 note.
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    Commission staff worked with staff from the Agencies in developing 
proposed rules to implement Section 214. As required by Section 214, 
proposed Regulation S-AM is, to the extent possible, consistent with 
and comparable to the regulations proposed by the Agencies.\6\ While 
the provisions in proposed Regulation S-AM, in general, are 
substantially similar to those proposed by the Agencies, some 
definitions and examples differ in order to provide more meaningful 
guidance to the persons subject to the Commission's jurisdiction.
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    \6\ The Banking Agencies and the National Credit Union 
Administration are publishing a joint release proposing rules to 
implement Section 214 of the FACT Act (the ``Joint Proposal''). 
Citations to particular provisions of the ``Joint Proposal'' refer 
to the numbering system used in the proposal of the Board of 
Governors of the Federal Reserve System. The Federal Trade 
Commission has already published proposed rules to implement Section 
214 (the ``FTC Proposal''). See Affiliate Marketing Rule, 69 FR 
33324 (June 15, 2004). The Agencies' releases will be available at 
www.regulations.gov.
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II. Explanation of the Proposed Rules

    New Section 624 of the FCRA generally establishes conditions that 
must be met before a person may use certain information for marketing 
purposes if the information is obtained from an affiliate. Before a 
person may make marketing solicitations to a consumer using certain 
information about that consumer, the consumer must be given notice and 
a reasonable opportunity to opt out of having the information used for 
this purpose. Thus, Section 624 governs the use of certain information 
by an affiliate, and not the sharing of information with or among 
affiliates.\7\
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    \7\ In general, Section 603(d)(2)(A) of the FCRA governs the 
sharing of information with and among affiliates. As discussed in 
note 3 above, the FCRA sets standards for the collection, 
communication, and use of information bearing on a consumer's credit 
worthiness, credit standing, credit capacity, character, general 
reputation, personal characteristics, or mode of living. The FCRA 
provides that a person who communicates these forms of information 
to others could become a ``consumer reporting agency,'' which is 
subject to substantial statutory obligations. However, a person may 
communicate information about its own ``transactions or 
experiences'' with a consumer without becoming a consumer reporting 
agency. This transaction or experience information may be 
communicated among affiliated persons without any of them becoming a 
consumer reporting agency. See FCRA sections 603(d)(2)(A)(i) and 
(ii), 15 U.S.C. 1681a(d)(2)(A)(i) and (ii).
    The FCRA also allows that a person may communicate to its 
affiliates information other than transaction or experience 
information without becoming a consumer reporting agency if the 
person first gives the consumer a clear and conspicuous notice that 
such information may be communicated to its affiliates and an 
opportunity to ``opt out,'' or block the person from sharing the 
information. See FCRA section 603(d)(2)(A)(iii), 15 U.S.C. 
1681a(d)(2)(A)(iii). There is some overlap between this ``affiliate 
sharing'' provision of the FCRA and the ``affiliate marketing'' 
rules that we currently propose. The two provisions are distinct, 
however, and they serve different purposes. Nothing in these 
proposed rules regarding the limitations on affiliate marketing 
under Section 624 of the FCRA would supersede or replace the 
affiliate sharing notice and opt-out requirement contained in 
Section 603(d)(2)(A)(iii) of the FCRA.

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Responsibility for Providing Notice and an Opportunity To Opt Out

    Section 624(a)(1) of the FCRA directs that a person that receives 
``eligibility information'' \8\ about a consumer from its affiliate 
(the ``receiving affiliate'') may not use the information to make a 
marketing solicitation to that consumer unless the consumer has been 
provided with notice of the information-sharing and given a reasonable 
opportunity to opt out of having the information used for marketing. 
The statute does not specify whether the receiving affiliate or the 
affiliate that communicates the eligibility information (the 
``communicating affiliate'') must provide the consumer with notice and 
the opportunity to opt out.
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    \8\ ``Eligibility information'' is defined in proposed paragraph 
(i) of Sec.  247.3. See the discussion below.
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    Arguments can be made for imposing this responsibility on either 
affiliate. Because Section 624 is drafted as a prohibition on the use 
of information by the receiving affiliate, and does not explicitly 
impose any affirmative duty on the communicating affiliate, the 
receiving affiliate could be required to take responsibility for giving 
the notice. However, the language in Section 624(a)(1)(A), which 
provides that the notice to the consumer must state that information 
``may be communicated'' among affiliates for the purpose of making 
marketing solicitations,\9\ suggests the communicating affiliate would 
provide the notice before sharing the information. This latter view 
gains support from other statutory provisions. For example, Section 
624(b) \10\ allows for the combination of affiliate marketing opt-out 
notices with other notices required by law, which may include privacy 
notices that must be sent by communicating affiliates under the Gramm-
Leach-Bliley Act (``GLB Act'').\11\ Similarly, Section 214(b)(3) of the 
FACT Act directs the Agencies and the Commission to consider existing 
affiliate sharing notification practices under Section 
603(d)(2)(A)(iii) of the FCRA \12\--which are provided by the affiliate 
that already has a relationship with the consumer--and to allow for 
coordination and consolidation of the affiliate sharing and affiliate 
marketing notices.\13\ These provisions, taken together, suggest that 
the communicating affiliate should give the notice.
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    \9\ 15 U.S.C. 1681s-3(a)(1)(A).
    \10\ 15 U.S.C. 1681s-3(b).
    \11\ Pub. L. 106-102, 113 Stat. 1338 (1999).
    \12\ See note 7 above for a discussion of this section of the 
FCRA.
    \13\ See 15 U.S.C. 1681s-3 note.
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    We, therefore, propose that the communicating affiliate would be 
responsible for satisfying the notice requirement where applicable. 
Under the proposed rule, the communicating affiliate would have the 
flexibility either to give the notice directly or through an agent, or 
to provide a joint notice in conjunction with one or more other 
affiliates. This approach should facilitate the use of a single notice 
among affiliates. At the same time, it would ensure that the notice is 
not provided solely by the receiving affiliate, from which the consumer 
may not expect to receive important notices regarding the consumer's 
opt-out rights. We request comment on this approach generally, and 
whether it would provide consumers with reasonable notice. We also 
invite comment on whether the receiving affiliate should be permitted 
to give the notice solely on its own behalf. Commenters are also 
invited to discuss whether a notice solely from the receiving affiliate 
would effectively be a marketing solicitation because it constitutes 
that affiliate's first contact with the consumer. In addition, we 
invite comment on whether a notice from the receiving affiliate would 
be as effective as a notice from the communicating affiliate.

Scope of Coverage

    In defining the circumstances in which the notice and opt-out 
requirements apply, the proposal focuses on the communication of 
``eligibility information'' among affiliates. The proposed definition 
of ``eligibility information'' would encompass any information that, if 
communicated, would be a ``consumer report,'' but for the FCRA's 
statutory exclusions for the sharing of transaction or experience 
information and for the sharing of information among affiliates.\14\ 
Section 603(d)(1) of the FCRA defines a ``consumer report'' as any 
written, oral, or other communication by a consumer reporting agency of 
any information 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 in Section 604 of 
the FCRA.\15\ We invite comment on whether the proposed definition of 
``eligibility information'' appropriately reflects the scope of 
coverage of the FACT Act and provides meaningful guidance to affected 
persons.\16\
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    \14\ See note 7 above, discussing 15 U.S.C. 1681a(d)(2)(A).
    \15\ 15 U.S.C. 1681a(d)(1).
    \16\ Section 624(a)(1) refers to a ``communication of 
information that would be a consumer report, but for clauses (i), 
(ii), and (iii) of section 603(d)(2)(A)'' of the FCRA.
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    Section 624(a)(4) of the FCRA also limits the scope of the notice 
and opt-out requirements by specifying that they do not apply when: (1) 
The affiliate receiving the information has a pre-existing business 
relationship with the consumer; (2) the information is used to perform 
services for another affiliate (subject to certain conditions); (3) the 
information is used in response to a communication initiated by the 
consumer; or (4) the information is used to make a solicitation that 
has been authorized or requested by the consumer.\17\ We have 
incorporated each of these statutory exceptions into the proposed 
rules. The terms ``solicitation'' and ``pre-existing business 
relationship'' are defined in Section 624(d) of the FCRA and are 
discussed in detail in Section III below. Section 624(d) of the FCRA 
authorizes the Commission to prescribe additional circumstances that 
would constitute a ``pre-existing business relationship'' or would not 
constitute a ``solicitation.'' \18\ We seek

[[Page 42304]]

comment on any additional circumstances that the Commission should 
consider.
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    \17\ 15 U.S.C. 1681s-3(a)(4).
    \18\ 15 U.S.C. 1681s-3(d).
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Duration of Opt-Out

    Section 624(a)(3) of the FCRA provides that a consumer's affiliate 
marketing opt-out election shall be effective for at least five 
years.\19\ Accordingly, the proposal provides that a consumer's opt-out 
election would be valid for a period of at least five years (the ``opt-
out period''), beginning as soon as reasonably practicable after the 
consumer's opt-out election is received, unless the consumer revokes 
the election before the opt-out period has expired. When a consumer 
opts out, unless a statutory exception applies, a receiving affiliate 
would be unable to make or send marketing solicitations to that 
consumer based on his or her eligibility information during the opt-out 
period.
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    \19\ 15 U.S.C. 1681s-3(a)(3).
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    As described below, an extension notice would be provided to the 
consumer at the end of the opt-out period if the receiving affiliate 
wishes to make marketing solicitations. Affiliated persons may wish to 
avoid the cost and burden of tracking five-year consumer opt-out 
periods with varying start and end dates, and delivering extension 
notices to each consumer at the appropriate time, by choosing to treat 
a consumer's opt-out election as effective for a period longer than 
five years, including indefinitely.\20\ A person that chooses to honor 
a consumer's opt-out election for more than five years would not 
violate the proposed rules.
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    \20\ Of course, a consumer who wishes to receive marketing 
materials may revoke his or her opt-out election at any time before 
the opt-out period expires.
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III. Section-by-Section Analysis

Section 247.1 Purpose and Scope

    Proposed paragraph (a) of Sec.  247.1 of Regulation S-AM 
specifically sets forth that the purpose of the proposed rules is to 
implement the affiliate marketing provisions of the FACT Act. Proposed 
paragraph (b) of Sec.  247.1 lists the entities to which proposed 
Regulation S-AM would apply.
    The FACT Act does not specifically identify which entities would be 
subject to the rules prescribed by the Commission.\21\ Congress' 
inclusion of the Commission as one of the agencies required to adopt 
implementing regulations suggests that Congress intended that our rules 
apply to brokers, dealers, and investment companies, as well as to 
investment advisers and transfer agents that are registered with the 
Commission (respectively, ``registered investment advisers'' and 
``registered transfer agents,'' and, collectively with brokers, 
dealers, and investment companies, ``Covered Persons''). These entities 
are referred to as ``you'' throughout the proposed rules. However, 
broker-dealers required to register by notice with the Commission under 
Section 15(b)(11) of the Securities Exchange Act of 1934 (``Exchange 
Act'') for the purpose of conducting business in security futures 
products (``notice-registered broker-dealers'') would be excluded from 
the scope of the rules.\22\
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    \21\ Section 214 of the FACT Act directs that implementing 
regulations must be prescribed by the ``Federal banking agencies, 
the National Credit Union Administration, and the [Federal Trade] 
Commission, with respect to the entities that are subject to their 
respective enforcement authority under Section 621 of the Fair 
Credit Reporting Act and the Securities and Exchange Commission * * 
*'' 15 U.S.C. 1681s-3 note. Section 621 of FCRA grants enforcement 
authority to the Federal Trade Commission for all persons subject to 
FCRA ``except to the extent that enforcement * * * is specifically 
committed to some other government agency under subsection (b)'' of 
Section 621. 15 U.S.C. 1681s. The Commission is not one of the 
agencies included under subsection (b). 15 U.S.C. 1681s(b). The 
Commission was added to the list of federal agencies required to 
adopt implementing regulations under Section 214 of the FACT Act in 
conference committee. There is no legislative history on this issue.
    \22\ See the proposed definitions of ``broker'' and ``dealer'' 
below. Notice-registered broker-dealers are subject to primary 
oversight by the Commodity Futures Trading Commission (``CFTC'') and 
are exempted from all but the core provisions of the laws 
administered by the Commission. We interpret Congress' exclusion of 
the CFTC from the list of financial regulators required to adopt 
implementing regulations under Section 214(b) of the FACT Act to 
mean that Congress did not intend for the Commission's rules under 
the FACT Act to apply to entities subject to primary oversight by 
the CFTC.
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Section 247.2 Examples

    Given the wide range of possible situations covered by Section 624 
of the FCRA, the proposal includes general rules and provides more 
specific examples. These examples are intended to provide guidance 
about how the rules are likely to apply in specific situations, and to 
assist persons subject to the rules in understanding and complying with 
them. Proposed Sec.  247.2 describes how examples are used in the 
proposed rules, and explains that the examples are not exclusive.\23\ 
Rather, examples in a paragraph illustrate only the issue described in 
the paragraph and do not illustrate any other issue that may arise. We 
request comment on proposed Sec.  247.2.
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    \23\ The Joint Proposal provides that, to the extent applicable, 
compliance with an example would constitute compliance with the 
rule. See, e.g., Joint Proposal, Sec.  222.2. The examples in our 
proposed rules, however, would not provide the same safe harbor. The 
examples are intended to describe the broad outlines of ordinary 
situations that would constitute compliance with the applicable 
rule. However, the specific facts and circumstances relating to each 
particular situation would determine whether compliance with an 
example constitutes compliance with the rule.
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Section 247.3 Definitions

    Proposed Sec.  247.3 defines the following key terms used in 
proposed Regulation S-AM:
Affiliate
    Proposed paragraph (a) of Sec.  247.3 defines an ``affiliate'' of a 
Covered Person as any person that is related by common ownership or 
common corporate control with the Covered Person. The proposed rules 
also provide that a Covered Person would be considered an affiliate of 
another person for purposes of these rules if: (1) The other person is 
regulated under Section 214 of the FACT Act by one of the Agencies and 
(2) the rules adopted by that Agency treat the Covered Person as an 
affiliate of the other person.\24\
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    \24\ Proposed Sec.  247.3(a)(1)-(2). This provision is designed 
to prevent the disparate treatment of affiliates within a holding 
company structure. Without this provision, a broker-dealer in a bank 
holding company structure might not be considered affiliated with 
another entity in that organization under the Commission's proposed 
rules, even though the two entities would be considered affiliated 
under the Joint Proposal.
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    The proposed definition of affiliate follows the definition of 
``affiliates'' in Section 2 of the FACT Act: ``persons that are related 
by common ownership or affiliated by corporate control.'' \25\ A 
portion of the proposed definition incorporates the defined term 
``control,'' which applies exclusively to control of a ``company.'' We 
invite comment on this proposed definition of ``affiliate.''
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    \25\ The FACT Act and the FCRA contain slightly varied 
definitions of ``affiliate.'' ``Affiliate'' is not a defined term in 
the FCRA, but various provisions of the FCRA refer to persons 
``related by common ownership or affiliated by common corporate 
control,'' ``related by common ownership or affiliated by common 
corporate control,'' or ``affiliated by common ownership or 
control.'' See, e.g., sections 603(d)(2), 615(b)(2), and 625(b). In 
contrast, the GLB Act defines ``affiliate'' to mean ``any company 
that controls, is controlled by, or is under common control with'' 
another. The proposed definition is intended to harmonize the 
various definitions of ``affiliate'' in the FACT Act and the FCRA.
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Broker \26\
    Proposed paragraph (b) of Sec.  247.3 defines ``broker'' to have 
the same meaning as in Section 3(a)(4) of the Exchange Act,\27\ 
regardless of whether the person is registered under Section 15(b) of 
the Exchange Act.\28\ The term would include a municipal securities 
broker as defined in Section 3(a)(31) of the Exchange Act,\29\ 
regardless of

[[Page 42305]]

whether it is registered under Section 15(b) of the Exchange Act.\30\ 
In addition, the term would include a government securities broker as 
defined in Section 3(a)(43) of the Exchange Act \31\ (other than a bank 
as defined in Section 3(a)(6) of the Exchange Act),\32\ regardless of 
whether it is registered under Section 15(b) or 15C(a)(2) of the 
Exchange Act.\33\ The proposed definition specifically excludes a 
broker registered by notice with the Commission under Section 15(b)(11) 
of the Exchange Act \34\ for the purpose of conducting business in 
security futures products.\35\
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    \26\ The Joint Proposal does not include a definition of 
``broker.''
    \27\ 15 U.S.C. 78(c)(a)(4).
    \28\ 15 U.S.C. 78o(b).
    \29\ 15 U.S.C. 78c(a)(31).
    \30\ 15 U.S.C. 78o(b).
    \31\ 15 U.S.C. 78c(a)(43).
    \32\ 15 U.S.C. 78c(a)(6). For purposes of this definition and 
the definition of ``dealer'' (see proposed Sec.  247.3(h)), the term 
``bank'' would not include a foreign bank (as that term is defined 
in Section 1(b)(7) the International Banking Act of 1978, 12 U.S.C. 
3101(7)) or a savings association (as defined in Section 3(b) of the 
Federal Deposit Insurance Act, 12 U.S.C. 1813(b)) the deposits of 
which are insured by the Federal Deposit Insurance Corporation.
    \33\ 15 U.S.C. 78o(b), 78o-5(a)(2).
    \34\ 15 U.S.C. 78o(b)(11).
    \35\ See note 22 above, discussing the applicability of the 
proposed rules to notice-registered broker-dealers.
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Clear and Conspicuous
    Proposed paragraph (c) of Sec.  247.3 defines ``clear and 
conspicuous'' to mean reasonably understandable and designed to call 
attention to the nature and significance of the information presented. 
While persons subject to proposed Regulation S-AM would have 
flexibility in determining how best to meet the clear and conspicuous 
standard, they may wish to consider a number of methods to make their 
notices clear and conspicuous.
    A notice or disclosure could be made reasonably understandable 
through methods that include but are not limited to:

     Using clear and concise sentences, paragraphs, and 
sections;
     Using short explanatory sentences;
     Using bullet lists;
     Using definite, concrete, everyday words;
     Using active voice;
     Avoiding multiple negatives;
     Avoiding legal and highly technical business terminology; 
and
     Avoiding explanations that are imprecise and are readily 
subject to different interpretations.

A notice or disclosure could also use various design methods to call 
attention to the nature and significance of the information in it, 
including but not limited to:

     Using a plain-language heading;
     Using a typeface and type size that are easy to read;
     Using wide margins and ample line spacing; and
     Using boldface or italics for key words.

Under the proposal, persons that choose to provide the notice or 
disclosure by using a Web page \36\ could use text or visual cues to 
encourage the reader to scroll down the page if necessary to view the 
entire notice. They also could take steps to ensure that other elements 
on the Web site (such as text, graphics, hyperlinks, or sound) do not 
distract attention from the notice. Persons that would be subject to 
proposed Regulation S-AM would be encouraged to use readability testing 
or similar measures to ensure that their notices and disclosures are 
understandable to consumers.
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    \36\ See the discussion of Sec.  247.24 below for a description 
of requirements for the electronic delivery of notices.
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    To be ``clear and conspicuous,'' a notice would need to be designed 
to call attention to the nature and significance of the information in 
it. When a notice or disclosure is combined with other information, 
design techniques to accomplish this could include the use of 
distinctive type sizes, styles, fonts, paragraphs, headings, graphic 
devices, groupings, or other devices. It would be unnecessary, however, 
to use distinctive features to differentiate an affiliate marketing 
opt-out notice from other components of a required disclosure (such as 
a privacy notice under the GLB Act that includes several opt-out 
disclosures in a single notice).\37\
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    \37\ Nothing in the clear and conspicuous standard requires an 
affiliate marketing opt-out notice to be segregated when combined 
with a privacy notice under the GLB Act or with other required 
disclosures.
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    We recognize that it might not be feasible to employ all of the 
methods described above all of the time. For example, a person might 
need to use legal terminology, rather than everyday words, in some 
circumstances in order to provide a precise explanation. Although 
persons subject to proposed Regulation S-AM would not be required to 
consider the practices described above in designing their notices or 
disclosures, we encourage them to do so. We request comment on the 
proposed definition of ``clear and conspicuous.''
Commission \38\
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    \38\ The Joint Proposal does not define the term ``Commission.''
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    Proposed paragraph (d) of Sec.  247.3 defines ``Commission'' to 
mean the Securities and Exchange Commission.
Company
    Proposed paragraph (e) of Sec.  247.3 defines ``company,'' as used 
in the definition of ``affiliate,'' as any corporation, limited 
liability company, business trust, general or limited partnership, 
association, or similar organization.
Consumer
    Proposed paragraph (f) of Sec.  247.3 defines ``consumer'' to mean 
an individual, which follows the statutory definition in Section 603(c) 
of the FCRA.\39\ For purposes of this proposed definition, an 
individual acting through a legal representative would qualify as a 
consumer.
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    \39\ 15 U.S.C. 1681a(c). The definition of ``consumer'' in the 
FCRA differs from the narrower definition used in the privacy 
regulations enacted under Title V of the GLB Act. See, e.g., 17 CFR 
247.3(g).
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Control
    Proposed paragraph (g) of Sec.  247.3 defines ``control'' for 
purposes of Covered Persons to mean the power to exercise a controlling 
influence over the management or policies of a company, whether through 
ownership of securities, by contract, or otherwise.\40\ Ownership of 
more than 25 percent of a company's voting securities would create a 
presumption of control of the company.\41\ This definition would be 
used to determine when companies are affiliated,\42\ and would result 
in financial institutions being considered affiliates regardless of 
whether the control is exercised by a company or an individual.\43\ We 
request comment on this proposed definition.
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    \40\ See, e.g., 17 CFR 240.19g2-1(b)(2).
    \41\ This presumption may be rebutted by evidence, but, in the 
case of an investment company, will continue until the Commission 
makes a decision to the contrary according to the procedures 
described in Section 2(a)(9) of the Investment Company Act, 15 
U.S.C. 80a-2(a)(9).
    \42\ See the discussion of proposed Sec.  247.3(a) above.
    \43\ This proposed definition of ``control'' differs from the 
definition proposed by the Agencies. The Joint Proposal, for 
example, would define control as ownership of 25 percent of a 
company's voting securities, control over the election of a majority 
of the directors, trustees or general partners of the company, or 
the power to exercise a controlling influence over management or 
policies of a company, as determined by the particular agency. See 
Joint Proposal, Sec.  222.3(i).
---------------------------------------------------------------------------

Dealer \44\
---------------------------------------------------------------------------

    \44\ The Joint Proposal does not define the term ``dealer.''
---------------------------------------------------------------------------

    Proposed paragraph (h) of Sec.  247.3 defines ``dealer'' to have 
the same meaning as in Section 3(a)(5) of the Exchange Act,\45\ 
regardless of whether the dealer is registered under Section

[[Page 42306]]

15(b) of the Exchange Act.\46\ The term would include a municipal 
securities dealer as defined in Section 3(a)(30) of the Exchange 
Act,\47\ other than a bank (as defined in Section 3(a)(6) of the 
Exchange Act),\48\ regardless of whether it is registered under Section 
15(b) or 15B(a)(2) of the Exchange Act.\49\ In addition, the term would 
include a government securities dealer as defined in Section 3(a)(44) 
of the Exchange Act,\50\ regardless of whether it is registered under 
Section 15(b) or 15C(a)(2) of the Exchange Act.\51\ The proposed 
definition specifically would exclude a dealer registered by notice 
with the Commission under Section 15(b)(11) of the Exchange Act \52\ 
for the purpose of conducting business in security futures 
products.\53\
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    \45\ 15 U.S.C. 78c(a)(5).
    \46\ 15 U.S.C. 78o(b).
    \47\ 15 U.S.C. 78c(a)(30).
    \48\ 15 U.S.C. 78c(a)(6). See note 32 above.
    \49\ 15 U.S.C. 78o(b), 78o-4(a)(2).
    \50\ 15 U.S.C. 78c(a)(44).
    \51\ 15 U.S.C. 78o(b), 78o-5(a)(2).
    \52\ 15 U.S.C. 78o(b)(11).
    \53\ See note 22 above, discussing the applicability of the 
proposed rules to notice-registered broker-dealers.
---------------------------------------------------------------------------

Eligibility Information
    Proposed paragraph (i) of Sec.  247.3 defines ``eligibility 
information'' to mean any information the communication of which would 
be a consumer report if the exclusions from the definition of 
``consumer report'' in Section 603(d)(2)(A) of the FCRA \54\ did not 
apply. Eligibility information may include any information bearing on a 
consumer's credit worthiness, credit standing, credit capacity, 
character, general reputation, personal characteristics, or mode of 
living, whether that information was obtained from a person's own 
transactions or experiences with the consumer (e.g., information about 
a consumer's account history with that person) or from other sources 
(e.g., information received from credit bureau reports).
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 1681a(d)(2)(A).
---------------------------------------------------------------------------

FCRA
    Proposed paragraph (j) of Sec.  247.3 defines ``FCRA'' to mean the 
Fair Credit Reporting Act.\55\
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 1681 et seq.
---------------------------------------------------------------------------

GLB Act \56\
---------------------------------------------------------------------------

    \56\ The Joint Proposal does not define the term ``GLB Act.''
---------------------------------------------------------------------------

    Proposed paragraph (k) of Sec.  247.3 defines ``GLB Act'' to mean 
the Gramm-Leach-Bliley Act.\57\
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 6801 et seq.
---------------------------------------------------------------------------

Investment Adviser \58\
---------------------------------------------------------------------------

    \58\ The Joint Proposal does not define the term ``investment 
adviser.''
---------------------------------------------------------------------------

    Proposed paragraph (l) of Sec.  247.3 defines ``investment 
adviser'' to have the same meaning as in Section 202(a)(11) of the 
Investment Advisers Act of 1940 (``Investment Advisers Act'').\59\
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 80b-2(a)(11).
---------------------------------------------------------------------------

Investment Company \60\
---------------------------------------------------------------------------

    \60\ The Joint Proposal does not define the term ``investment 
company.''
---------------------------------------------------------------------------

    Proposed paragraph (m) of Sec.  247.3 defines ``investment 
company'' to have the same meaning as in Section 3 of the Investment 
Company Act of 1940 (``Investment Company Act''),\61\ regardless of 
whether the investment company is registered with the Commission.\62\ 
The proposed definition also clarifies that the term includes a 
separate series of the investment company.
---------------------------------------------------------------------------

    \61\ 15 U.S.C. 80a-3.
    \62\ Thus, a business development company, which is an 
investment company but is not required to register with the 
Commission, would be subject to this part. See 15 U.S.C. 80a-
2(a)(48).
---------------------------------------------------------------------------

Marketing Solicitation
    Proposed paragraph (n) of Sec.  247.3 defines ``marketing 
solicitation'' to mean marketing initiated by a person to a particular 
consumer that is based on eligibility information communicated to that 
person by its affiliate, and that is intended to encourage the consumer 
to purchase a product or service. The proposed definition includes any 
form of communication, such as a telemarketing call, direct mail, or 
electronic mail, that is directed to a specific consumer based on that 
consumer's eligibility information. The proposed definition does not 
include communications that are directed at the general public without 
regard to eligibility information, even if those communications are 
intended to encourage consumers to purchase products and services. 
While the proposed definition tracks the definition in Section 624 of 
the FCRA, it does not follow the statute exactly. Modifications are 
intended to prevent confusion in the context of the federal securities 
laws.\63\
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 1681s-3(d)(2). As noted above, we use the term 
``marketing solicitation'' as opposed to the term ``solicitation'' 
(which is the term used in Section 624 of the FACT Act) in the 
proposed rules to avoid any confusion with the concept of 
solicitation under the federal securities laws.
---------------------------------------------------------------------------

    Section 624 also authorizes the Commission to exclude other 
communications from the definition of ``marketing solicitation.''\64\ 
We do not propose to exercise that authority at this time. We solicit 
comment, however, on whether there are other communications that we 
should exclude from the definition of ``solicitation.''
---------------------------------------------------------------------------

    \64\ See 15 U.S.C. 1681s-3(d)(2).
---------------------------------------------------------------------------

    We also request comment on whether, and to what extent, various 
tools used in Internet marketing, such as pop-up ads, could constitute 
marketing solicitations as opposed to communications directed at the 
general public. Commenters are invited to discuss whether the 
Commission should provide persons subject to the rules with further 
guidance to address Internet marketing.
Person
    Proposed paragraph (o) of Sec.  247.3 defines ``person'' to mean 
any individual, partnership, corporation, trust, estate, cooperative, 
association, government or governmental subdivision or agency, or other 
entity. A person could act through an agent, such as a licensed agent 
(in the case of an insurance company), a trustee (in the case of a 
trust), or any other agent. For purposes of this proposed rule, actions 
taken by an agent on behalf of a person that are within the scope of 
the agency relationship would be treated as actions of that person.
Pre-Existing Business Relationship
    Proposed paragraph (p) of Sec.  247.3 defines ``pre-existing 
business relationship'' to mean a relationship between a person and a 
consumer based on: (1) A financial contract between the person and the 
consumer that is in force; (2) the purchase, rental, or lease by the 
consumer of that person's goods or services, or a financial transaction 
(including holding an active account or a policy in force or having 
another continuing relationship) between the consumer and that person 
during the 18-month period immediately preceding the date on which a 
marketing solicitation is made or sent to the consumer; or (3) an 
inquiry or application by the consumer regarding a product or service 
offered by that person during the three-month period immediately 
preceding the date on which a marketing solicitation is made or sent to 
the consumer. While the proposed definition tracks the definition in 
Section 624 of the FCRA, it does not follow the statute exactly.\65\
---------------------------------------------------------------------------

    \65\ See 15 U.S.C. 1681s-3(d)(1).
---------------------------------------------------------------------------

    Section 624 also authorizes the Commission to recognize any other 
circumstances that would constitute a pre-existing business 
relationship.\66\ We do not propose to exercise that authority at this 
time. We solicit comment,

[[Page 42307]]

however, on whether there are other circumstances that we should 
determine to fall within the definition of ``pre-existing business 
relationship.''
---------------------------------------------------------------------------

    \66\ See 15 U.S.C. 1681s-3(d)(1)(D).
---------------------------------------------------------------------------

Transfer Agent
    Proposed paragraph (q) of Sec.  247.3 defines ``transfer agent'' to 
have the same meaning as in Section 3(a)(25) of the Exchange Act.\67\
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78c(a)(25).
---------------------------------------------------------------------------

You
    Proposed paragraph (r) of Sec.  247.3 defines entities within the 
scope of the proposed rules--brokers, dealers, investment companies, 
registered investment advisers, and registered transfer agents--as 
``you.'' The term ``you'' is intended to make the rules easier to 
understand and to use.

Section 247.20 Use of Eligibility Information by Affiliates for 
Marketing

    Proposed Sec.  247.20 \68\ establishes the parameters of the 
requirement to provide a consumer with notice and a reasonable 
opportunity to opt out before a receiving affiliate uses eligibility 
information to make marketing solicitations to the consumer. As 
discussed above, the statute does not specify which affiliate must 
provide an opt-out notice to the consumer. The proposed rules would 
resolve this ambiguity by imposing certain duties on the communicating 
affiliate and certain duties on the receiving affiliate. These 
bifurcated duties are set forth in paragraphs (a) and (b).
---------------------------------------------------------------------------

    \68\ For consistency and ease of reference, proposed Regulation 
S-AM retains the section numbering used by the Agencies in their 
proposed rules.
---------------------------------------------------------------------------

Duties of a Communicating Affiliate
    Proposed paragraph (a) of Sec.  247.20 would set forth the duty of 
a communicating affiliate. Under the proposal, before a receiving 
affiliate could use eligibility information to make or send marketing 
solicitations to a consumer, the communicating affiliate would have to 
provide a notice to the consumer stating that this information may be 
communicated to and used by the receiving affiliate for marketing 
purposes, and must give the consumer a reasonable opportunity to opt 
out through some simple method. The requirements of notice and opt-out 
would only apply if a receiving affiliate uses eligibility information 
for marketing purposes. Thus, the requirements of proposed paragraph 
(a) would not apply if no eligibility information is communicated to 
affiliates, or if no receiving affiliate uses eligibility information 
to make marketing solicitations.
    Proposed paragraph (a) would not apply if, for example, a financing 
company affiliated with a broker-dealer asks the broker-dealer to 
include financing-company marketing materials in periodic statements 
sent to consumers by the broker-dealer without regard to eligibility 
information. We invite comment on whether, given the policy objectives 
of Section 214 of the FACT Act, proposed paragraph (a) should apply if 
affiliated companies seek to avoid providing notice and opt-out by 
engaging in the ``constructive sharing'' of eligibility information to 
conduct marketing. For example, we request commenters to consider the 
applicability of paragraph (a) in the following circumstances: A 
consumer has a relationship with a broker-dealer, and the broker-dealer 
is affiliated with a financing company. The financing company provides 
the broker-dealer with specific eligibility criteria, such as consumers 
having a margin loan balance in excess of $10,000, for the purpose of 
having the broker-dealer make solicitations on behalf of the financing 
company to consumers that meet those criteria. Additionally, the 
consumer responses provide the financing company with discernable 
eligibility information, such as a response form that is coded to 
identify the consumer as an individual who meets the specific 
eligibility criteria.
    Proposed paragraph (a) also includes two ``rules of construction'' 
that give further guidance regarding how affiliate marketing notices 
might be provided to consumers. The first rule of construction would 
permit the notice to be provided either in the name of a person with 
which the consumer currently does or previously has done business, or 
in one or more common corporate names shared by members of an 
affiliated group of companies that includes the common corporate name 
used by that person. This rule of construction also would provide three 
alternatives regarding the manner in which the notice may be given. 
First, a communicating affiliate could provide the notice to the 
consumer directly. Second, a communicating affiliate could use an agent 
to provide the notice, so long as the agent provides the notice in the 
name of the communicating affiliate or in a common corporate name.\69\ 
When using an agent, the communicating affiliate would remain 
responsible for any failure of the agent to fulfill its notice 
obligations. Third, a communicating affiliate could provide a joint 
notice with one or more of its affiliates, as provided in Sec.  
247.24(c).\70\
---------------------------------------------------------------------------

    \69\ Of course, if the agent is an affiliate of the person that 
provides the notice, that affiliate could not include any marketing 
solicitations of its own on or with the notice, unless one of the 
exceptions in paragraph (c) of this section applies. Even if the 
agent sending the notice is not an affiliate, the agent would only 
be permitted to use the information for limited purposes under the 
GLB Act privacy regulations. See 17 CFR 248.11.
    \70\ Section 247.8(c) is discussed more fully below.
---------------------------------------------------------------------------

    This rule of construction is intended to strike a balance by 
allowing some flexibility regarding which entity or entities within an 
affiliated group would provide the notice, while ensuring that the 
notice is meaningful and designed to be effective. An opt-out notice 
provided to a consumer solely in the name of a receiving affiliate is 
not likely to be effective because the name of the receiving affiliate 
would not be recognizable to the consumer as an entity with which the 
consumer does or has done business. For example, if the consumer has a 
relationship with ``company ABC'' but the opt-out notice is provided 
solely in the name of ``company XYZ'' (which does not share a common 
family name with company ABC), the notice is not likely to be 
effective. Indeed, many consumers might disregard a notice from company 
XYZ on the assumption that the notice was unsolicited junk mail. If, 
however, the consumer has a relationship with company ABC and the opt-
out notice is provided jointly in the name of all affiliated companies 
that share the ABC name and the XYZ name, the notice is likely to be 
effective because the consumer would recognize the name of company ABC. 
We request comment on this first proposed rule of construction.
    As explained above, more than one affiliated company may play the 
role of communicating affiliate with regard to the same set of 
eligibility information. Thus, the second rule of construction makes 
clear that it is not necessary for each affiliate that communicates the 
same eligibility information to provide an opt-out notice to the 
consumer, so long as the notice provided by the initial communicating 
affiliate is broad enough to cover the communication to, and marketing 
use by, all subsequent affiliates. For example, if affiliate A 
communicates eligibility information to affiliate B, and affiliate B 
communicates the same information to affiliate C, affiliate B does not 
have to provide the consumer with a separate opt-out notice, so long as 
affiliate A's notice was broad enough to cover both B's and C's use of 
that information. Proposed Regulation S-AM provides examples to 
illustrate how these ``rules of construction'' work. We request comment 
on this second proposed rule of construction.

[[Page 42308]]

    Proposed paragraph (a) of Sec.  247.20 contemplates that the opt-
out notice would be provided to a consumer in writing or, if the 
consumer agrees, electronically. We request comment on whether there 
are circumstances in which oral notice and opt-out should be permitted. 
Commenters should indicate how an oral notice could satisfy the 
statutory ``clear and conspicuous'' standard.\71\
---------------------------------------------------------------------------

    \71\ Certain exceptions to the notice and opt-out requirement 
may be triggered by an oral communication from or with a consumer. 
These exceptions are contained in proposed paragraph (c) of Sec.  
247.4 and are discussed below.
---------------------------------------------------------------------------

Duties of a Receiving Affiliate
    Proposed paragraph (b) of Sec.  247.20 sets forth the general 
duties of a receiving affiliate. In particular, a receiving affiliate 
could not use the eligibility information it receives from its 
affiliate to make marketing solicitations to a consumer unless, prior 
to such use the consumer has: (1) Been provided an opt-out notice (as 
described in paragraph (a) of Sec.  247.20) that applies to that 
affiliate's use of eligibility information; (2) received a reasonable 
opportunity to opt out of that use through one or more simple methods; 
and (3) not opted out. We invite comment regarding the duties of a 
receiving affiliate.
Duties Predicated on Sharing ``Eligibility Information''
    The requirements of proposed paragraphs (a) and (b) of Sec.  247.20 
would only apply when the information communicated to affiliates meets 
the definition of ``eligibility information,'' which, as explained 
above, would incorporate the concept of a ``consumer report,'' from 
Section 603(d) of the FCRA.\72\ In light of the FCRA exceptions to the 
statutory definition of ``consumer report,'' we recognize that it might 
be burdensome to determine and track whether consumer report 
information is ``eligibility information'' (to which the notice and 
opt-out provisions of Section 624 apply) or information that may be 
shared with affiliates under other exceptions in the FCRA (to which the 
notice and opt-out provisions of Section 624 do not apply). If the 
proposal is adopted, persons seeking to minimize their compliance 
burden could satisfy the requirements of Section 624 by voluntarily 
offering consumers the ability to opt out of marketing based on 
information that is shared under any of the exceptions in Section 
603(d)(2) of the FCRA.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 1681s-3(a)(1). See the discussion accompanying 
notes 14-16 above.
---------------------------------------------------------------------------

Exceptions
    Proposed paragraph (c) of Sec.  247.20 incorporates the statutory 
exceptions to the affiliate marketing notice and opt-out requirements 
as set forth in Section 624(a)(4) of the FCRA. In particular, proposed 
paragraph (c) provides that the receiving affiliate need not comply 
with these requirements if: (1) It uses the information to make a 
marketing solicitation to a consumer with whom the affiliate has a pre-
existing business relationship; (2) it uses the information to 
facilitate communications to an individual for whose benefit the 
affiliate provides employee benefit or other services under a contract 
with an employer related to and arising out of a current employment 
relationship or an individual's status as a participant or beneficiary 
of an employee benefit plan; (3) it uses the information to perform 
services for another affiliate, unless the services involve sending 
marketing solicitations on behalf of the other affiliate and that 
affiliate is not permitted to send such solicitations itself as a 
result of the consumer's decision to opt out; (4) it uses the 
information to make marketing solicitations in response to a 
communication initiated by the consumer; (5) it uses the information to 
make marketing solicitations in response to a consumer's request or 
authorization for a marketing solicitation; or (6) compliance with the 
requirements of proposed Regulation S-AM would prevent the affiliate 
from complying with any provision of state insurance laws pertaining to 
unfair discrimination in a state in which the affiliate is lawfully 
doing business.\73\ We discuss several of these exceptions below.
---------------------------------------------------------------------------

    \73\ See FCRA section 624(a)(4), 15 U.S.C. 1681s-3(a)(4).
---------------------------------------------------------------------------

    Proposed paragraph (c)(1) clarifies that the notice and opt-out 
requirements of proposed Regulation S-AM would not apply when the 
receiving affiliate has a pre-existing business relationship with the 
consumer. As noted above, the term pre-existing business relationship 
would be defined to include situations in which: (1) The consumer has 
purchased, rented, or leased the affiliate's goods or services during 
the 18 months immediately preceding the date of the solicitation; or 
(2) the consumer has inquired about or applied for a product or service 
offered by the affiliate during the three-month period immediately 
preceding the date of the marketing solicitation.\74\ These provisions 
are substantially similar to the definition of ``established business 
relationship'' under the amended Telemarketing Sales Rule 
(``TSR'').\75\ That definition was informed by Congress' intent that 
the ``established business relationship'' exemption to the ``do not 
call'' provisions of the Telephone Consumer Protection Act \76\ should 
be grounded on the reasonable expectations of the consumer.\77\ 
Congress' incorporation of similar language in the definition of ``pre-
existing business relationship'' \78\ suggests that it would be 
appropriate to consider the reasonable expectations of the consumer in 
determining the scope of this exception. Thus, for purposes of the 
proposed rules, an ``inquiry'' would include any affirmative request by 
a consumer for information, such that the consumer would reasonably 
expect to receive information from the affiliate about its products or 
services.\79\ For example, a consumer would not reasonably expect to 
receive information from the affiliate if the consumer does not request 
information or does not provide contact information to the affiliate. 
Proposed paragraph (d)(1) of Sec.  247.20 provides examples of the pre-
existing business relationship exception.
---------------------------------------------------------------------------

    \74\ See discussion of proposed paragraph (p) of Sec.  247.3. 
The proposed definition would also include situations in which (1) 
there is a financial contract in force between the affiliate and the 
consumer; or (2) the consumer and the affiliate have engaged in a 
financial transaction (including holding an active account or a 
policy in force or having another continuing relationship) during 
the 18 months immediately preceding the date of the solicitation.
    \75\ 16 CFR 310.2(n). The definition of an ``established 
business relationship'' has been incorporated into the telemarketing 
rule of the National Association of Securities Dealers as well. See 
NASD Rule 2212.
    \76\ 47 U.S.C. 227 et seq.
    \77\ H.R. Rep. No. 102-317, at 14-15 (1991). See also 68 FR 
4580, 4591-4594 (Jan. 29, 2003).
    \78\ 149 Cong. Rec. S13,980 (daily ed. Nov. 5, 2003) (statement 
of Senator Feinstein).
    \79\ See 68 FR at 4594.
---------------------------------------------------------------------------

    Proposed paragraph (c)(3) of Sec.  247.20 clarifies that the notice 
and opt-out requirements do not apply when the information is used to 
perform services for another affiliate. Of course, the exception would 
not apply if the other affiliate is not permitted to make or send 
marketing solicitations on its own behalf, for example as a result of 
the consumer's prior decision to opt out. Thus, when the notice has 
been provided to a consumer and the consumer has opted out, a receiving 
affiliate subject to the consumer's opt-out election could not 
circumvent the opt-out by instructing the communicating affiliate or 
another affiliate to make or send marketing

[[Page 42309]]

solicitations to the consumer on its behalf.\80\
---------------------------------------------------------------------------

    \80\ Similarly, this exception would not permit a service 
provider to make or send marketing solicitations on its own behalf 
if eligibility information is communicated and the notice and opt-
out provisions otherwise would apply.
---------------------------------------------------------------------------

    Proposed paragraph (c)(4) of Sec.  247.20 provides that the notice 
and opt-out requirements do not apply when the information is used in 
response to a communication initiated by the consumer. The proposed 
rule clarifies that this exception could be triggered by an oral, 
electronic, or written communication initiated by the consumer. To be 
covered by the proposed exception, any use of eligibility information 
would need to be responsive to the communication initiated by the 
consumer. For example, if a consumer calls an affiliate to ask about 
retail locations and hours, the affiliate could not use eligibility 
information to make marketing solicitations to the consumer about 
specific products because those solicitations would not be responsive 
to the consumer's communication. Conversely, if the consumer calls an 
affiliate to ask about its products or services, marketing 
solicitations related to those products or services would be responsive 
to the communication and thus permitted under the exception. The time 
period during which marketing solicitations remain responsive to the 
consumer's communication would depend on the facts and circumstances. 
The proposal contemplates that a consumer has not initiated a 
communication if an affiliate makes the initial call and leaves a 
message for the consumer to call back, and the consumer responds. 
Proposed paragraph (d)(2) of Sec.  247.20 provides examples of the 
consumer-initiated communications exception.
    Proposed paragraph (c)(5) of Sec.  247.20 provides that the notice 
and opt-out requirements do not apply when the information is used to 
make marketing solicitations that have been affirmatively authorized or 
requested by the consumer. This provision could be triggered by an 
oral, electronic, or written authorization or request by the consumer. 
Under the proposal, a pre-selected check box would not constitute an 
affirmative authorization or request. We also would not consider 
boilerplate language in a disclosure or contract to constitute 
affirmative authorization. The exception in proposed paragraph (c)(5) 
could be triggered, for example, if a consumer opens a securities 
account with a broker-dealer and authorizes or requests to receive 
marketing solicitations about insurance from an insurance affiliate of 
the broker-dealer. Under this proposed exception, the consumer could 
provide the authorization or make the request either through the person 
with whom the consumer has a business relationship or directly to the 
affiliate that would make the marketing solicitation.\81\ The duration 
of the authorization or request would depend on the facts and 
circumstances. Proposed paragraph (d)(3) of Sec.  247.20 provides an 
example of the affirmative authorization or request exception.
---------------------------------------------------------------------------

    \81\ Nothing in this exception supersedes the restrictions 
contained in the TSR, including the operation of the ``Do-Not-Call 
List'' established by the Federal Trade Commission and the Federal 
Communications Commission.
---------------------------------------------------------------------------

    The exceptions in proposed paragraphs (c)(1), (4), and (5) 
described above might overlap in certain situations. For example, if a 
consumer who has a securities account with a broker-dealer makes a 
telephone call to the broker-dealer's insurance affiliate and requests 
information about insurance, the insurance affiliate could use 
information about the consumer it obtains from the broker-dealer to 
make or send marketing solicitations in response to the telephone call. 
This could be done under the proposed exception in paragraph (c)(4) for 
responding to a communication initiated by the consumer. Because the 
consumer has made an inquiry to the insurance affiliate about its 
products and services, that inquiry could also trigger one of the 
possible proposed definitions of ``pre-existing business relationship'' 
as provided in paragraph (c)(1). In addition, the consumer's 
affirmative request could fit the proposed definition of a marketing 
solicitation authorized or requested by the consumer as provided in the 
exception in paragraph (c)(5). We request comment on the exceptions and 
examples in proposed paragraphs (c) and (d) of Sec.  247.20.
    Proposed paragraph (e) of Sec.  247.20 provides that the notice and 
opt-out requirements of proposed Regulation S-AM do not apply to the 
use of eligibility information received by the receiving affiliate 
prior to the compliance date for these rules. The mandatory compliance 
date will be included in the final rules, if adopted. We request 
comment on what the mandatory compliance date should be and whether it 
should be different from the effective date of the final rules in order 
to permit institutions to incorporate the affiliate marketing notice 
into their next annual GLB Act privacy notice.
    Finally, proposed paragraph (f) of Sec.  247.20 clarifies the 
relationship between the affiliate sharing notice and opt-out under 
Section 603(d)(2)(A)(iii) of the FCRA and the affiliate marketing 
notice and opt-out required by new Section 624 of the FCRA.\82\ 
Specifically, proposed paragraph (f) provides that nothing in proposed 
Regulation S-AM limits the responsibility of a company to comply with 
the notice and opt-out provisions of Section 603(d)(2)(A)(iii) of the 
FCRA before it shares information other than transaction or experience 
information among affiliates if it wishes to avoid becoming a consumer 
reporting agency.
---------------------------------------------------------------------------

    \82\ See note 7 above for a discussion of Section 
603(d)(2)(A)(iii) of the FCRA.
---------------------------------------------------------------------------

Section 247.21 Contents of Opt-Out Notice

    Proposed Sec.  247.21 addresses the contents of the opt-out notice. 
Proposed paragraph (a) of Sec.  247.21 requires the opt-out notice to 
be clear, conspicuous, and concise, and to accurately disclose: (1) 
that the consumer may elect to limit a person's affiliate from using 
eligibility information about the consumer that the affiliate obtains 
from the person to make marketing solicitations to the consumer; and 
(2) if applicable, that the consumer's election will apply for a 
specified period of time and that the consumer will be allowed to 
extend the election once that period expires. The notice also would 
have to provide the consumer with a reasonable and simple method to opt 
out.\83\ Appendix A of proposed Regulation S-AM provides model forms 
that, in appropriate circumstances, would comply with paragraph (a). 
Use of a model form would not be required.
---------------------------------------------------------------------------

    \83\ Proposed paragraph (a) of Sec.  247.5 reflects the intent 
of Congress, as expressed in Section 624(a)(2)(B) of the FCRA, that 
the notice required by proposed Regulation S-AM must be ``clear, 
conspicuous, and concise,'' and that the method for opting out must 
be ``simple.''
---------------------------------------------------------------------------

    Proposed paragraph (b) of Sec.  247.21 defines the term ``concise'' 
to mean a reasonably brief expression or statement. Proposed paragraph 
(b) also provides that a notice required by proposed Regulation S-AM 
could be concise even if it is combined with other disclosures required 
or authorized by federal or state law. Those disclosures include, but 
are not limited to, a notice under the GLB Act, a notice under Section 
603(d)(2)(A)(iii) of the FCRA, and other similar consumer disclosures. 
In addition, paragraph (b) clarifies that the requirement for a concise 
notice would be satisfied by the appropriate use of one of the model 
forms in Appendix A of proposed Regulation S-AM. Use of the model 
forms, however, would not be required.

[[Page 42310]]

    Proposed paragraph (c) of Sec.  247.21 provides that the notice 
could allow a consumer to choose from a menu of alternatives when 
opting out, such as opting out of receiving marketing solicitations 
from certain types of affiliates, or from marketing solicitations that 
use certain types of information or are delivered using certain methods 
of communication. If a person provides a menu of alternatives, one 
alternative would have to allow the consumer to opt out with respect to 
all affiliates, all eligibility information, and all methods of 
delivering marketing solicitations.
    Proposed paragraph (d) of Sec.  247.21 provides that, if a person 
chooses to give consumers a broader opt-out right than is required by 
law, the person could modify the contents of the opt-out notice to 
reflect accurately the scope of the opt-out right it provides. Appendix 
A includes Model Form A-3, which might be helpful for persons that wish 
to allow consumers to prevent all marketing from that person and its 
affiliates. Use of the model form, however, would not be required. We 
invite comment on proposed Sec.  247.21.

Section 247.22 Reasonable Opportunity To Opt Out

    Proposed paragraph (a) of Sec.  247.22 provides that the 
communicating affiliate would have to allow the consumer a ``reasonable 
opportunity to opt out'' after delivery of the opt-out notice and 
before the receiving affiliate uses eligibility information to make 
marketing solicitations to the consumer. Given the variety of 
circumstances in which opt-out rights are provided, a ``reasonable 
opportunity to opt out'' should be construed as a general test that 
avoids setting a mandatory waiting period. A general standard would 
provide flexibility to allow receiving affiliates to use eligibility 
information to make marketing solicitations at an appropriate point in 
time, while assuring that the consumer is given a realistic opportunity 
to prevent such use of the information. Examples are given to 
illustrate what might constitute a reasonable opportunity to opt out in 
different situations. Although 30 days may be reasonable in most cases, 
a person could choose to give consumers more than 30 days in which to 
decide whether to opt out.\84\ Whether a shorter waiting period would 
be adequate would depend on the circumstances.
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    \84\ As provided in proposed Sec.  247.9(c), consumers retain a 
continuing right to opt out at any time. The ``reasonable 
opportunity'' standard determines when a receiving affiliate may 
begin the marketing use of eligibility information if the consumer 
has not responded within the given period.
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    Proposed paragraphs (b)(1), (2), and (3) of Sec.  247.22 contain 
examples of reasonable opportunities to opt out. Proposed paragraphs 
(b)(1) and (2) contain examples of reasonable opportunities to opt out 
by mail or by electronic means, which are consistent with examples used 
in the GLB Act privacy rules.\85\ Proposed paragraph (b)(3) provides an 
example of a reasonable opportunity to opt out when a consumer is 
required to decide, as a necessary part of proceeding with an 
electronic transaction, whether to opt out before completing the 
transaction. The person subject to proposed Regulation S-AM would need 
to provide a simple process at the Internet Web site that the consumer 
could use to opt out at that time. In this example, the opt out notice 
would automatically be provided to the consumer, such as through a non-
bypassable link to an intermediate Web page, or ``speedbump.'' The 
consumer would be given a choice of either opting out or not opting out 
at that time through a simple process conducted at the Web site. For 
example, the consumer could be required to check a box on the Internet 
Web site in order to opt out or decline to opt out before continuing 
with the transaction. This example would not cover a situation in which 
the consumer is required to send a separate e-mail or visit a different 
Internet Web site in order to opt out. We seek comment on whether 
additional guidance or examples are needed regarding the reasonable 
opportunity to opt out.
---------------------------------------------------------------------------

    \85\ See 17 CFR 248.7(a)(2)(ii).
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    Proposed paragraph (b)(4) of Sec.  247.22 illustrates that 
including the affiliate marketing opt-out notice in a notice under the 
GLB Act could satisfy the reasonable opportunity standard. In this 
situation, the consumer should be allowed to exercise the opt-out in 
the same manner and should be given the same amount of time to exercise 
the opt-out as with respect to the GLB Act privacy notice. This example 
takes into account the statutory requirement that we consider methods 
for coordinating and combining notices.\86\
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    \86\ See FACT Act section 214(b)(3), 15 U.S.C. 1681s-3 note.
---------------------------------------------------------------------------

    Some persons subject to proposed Regulation S-AM might have a 
policy of not allowing affiliates to use eligibility information for 
marketing purposes unless a consumer affirmatively consents, or ``opts 
in,'' to receiving such marketing solicitations. Proposed paragraph 
(b)(5) of Sec.  247.22 clarifies that an ``opt-in'' would meet the 
requirement to provide a reasonable opportunity to opt out, so long as 
the consumer's affirmative consent is documented. A pre-selected check 
box on a Web form or boilerplate language in a contract would not be 
evidence of the consumer's affirmative consent.
    The proposed rules do not require persons to disclose in their opt-
out notices how long a consumer has to opt out before a receiving 
affiliate could begin making marketing solicitations based on the 
consumer's eligibility information. In this respect, the proposed rules 
are consistent with the GLB Act privacy rules. Persons subject to 
proposed Regulation S-AM might choose to include such disclosures in 
their notices, however. We request comment on this approach.

Section 247.23 Reasonable and Simple Methods of Opting Out

    Proposed paragraph (a) of Sec.  247.23 sets forth examples of 
reasonable and simple methods of opting out. These examples generally 
track the examples of reasonable opt-out means from Section 7(a)(2)(ii) 
of the GLB Act privacy rules,\87\ with certain modifications to give 
effect to Congress' mandate in the FACT Act that the method of opting 
out also must be ``simple.'' Accordingly, the proposed example in 
paragraph (a)(2) of Sec.  247.23 contemplates including a self-
addressed envelope with the reply form and opt-out notice. In addition, 
if consumers are given the choice of calling a toll-free telephone 
number to opt out, we contemplate that the system would be adequately 
designed and staffed to enable consumers to opt out in a single phone 
call.
---------------------------------------------------------------------------

    \87\ 17 CFR 248.7(a)(2)(ii).
---------------------------------------------------------------------------

    Proposed paragraph (b) of Sec.  247.23 provides examples of methods 
of opting out that would not be reasonable and simple. These methods 
include requiring the consumer to write a letter or to call or write to 
obtain an opt-out form that was not included with the notice. In 
addition, a consumer who agrees to receive the opt-out notice in 
electronic form only, such as by electronic mail or at a Web site, 
would have to be allowed to opt out by the same or a substantially 
similar electronic form and should not be required to opt out solely by 
telephone or paper mail.

Section 247.24 Delivery of Opt-Out Notices

    Proposed paragraph (a) of Sec.  247.24 provides that a person would 
need to deliver its opt-out notices so that each consumer reasonably 
can be expected to receive actual notice. Under this proposal, opt-out 
notices that are

[[Page 42311]]

delivered electronically could be delivered either in accordance with 
the electronic disclosure provisions in proposed Regulation S-AM or in 
accordance with the Electronic Signatures in Global and National 
Commerce Act.\88\ For example, a person could e-mail its notice to 
consumers who have agreed to the electronic delivery of information and 
could provide the notice on its Internet Web site for consumers who 
obtain products or services electronically through that Web site.
---------------------------------------------------------------------------

    \88\ 15 U.S.C. 7001 et seq.
---------------------------------------------------------------------------

    As indicated by the examples provided in proposed paragraph (b) of 
Sec.  247.24, the ``reasonable expectation of delivery'' standard is a 
lesser standard than actual notice. For instance, if a communicating 
affiliate mails a printed copy of its notice to the last known mailing 
address of a consumer, it has met its obligation even if the consumer 
has changed addresses and never receives the notice.
    Proposed paragraph (c) of Sec.  247.24 permits a person to provide 
a joint opt-out notice with one or more of its affiliates, so long as 
the notice is accurate with respect to each affiliate that issues the 
joint notice. A joint notice would not have to list each affiliate 
participating in the joint notice by its name. If each affiliate shares 
a common name, such as ``ABC,'' then the joint notice could state that 
it applies to ``all institutions with the ABC name'' or ``all 
affiliates in the ABC family of companies.'' If, however, one or more 
affiliates does not have ABC in its name, the joint notice would need 
to separately identify each affiliate or each group of affiliates with 
a common name. We invite comment regarding this proposed approach to 
joint notices.
    Proposed paragraph (d)(1) of Sec.  247.24 sets out rules that apply 
when two or more consumers (referred to in the proposed regulation as 
``joint consumers'') jointly obtain a product or service, such as a 
joint securities account. In particular, a person could provide a 
single opt-out notice to joint accountholders. The notice would have to 
indicate whether the person will treat an opt-out election by one joint 
accountholder as applying to all of the associated accountholders, or 
whether each accountholder might opt out separately. The person could 
not require all accountholders to opt out before honoring an opt-out 
direction by one of the joint accountholders. Paragraph (d)(2) gives 
examples of the operation of these rules.
    Proposed paragraph (d)(1)(vii) and the example in paragraph 
(d)(2)(iii) address the situation in which only one of two joint 
consumers has opted out. Those paragraphs are patterned after similar 
provisions in the GLB Act privacy rules.\89\ However, Section 624 of 
the FCRA deals with the use of information for marketing by affiliates, 
rather than the sharing of information among affiliates; we request 
comment on whether, if only one joint consumer opts out, eligibility 
information about the entire joint account could be used for making 
marketing solicitations to the joint consumer who has not opted out.
---------------------------------------------------------------------------

    \89\ See 17 CFR 248.7(d).
---------------------------------------------------------------------------

Section 247.25 Duration and Effect of Opt-Out

    Proposed Sec.  247.25 addresses the duration and effect of a 
consumer's opt-out election. Proposed paragraph (a) of Sec.  247.25 
provides that a consumer's election to opt out is effective for the 
opt-out period, which is a period of at least five years beginning as 
soon as reasonably practicable after the consumer's opt-out election is 
received. Nothing in this paragraph limits the ability of affiliated 
persons to set an opt-out period of longer than five years, including 
an opt-out period that does not expire unless revoked by the consumer. 
No opt-out period, however, could be shorter than five years. If, for 
some reason, a consumer elects to opt out again while the opt-out 
period remains in effect, a new opt-out period of at least five years 
would begin upon receipt of each successive opt-out election.
    Proposed paragraph (b) of Sec.  247.25 provides that a receiving 
affiliate could not make or send marketing solicitations to a consumer 
during the opt-out period based on eligibility information it receives 
from an affiliate, except as provided in the exceptions in Sec.  
247.20(c) \90\ or if the consumer has revoked the opt-out. Under this 
paragraph, the opt-out would be tied to the consumer, not to the 
information. Thus, if a consumer initially elects to opt out but does 
not extend the opt-out upon expiration of the opt-out period, the 
receiving affiliate could use all of the eligibility information it has 
received about the consumer from its affiliate, including eligibility 
information that it received during the opt-out period. However, if the 
consumer subsequently opts out again some time after the initial opt-
out period has lapsed, the receiving affiliate could not use any 
eligibility information about the consumer it received from an 
affiliate on or after the mandatory compliance date for the rules under 
proposed Regulation S-AM, including any information it received during 
the period in which no opt-out election was in effect.\91\
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    \90\ As discussed above, proposed Sec.  247.4(c) provides 
exceptions from the notice and opt-out requirements in several 
situations, including when the receiving affiliate has a pre-
existing business relationship with the consumer or receives an 
affirmative request for marketing solicitations from the consumer or 
when the receiving affiliate provides employee benefits to the 
consumer or performs certain services on behalf of another 
affiliate.
    \91\ Section 624(a)(5) of the FCRA contains a non-retroactivity 
provision, which provides that nothing shall prohibit the use of 
information that was received prior to the date on which persons are 
required to comply with the regulations implementing Section 624. 15 
U.S.C. 1681s-3(a)(5).
---------------------------------------------------------------------------

    Proposed paragraph (c) of Sec.  247.25 clarifies that a consumer 
could opt out at any time. Thus, even if the consumer did not opt out 
in response to the initial opt-out notice or if the consumer's election 
to opt out is not prompted by an opt-out notice, the consumer could 
still opt out. Regardless of when the consumer opts out, the opt-out 
would have to be effective for at least five years.
    Proposed paragraph (d) of Sec.  247.25 describes how the 
termination of a consumer relationship affects the consumer's opt-out. 
Specifically, if a consumer's relationship with a person terminates for 
any reason when the consumer's opt-out election is in force, the opt-
out would continue to apply indefinitely unless revoked by the 
consumer. We invite comment on proposed Sec.  247.25.

Section 247.26 Extension of Opt-Out

    Proposed Sec.  247.26 describes the procedures for extending an 
opt-out. Proposed paragraph (a) of Sec.  247.26 states that consumers 
would have to be provided with a new notice and a reasonable 
opportunity to extend their opt-out before a receiving affiliate could 
make marketing solicitations based on the consumer's eligibility 
information upon expiration of the opt-out period. The person who 
initially provided the notice, or its successor, would provide the 
extension notice. If an extension notice is not provided to the 
consumer, the opt-out period would continue indefinitely. The 
requirement to provide an extension notice upon expiration of the opt-
out period would apply to any opt-out `` even, for example, if the 
consumer failed to opt out initially and informed the communicating 
affiliate of his or her opt-out at some later time. The consumer could 
extend the opt-out at the expiration of each successive opt-out period. 
Proposed paragraph (b) of Sec.  247.26 provides that each opt-out 
extension would have to comply with Sec.  247.25(a), which means that 
it would

[[Page 42312]]

be effective for a period of at least five years.
    Proposed paragraph (c) of Sec.  247.26 addresses the contents of an 
extension notice.\92\ Like the initial notice, an extension notice 
would have to be clear, conspicuous, and concise. Paragraph (c) 
provides some flexibility in the design and contents of the notice. 
Under one approach, the notice could accurately disclose the same items 
required to be disclosed in the initial opt-out notice under Sec.  
247.21(a), along with a statement explaining that the consumer's prior 
opt-out has expired or is about to expire, as applicable, and that the 
consumer must opt out again if he or she wishes to keep the opt-out 
election in force. Under another approach, the extension notice would 
provide: (1) That the consumer previously elected to limit affiliates 
from using eligibility information about the consumer to make marketing 
solicitations to the consumer; (2) that the consumer's election has 
expired or is about to expire, as applicable; (3) that the consumer may 
elect to extend his or her previous election; and (4) a reasonable and 
simple method for the consumer to extend the opt-out. We propose to 
give persons the flexibility to decide which of these forms of notice 
best meets their needs. We request comment regarding whether persons 
subject to proposed Regulation S-AM would plan to limit the duration of 
the opt-out, and on the relative burdens and benefits of providing 
limited or unlimited opt-out periods.
---------------------------------------------------------------------------

    \92\ Persons subject to Regulation S-AM do not need to provide 
extension notices if they treat the consumer's opt-out election as 
valid in perpetuity unless revoked by the consumer.
---------------------------------------------------------------------------

    Proposed paragraph (d) of Sec.  247.26 addresses the timing of the 
extension notice. An extension notice can be delivered to the consumer 
either a reasonable period of time before the opt-out period expires, 
or any time after the opt-out period expires, but before covered 
marketing solicitations are made to the consumer. Providing the 
extension notice a reasonable period of time before the opt-out period 
expires would facilitate the smooth transition of consumers who choose 
to change their elections. An extension notice given too far in advance 
of the expiration of the opt-out period, however, might confuse 
consumers. We do not propose to set a fixed time for what would 
constitute a ``reasonable period of time'' to send an extension notice 
before the opt-out period expires. A reasonable period of time could 
depend upon the amount of time given to the consumer for a reasonable 
opportunity to opt out, the amount of time necessary to process opt-
outs, and other factors. Nevertheless, providing an extension notice on 
or with the last annual privacy notice required by the GLB Act privacy 
provisions to be sent to the consumer before the opt-out period expires 
would be deemed reasonable in all cases. Proposed paragraph (e) of 
Sec.  247.26 makes clear that sending an extension notice to the 
consumer before the expiration of the opt-out period would not shorten 
the five-year opt-out period.
    Opt-out elections under the GLB Act do not expire, and GLB Act 
notices typically state that the consumer need not opt out again if the 
consumer previously opted out. Thus, including an affiliate marketing 
opt out notice or an extension notice on an initial or annual notice 
under the GLB Act raises special issues. If a person chooses to make 
the affiliate marketing opt-out effective in perpetuity, the statement 
in the GLB Act notice would remain correct. However, the GLB Act 
statement would not be accurate with respect to the extension notice if 
the affiliate marketing opt-out is limited to a defined period of five 
or more years. In that case, the extension notice would have to make 
clear to the consumer the necessity of opting out again in order to 
extend the opt-out. We request comment on this interaction between FACT 
Act and GLB notices, including on whether the Commission should provide 
further guidance regarding how a communicating affiliate might ensure 
that the difference in opt-out rights is clear to consumers.

Section 247.27 Consolidated and Equivalent Notices

    Proposed Sec.  247.27 implements Section 624(b) of the FCRA,\93\ 
and provides that a notice required by proposed Regulation S-AM could 
be coordinated and consolidated with any other notice or disclosure 
required to be issued under any other provision of law. These notices 
might include but are not limited to the notice described in Section 
603(d)(2)(A)(iii) of the FCRA \94\ and the notice required by the 
privacy provisions of the GLB Act. A notice or other disclosure that is 
equivalent to the notice required by proposed Regulation S-AM, and that 
is provided to a consumer together with disclosures required by any 
other provision of law, would satisfy the requirements of proposed 
Regulation S-AM.
---------------------------------------------------------------------------

    \93\ 15 U.S.C. 1681s-3 note.
    \94\ See note 7 above for a discussion of Section 
603(d)(2)(A)(iii) of the FCRA.
---------------------------------------------------------------------------

    We request comment on whether persons subject to proposed 
Regulation S-AM would plan to consolidate their affiliate marketing 
notices with the GLB Act privacy notice or the affiliate sharing opt-
out notice under Section 603(d)(2)(A)(iii) of the FCRA, whether we have 
provided sufficient guidance on consolidated notices, and whether 
consolidation would be helpful or confusing to consumers.

Appendix A

    As noted above, we are proposing model forms as examples to 
illustrate how persons could comply with the notice and opt-out 
requirements of Section 624 of the FCRA and proposed Regulation S-AM. 
Appendix A includes three proposed model forms. Model Form A-1 is a 
proposed form of an initial opt-out notice. Model Form A-2 is a 
proposed form of an extension notice that could be used when the 
consumer's prior opt-out has expired or is about to expire. Model Form 
A-3 is a proposed form that persons subject to proposed Regulation S-AM 
could use if they offer consumers a broader right to opt out of 
marketing than is required by law.
    Use of the model forms would not be mandatory. Persons subject to 
proposed Regulation S-AM could use the model forms, modify the model 
forms to suit particular circumstances, or use some other form, so long 
as the requirements of the proposed rules are met. For example, 
although Model Forms A-1 and A-2 use five years as the duration of the 
opt-out period, communicating affiliates could choose an opt-out period 
longer than five years and to substitute the longer time period in the 
opt-out notices. Alternatively, communicating affiliates could choose 
to treat the consumer's opt-out as effective in perpetuity and thereby 
omit from the initial notice any reference to the limited duration of 
the opt-out period or the right to extend the opt-out.
    Each of the proposed model forms is designed as a stand-alone form. 
We anticipate that some persons might want to combine the affiliate 
marketing opt-out notice with a GLB Act privacy notice. If the notices 
are combined, we expect that persons would integrate the affiliate 
marketing opt-out notice with other required disclosures and avoid 
repetition of information such as the methods for opting out. 
Developing a model form that combines various opt-out notices, however, 
is beyond the scope of this rulemaking.

IV. Request for Comment

    We request comment on all provisions of proposed Regulation S-AM 
described above, including suggestions for additional provisions or 
changes, and

[[Page 42313]]

comments on other matters that might have an effect on the proposal. 
Commenters are particularly invited to share suggestions on each of the 
proposed model forms and for how the opt-out notices can be made clear 
for consumers. Commenters are also urged to submit suggestions for 
additional model forms that might be helpful. We also encourage comment 
on the proposed examples and on any additional examples that commenters 
would find helpful.

V. Costs and Benefits of the Proposed Rule

    The Commission is sensitive to the costs and benefits of its rules. 
Proposed Regulation S-AM would minimize compliance costs while enabling 
consumers to limit certain marketing solicitations from affiliated 
companies. The proposed rules would implement Section 214 of the FACT 
Act and would impose no significant costs beyond those required under 
the FACT Act. The Commission encourages comment to identify, discuss, 
analyze, and supply relevant data regarding the costs and benefits 
stemming from compliance with the proposed rules.
    The proposed rules would require that consumers be provided with 
notice and an opportunity to opt out of receiving marketing 
solicitations that are based on the communication of the consumer's 
eligibility information \95\ between a person and its affiliates. The 
notice and opt-out requirements are designed to benefit consumers by 
enabling them to limit certain marketing solicitations from affiliated 
companies. In addition, the proposed notice requirement should enhance 
the transparency of each company's affiliate marketing and information 
sharing practices.
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    \95\ The proposed definition of ``eligibility information'' 
would encompass any information that, if communicated, would be a 
``consumer report,'' but for the FCRA's statutory exclusions for the 
sharing of transaction or experience information and for the sharing 
of information among affiliates. See note 7, above, for a discussion 
of the definition of ``consumer report.''
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    The proposed rules would impose costs upon Covered Persons \96\ 
that wish to engage in affiliate marketing based on the communication 
of eligibility information. Absent an exception, communicating 
affiliates \97\ would be required to provide consumers with notice and 
an opportunity to opt out before a receiving affiliate could use the 
consumer's eligibility information for marketing purposes. The 
communicating affiliate would need to design and send notices and opt-
out forms, design and implement systems for receiving consumer opt-
outs, maintain accurate records of opt-outs, and provide extension 
notices upon expiration of the initial opt-out period. Receiving 
affiliates \98\ would be required to ensure that they do not make 
marketing solicitations to a consumer based on the communication of 
eligibility information unless that consumer has been provided notice 
and an opportunity to opt out and has not opted out.
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    \96\ ``Covered Persons'' include brokers, dealers, and 
investment companies, as well as investment advisers and transfer 
agents that are registered with the Commission.
    \97\ A ``communicating affiliate'' is a person that communicates 
eligibility information to one or more affiliated persons.
    \98\ A ``receiving affiliate'' is a person that receives 
eligibility information from an affiliated person.
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    The proposed rules include several considerations that would 
minimize compliance costs for affected persons. First, as required by 
the FACT Act, the proposed rules would allow Covered Persons to combine 
their affiliate marketing opt-out notices with any other notice 
required by law, including the privacy notices required under the GLB 
Act.\99\ Covered Persons are already required to provide privacy 
notices and to accept consumer opt-out elections related to information 
sharing. Second, the proposed rules would allow Covered Persons some 
flexibility to develop, distribute, and record the opt-out notices in 
the manner best suited to their business and needs. Third, the proposed 
rules are consistent and comparable with the rules proposed by the 
Agencies,\100\ which would provide greater certainty to Covered Persons 
that are part of a family of affiliated companies because all 
affiliated companies would be subject to consistent requirements. 
Finally, the proposed rules include examples that would provide 
specific guidance regarding what type of policies and procedures could 
be developed.
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    \99\ Gramm-Leach-Bliley Act, Pub. L. 106-102, 113 Stat. 1338 
(1999).
    \100\ As described above, the FACT Act requires the Office of 
the Comptroller of the Currency, the Board of Governors of the 
Federal Reserve System, the Federal Deposit Insurance Corporation, 
the Office of Thrift Supervision, the National Credit Union 
Administration, and the Federal Trade Commission, in addition to the 
Commission, to propose regulations implementing Section 214. These 
other entities are referred to collectively as the Agencies.
---------------------------------------------------------------------------

    According to Commission filings, there are approximately 6,768 
broker-dealers, 5,182 investment companies, 7,977 registered investment 
advisers, and 443 registered transfer agents that could be subject to 
the proposed rules. However, whether a Covered Person actually would be 
required to provide notice and opt-out would depend on the information 
sharing policies of that person and the marketing policies of its 
affiliates.\101\ Any Covered Person that does not have affiliates or 
that does not communicate eligibility information to its affiliates 
would not be required to comply with the notice and opt-out 
requirements. Even if a communicating affiliate shares eligibility 
information, notice and opt-out would not be required if the receiving 
affiliate does not use the information as a basis for marketing 
solicitations. Because the proposed rules allow for a single, joint 
notice on behalf of a common corporate family, Covered Persons would 
not be required independently to provide notices and opt-outs if they 
are included in an affiliate's notice. The proposed rules also 
incorporate a number of statutory exceptions that would further reduce 
the number of persons required to provide affiliate marketing notices. 
In light of these factors, for purposes of the Paperwork Reduction Act 
we have estimated that approximately 10% of Covered Persons, or 2,037 
respondents, would be required to provide consumers with notice and an 
opt-out opportunity under the proposed rules.
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    \101\ For purposes of the Paperwork Reduction Act, we have 
estimated that approximately 70% of Covered Persons have affiliates. 
Statistics reported in registration forms filed by investment 
advisers show that approximately 70% of registered investment 
advisers have a corporate affiliate, and we estimate that other 
Covered Persons would report a rate of affiliation similar to that 
reported by registered investment advisers. See note 102 and 
accompanying text, below.
---------------------------------------------------------------------------

    If an institution is required to provide consumers notice and an 
opportunity to opt out, the notice could be combined with GLB Act 
privacy notices or with any other document, including other disclosure 
documents or account statements. We expect that most institutions that 
would be required to provide an affiliate marketing notice would 
combine that notice with some other form of communication.
    For purposes of the Paperwork Reduction Act, we have estimated that 
14,259 affiliated persons each would require 1 hour on average to 
review its information sharing and affiliate marketing policies and 
practices to determine whether notice and opt-out would be necessary. 
Assuming a cost of $125 per hour for managerial staff time, the total 
one-time cost of review would be approximately $1,782,375 (14,259 x 
$125). Once the review is complete, we have estimated that 2,037 
Covered Persons actually would be required to provide notice and opt-
out, and that those persons would need an average of 6 hours to provide 
initial notice and opt-out and 2 hours to design notices for new 
customers to receive on an ongoing

[[Page 42314]]

basis (a total of 8 hours per affected person, or 16,296 hours). We 
assume this time would be divided between senior staff, computer 
professionals, and secretarial staff, with review by legal 
professionals. Assuming an average per-hour staff cost of $95, the 
total cost would be $1,548,120 (16,296 x $95) in the first year. We 
have estimated that each of the 2,037 affected persons would spend 
approximately 2 hours per year (or 4,074 hours) delivering notices to 
new consumers and recording any opt-outs that are received on an 
ongoing basis. These tasks would not require managerial or professional 
involvement; thus, we estimate an average staff cost of $40 per hour, 
for a total annual cost of $162,960 (4,074 x $40).
    We request comment that may assist in quantifying the costs and the 
benefits identified in this analysis. With regard to costs, please 
delineate start-up costs (including costs to update existing systems) 
as well as ongoing annual costs. We also request comment on any costs 
and benefits of proposed Regulation S-AM not identified here. We 
specifically invite comment on and data regarding the Commission's 
estimates that 70% of Covered Persons have affiliates and 10% of 
Covered Persons would be required to provide consumers with notice and 
opt-out under the proposed rules. We further request comment on and 
data regarding the anticipated costs of drafting affiliate marketing 
privacy notices and of implementing systems for tracking opt-outs and 
providing extension notices upon expiration of the opt-out period. We 
invite comment on and data regarding the likelihood of including 
affiliate marketing notices in other mailings, on the cost of combined 
versus stand-alone mailings, and on any anticipated savings due to the 
electronic transmission of affiliate marketing notices and opt-outs.

VI. Paperwork Reduction Act

    Certain provisions of the proposed rules may constitute a 
``collection of information'' within the meaning of the Paperwork 
Reduction Act of 1995, 44 U.S.C. 3501 et seq. The Commission has 
submitted the proposed regulation to the Office of Management and 
Budget (``OMB'') for review in accordance with 44 U.S.C. 3507(d) and 5 
CFR 1320.11. The title for the collection of information is 
``Regulation S-AM: Limitations on Affiliate Marketing.'' An agency may 
not conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid OMB 
control number.

Summary of Collection of Information

    Before a receiving affiliate could make marketing solicitations 
based on the communication of eligibility information from a 
communicating affiliate, the communicating affiliate would be required 
to provide a notice to each affected individual informing the 
individual of his or her right to prohibit such marketing. In addition, 
as a practical matter in order for the opt-outs to be effective, one or 
both affiliates would need to keep records of any opt-out elections. If 
the receiving affiliate intends to resume making marketing 
solicitations based on eligibility information upon expiration of the 
opt-out period, the communicating affiliate also would need to send an 
expiration notice and enable the consumer to extend the opt-out 
election if desired.
    In drafting the proposed rules, we have attempted to retain 
procedural flexibility and to minimize compliance burdens except as 
required by the terms of the FACT Act. We believe that the proposed 
rules do not impose significant burdens in excess of the statutory 
requirements.

Proposed Use of Information

    New Section 624 of the FCRA Act is intended to enhance the 
protection of consumer financial information in the affiliate marketing 
context and to enable consumers to limit marketing solicitations from 
affiliated companies that are based on eligibility information. 
Proposed Regulation S-AM is necessary to fulfill Congress' mandate in 
Section 214 of the FACT Act that the Commission must prescribe 
regulations to implement Section 624.

Respondents

    According to Commission filings, there are approximately 6,768 
broker-dealers, 5,182 investment companies, 7,977 registered investment 
advisers, and 443 registered transfer agents that could be subject to 
the proposed rules. However, we expect that only a fraction of all 
Covered Persons would be required to provide notice and opt-out to 
consumers. First, the proposed rules only apply to Covered Persons that 
have affiliates, and then only if receiving affiliates make marketing 
solicitations based on the communication of eligibility information. 
Based on a review of forms filed with the Commission, we estimate that 
approximately 70% of Covered Persons have a corporate affiliate.\102\ 
However, we assume that many of those Covered Persons would not 
communicate eligibility information to their affiliates for marketing 
purposes and thus would not be subject to the notice and opt-out 
requirements of the proposed rules.\103\ The proposed rules also 
incorporate a number of statutory exceptions that would further reduce 
the number of Covered Persons required to provide affiliate marketing 
notices. Moreover, even if notice is required, the proposed rules allow 
all affiliates within a common corporate family to provide a single, 
joint notice. Accordingly, Covered Persons that are required to provide 
affiliate marketing notices could be covered by the notice sent by one 
or more affiliates and would not be required to provide the notice 
independently. In light of these factors, we estimate that 
approximately 10% of Covered Persons, or 2,037 respondents, would be 
required to provide consumers with notice and an opt-out opportunity 
under the proposed rules.
---------------------------------------------------------------------------

    \102\ This estimate is based upon statistics reported on Form 
ADV, the Universal Application for Investment Adviser Registration, 
which contains specific questions regarding affiliations between 
investment advisers and other persons in the financial industry. We 
estimate that other Covered Persons would report a rate of 
affiliation similar to that reported by registered investment 
advisers.
    \103\ For example, professional standards require investment 
advisers to preserve the confidentiality of information communicated 
by clients or prospects. See Association for Investment Management 
and Research, Standards of Practice Handbook 123, 125 (1996).
---------------------------------------------------------------------------

Total Annual Reporting and Recordkeeping Burdens

    Every Covered Person that has one or more affiliates likely would 
incur a one-time burden in reviewing its policies and business 
practices to determine the extent to which it communicates eligibility 
information to affiliates for marketing purposes and whether those 
affiliates make marketing solicitations based on the communication of 
that eligibility information. This determination should be 
straightforward for most entities, in part because the GLB Act privacy 
regulations already require Covered Persons to review their information 
sharing practices and disclose whether they share information with 
affiliates.\104\ We have estimated that approximately 70% of all 
Covered Persons, or approximately 14,259 persons, have an affiliate. 
The amount of time required to review their policies would vary widely, 
from a few minutes for those that do not share eligibility information 
with affiliates to 4 hours or more for affiliated persons with more 
complex information sharing arrangements. We estimate that each

[[Page 42315]]

affected person would require 1 hour on average to review its policies 
and practices, for a total one-time burden of 14,259 hours.
---------------------------------------------------------------------------

    \104\ See 17 CFR 248.6(a)(3) (initial, annual, and revised GLB 
Act privacy notices must include ``the categories of affiliates * * 
* to whom you disclose nonpublic personal information'').
---------------------------------------------------------------------------

    We have estimated that 2,037 Covered Persons would be required to 
provide notice and opt-out under the proposed rules. This process would 
consist of several steps. First, the affiliated person would need to 
create an affiliate marketing notice. The amount of time required to 
develop a notice should be reduced significantly by the inclusion of 
model forms in the proposed rules. Second, the notices would need to be 
delivered. The proposed rules allow that affiliate marketing notices 
could be combined with any other notice or disclosure required by law. 
We expect that most persons subject to proposed Regulation S-AM would 
combine their affiliate marketing notices with some other form of 
communication, such as an account statement or an annual notice under 
the GLB Act. Because those communications are already delivered to 
consumers, adding a brief affiliate marketing notice should not result 
in added costs for processing or for postage and materials.\105\ 
Notices may be delivered electronically to consumers who have agreed to 
electronic communications, which would further reduce the costs of 
delivery. Third, as a practical matter, persons subject to proposed 
Regulation S-AM would need to keep accurate records in order to honor 
any opt-out elections and to track the expiration of the opt-out 
period. We cannot estimate with precision the number of actual notice 
mailings in any given year because that total would depend on the 
number of consumers who do business with each affected person. For 
purposes of the Paperwork Reduction Act, we estimate that the hour 
burden for developing, sending, and tracking the opt-out notices would 
range from 2-20 hours, with an average of 6 hours for each of the 
affected entities (12,222 hours total). We estimate that postage and 
materials costs for the notices would be negligible because the notices 
normally would be combined with other required mailings.
---------------------------------------------------------------------------

    \105\ Because we assume that most affiliate marketing notices 
would be combined with other required mailings, we base our 
estimates on the resources required to integrate an affiliate 
marketing notice into another mailing, rather than on the resources 
required to create and send a separate mailing.
---------------------------------------------------------------------------

    Because the notice and opt-out requirements represent a 
prerequisite to covered forms of affiliate marketing, most affected 
persons would provide notice within the first year after compliance 
with the proposed regulations would be required. However, additional 
notices may be required on a smaller scale as new customer 
relationships are formed. We anticipate that many affected persons 
would ensure delivery to new consumers with a minimum of additional 
effort by integrating the notices as a permanent part of account 
opening documents, initial privacy notices under the GLB Act, or some 
other form of regular communication. Accordingly, we estimate a one-
time average burden of 2 hours for affected entities to create the 
notices (4,074 hours total) and an ongoing annual burden of 2 hours per 
year (4,074 hours total) to deliver the notices to new consumers and to 
record any opt-outs.
    A consumer opt-out may expire at the end of five years, as long as 
the person that provided the initial notice provides the consumer with 
renewed notice and an opportunity to extend his or her opt-out election 
before any affiliate marketing may begin.\106\ Designing, sending, and 
recording opt-out extensions notices would require additional hours and 
costs. However, because the initial opt-out period must last for at 
least five years, any burden related to extension notices would not 
arise within the first five years of the collection of information.
---------------------------------------------------------------------------

    \106\ In order to ease the burden of tracking each opt-out 
period, many affiliated persons may decide to implement an opt-out 
period of longer than five years, including a period that never 
expires.
---------------------------------------------------------------------------

    In sum, we estimate that each of 14,259 affiliated persons would 
require an average one-time burden of 1 hour to review affiliate 
marketing practices (14,259 hours total). We estimate that the 
approximately 2,037 persons required to provide notice and opt-out 
would incur an average first-year burden of 6 hours to provide notice 
and allow for consumer opt-outs, for a total estimated first-year 
burden of 12,222 hours. With regard to continuing notice burdens, we 
estimate that each of the approximately 2,037 persons required to 
provide notice and opt-out would incur a one-time burden of 2 hours to 
develop notices for new consumers (4,074 hours total) and an annual 
burden of 2 hours to deliver the notices and record any opt-outs (4,074 
hours total). These estimates would represent a total one-time burden 
of 18,333 hours (14,259 plus 4,074), a total first-year burden of 
12,222 hours, and an ongoing annual burden of 4,074 hours. Averaged 
across the first three years for which compliance would be required, 
the total average yearly burden would be 11,543 hours. We do not expect 
that Covered Persons will incur start-up or materials costs in addition 
to the staff time discussed above.
    In addition to the general request for comment reflected below, we 
request comment on these estimates of the annual reporting and 
recordkeeping burdens. How many Covered Persons share eligibility 
information with affiliates that the affiliates use to send marketing 
solicitations? Are there exceptions to the notice requirements under 
proposed Regulation S-AM on which many Covered Persons are likely to 
rely? Are affiliated families of companies likely to review the sharing 
and marketing policies of their affiliates on an organizational basis, 
or is each affiliate likely to review its own policies? Are affiliated 
families of companies likely to provide a single joint notice covering 
all affiliates? Are Covered Persons likely to consolidate notices 
required under proposed Regulation S-AM with GLB Act privacy notices or 
with other customer communications? Are Covered Persons likely to 
extend the opt-out period for more than five years?

Retention Period for Recordkeeping Requirements

    The proposed rules do not contain express provisions governing the 
retention of records related to opt-outs. However, the example 
discussing consumer ``opt-ins'' in Sec.  247.22(b)(5) of the proposed 
rules would state that any opt-in must be documented. Moreover, as 
noted above, a person subject to proposed Regulation S-AM would need to 
keep some record of consumer opt-outs in order to know which consumers 
should not receive marketing solicitations based on eligibility 
information. These records would need to be retained for at least as 
long as the opt-out period of five or more years, so that the person 
responsible for providing the extension notice would know when that 
notice is required.

Collection of Information Is Mandatory

    As noted, only Covered Persons that communicate eligibility 
information to their affiliates for marketing purposes would be 
required to comply with the notice and opt-out provisions of the 
proposed rules. However, assuming that no other exception applies, the 
disclosure and recordkeeping requirements are mandatory with respect to 
those persons.

Responses to Collection of Information Will Not Be Kept Confidential

    The affiliate marketing notices and opt-out records would not be 
filed with or otherwise submitted to the Commission. Accordingly, we 
make no

[[Page 42316]]

assurance of confidentiality with respect to the collections of 
information.

Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comment to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information will have practical 
utility;
    (2) Evaluate the accuracy of the Commission's estimate of the 
burden of the proposed collection of information;
    (3) Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected; and
    (4) Determine whether there are ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology.
    Persons wishing to submit comments on the collection of information 
requirements should direct them to the following persons: (1) Desk 
Officer for the Securities and Exchange Commission, Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Room 3208, New Executive Office Building, Washington, DC 20503; and (2) 
Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 
Fifth Street, NW., Washington, DC 20549. Any comments should make 
reference to File Number S7-29-04. OMB is required to make a decision 
concerning the collection of information between 30 and 60 days after 
publication, so a comment to OMB is best assured of having its full 
effect if OMB receives it within 30 days after publication. Requests 
for materials submitted to OMB by the Commission with regard to this 
collection of information should be made in writing, should refer to 
File Number S7-29-04, and should be submitted to the Securities and 
Exchange Commission, Records Management, Office of Filings and 
Information Services, 450 Fifth Street, NW., Washington, DC 20549.

VII. Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act \107\ requires an agency to provide 
an Initial Regulatory Flexibility Analysis (``IRFA'') with proposed 
rules and a Final Regulatory Flexibility Analysis (``FRFA'') with any 
final rules, unless the agency certifies that the rules would not have 
a significant economic impact on a substantial number of small 
entities.\108\ The Commission has determined that it is appropriate to 
publish an IRFA in order to inquire into the impact of the proposed 
rules on small entities. Therefore, the Commission has prepared the 
following analysis and requests public comment in the following areas.
---------------------------------------------------------------------------

    \107\ 5 U.S.C. 601 et seq.
    \108\ See 5 U.S.C. 603-605.
---------------------------------------------------------------------------

A. Reasons for the Proposed Rules

    Section 214 of the FACT Act (which adds new Section 624 to the 
FCRA) generally prohibits a person from using certain information 
received from an affiliate to make marketing solicitations to a 
consumer, unless the consumer is given notice, as well as an 
opportunity and a simple method to opt out, of the possibility of 
receiving such solicitations. Section 214 also requires the Agencies 
and the Commission, in consultation and coordination with one another, 
to issue implementing regulations that are consistent and comparable to 
the extent possible. Proposed Regulation S-AM is comparable in all 
substantive respects to the proposed rules published by the Agencies. 
The Background and Explanation of the Proposed Rules at Sections I-II 
above further describe the reasons why the regulation is being 
proposed.

B. Statement of Objectives and Legal Basis

    The proposed rules would implement Section 214 of the FACT ACT, 
which protects the privacy of consumer financial information by 
providing that consumers must receive notice and an opportunity to opt 
out before affiliated companies engage in marketing based on the 
sharing of certain consumer information. The objectives of the proposed 
rules are discussed in detail in the Background, Explanation of the 
Proposed Rules, and Section-by-Section Analysis at Sections I-III 
above. The legal basis for the proposed rules is Section 214 of the 
FACT Act,\109\ as well as Sections 17, 23, and 36 of the Exchange 
Act,\110\ Sections 31 and 38 of the Investment Company Act,\111\ and 
Sections 204 and 211 of the Investment Advisers Act.\112\
---------------------------------------------------------------------------

    \109\ Pub. L. 108-159, 117 Stat. 1952 (2003).
    \110\ 15 U.S.C. 78q, 78w, and 78mm.
    \111\ 15 U.S.C. 80a-30(a) and 80a-37.
    \112\ 15 U.S.C. 80b-4 and 80b-11.
---------------------------------------------------------------------------

C. Description of Small Entities to Which the Proposed Rules Would 
Apply

    The proposed rules would apply to any Covered Person that 
communicates eligibility information to an affiliate or receives 
eligibility information from an affiliate for the purpose of using the 
information to make marketing solicitations. Of the entities registered 
with the Commission, 808 broker-dealers, 233 investment companies, 579 
registered investment advisers, and 170 registered transfer agents are 
considered small entities.\113\ Only affiliated entities would be 
subject to the proposed rules. Although we estimate that 70% of all 
Covered Persons have affiliates, we have no means to predict how 
whether small entities differ significantly from larger entities in 
their rates of corporate affiliation. We invite comment from small 
entities that would be subject to the proposed rules. We invite comment 
generally regarding information that would help us to quantify the 
number of small entities that may be affected by the proposed rules.
---------------------------------------------------------------------------

    \113\ For purposes of the Regulatory Flexibility Act, under the 
Exchange Act a small entity is a broker or dealer that had total 
capital of less than $500,000 on the date of its prior fiscal year 
and is not affiliated with any person that is not a small entity. 17 
CFR 240.0-10. Under the Investment Company Act a ``small entity'' is 
an investment company that, together with other investment companies 
in the same group of related investment companies, has net assets of 
$50 million or less as of the end of its most recent fiscal year. 17 
CFR 270.0-10. Under the Investment Advisers Act, a small entity is 
an investment adviser that ``(i) manages less than $25 million in 
assets, (ii) has total assets of less than $5 million on the last 
day of its most recent fiscal year, and (iii) does not control, is 
not controlled by, and is not under common control with another 
investment adviser that manages $25 million or more in assets, or 
any person that had total assets of $5 million or more on the last 
day of the most recent fiscal year.'' 17 CFR 275.0-7. A small entity 
in the transfer agent context is defined to be any transfer agent 
that (i) received less than 500 items for transfer and less than 500 
items for processing during the preceding six months; (ii) 
transferred only items of issuers that would be deemed ``small 
businesses'' or ``small organizations'' under Rule 0-10 under the 
Exchange Act; (iii) maintained master shareholder files that in the 
aggregate contained less than 1,000 shareholder accounts at all 
times during the preceding fiscal year; and (iv) is not affiliated 
with any person (other than a natural person) that is not a small 
business or small organization under Rule 0-10. 17 CFR 240.0-10.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The proposed rules require entities subject to Section 624 of the 
FCRA to provide consumers with notice and an opportunity to opt out of 
affiliated persons' use of eligibility information for marketing 
purposes. The proposed rules require specific duties on the part of two 
groups of covered persons: communicating affiliates and receiving 
affiliates. The communicating affiliate would be responsible for 
providing the opt-out notice to consumers, as specified in the proposed 
rules. The receiving affiliate must not make marketing solicitations to 
consumers

[[Page 42317]]

who have opted out, as specified in the proposed rules.
    For those entities that provide the Section 624 notice in 
consolidation with notices under the GLB Act or other federally 
mandated disclosures, the proposed rules impose very limited additional 
reporting or recordkeeping requirements. However, for persons that 
choose to send the notices separately, the reporting and recordkeeping 
requirements may be more substantial. Although the proposed rules do 
not include specific recordkeeping requirements, in practice some 
system of recordkeeping must exist to ensure that any consumer opt-outs 
are honored.
    Any analysis of the impact of the FACT Act and the proposed 
implementing regulations must take into consideration that the law is 
limited in scope. First, the new law only applies to the use of 
eligibility information by affiliates for the purpose of making 
marketing solicitations. Thus, affiliates that market based solely upon 
their own information or without regard to eligibility information are 
not affected by this law. Second, the law provides a number of 
exceptions, including by permitting affiliated persons to market to 
consumers with whom they have a ``pre-existing business relationship'' 
or from whom they have received a request for information.
    A number of alternatives exist that could reduce the costs 
associated with compliance with the proposed rule. First, significant 
cost savings may be obtained by consolidating affiliate marketing 
notices with GLB Act privacy notices or with some other form of 
communication, such as account statements. In addition, we have 
included model forms for opt-out notices that would comply with the 
requirements of the proposed rules and that each person could customize 
to suit its needs if necessary. Furthermore, the proposed rules would 
permit affected persons to reduce recordkeeping requirements by 
offering a permanent opt-out from both the sharing of information 
between affiliates and from receiving marketing based on such sharing, 
which would be consistent with both the GLB Act and FCRA opt-outs as 
well as the affiliate marketing opt-out. Small entities may wish to 
consider whether consolidation of their notices and opt-outs can reduce 
their compliance costs. Similar considerations can reduce the burden of 
providing notice to new consumers. For example, small entities can 
combine affiliate marketing notices with account opening documents or 
initial privacy notices under the GLB Act in order to ensure that 
notices are delivered to new consumers without substantial additional 
efforts on the part of the affected person.
    The Commission is concerned about the potential impact of the 
proposed rules on small entities. We request comment on the potential 
impact of any or all of the provisions in the proposed rules, including 
any benefits and costs, that the Commission should consider, as well as 
the costs and benefits of any alternatives, paying special attention to 
the effect of the proposed rules on small entities in light of the 
above analysis. Costs to implement and to comply with the proposed 
rules could include any expenditure of time or money for, for example, 
employee training, legal counsel, or other professional time; for 
preparing and processing the notices; and for recording and tracking 
consumers' elections to opt out.

E. Identification of Other Duplicative, Overlapping, or Conflicting 
Federal Rules

    With the exception of the opt-out for affiliate sharing under 
Section 603(d)(2)(A)(iii) of the FCRA, we have been unable to identify 
any federal statutes or regulations that would duplicate, overlap, or 
conflict with the proposed rules. The overlap of the proposed rules 
with the affiliate sharing provisions of the FCRA is discussed in the 
Explanation of the Proposed Rules and the Section-by-Section Analysis 
at Sections II-III above. We seek comment regarding any other statute 
or regulation, including state or local statutes or regulations, that 
would duplicate, overlap, or conflict with the proposed rules.

F. Discussion of Significant Alternatives

    The Regulatory Flexibility Act directs the Commission to consider 
significant alternatives that would accomplish the stated objectives 
while minimizing any significant adverse impact on small businesses. In 
connection with the proposed rules, the Commission considered the 
following alternatives: (i) The establishment of differing compliance 
or reporting requirements or timetables that take into account the 
resources available to small entities; (ii) the clarification, 
consolidation, or simplification of compliance and reporting 
requirements under the proposed rules for small entities; (iii) the use 
of performance rather than design standards; and (iv) an exemption from 
coverage of the proposed rules, or any part thereof, for small 
entities.
    The Commission does not presently believe that an exemption from 
coverage or special compliance or reporting requirements for small 
entities would be consistent with the mandates of the FACT Act. Section 
214 of the FACT Act addresses the protection of consumer privacy, and 
consumer privacy concerns do not depend on the size of the entity 
involved. However, we have endeavored throughout the proposed rules to 
minimize the regulatory burden on all Covered Persons, including small 
entities, while meeting the statutory requirements. Small entities 
should benefit from the existing emphasis on performance rather than 
design standards throughout the proposed rules and the use of examples, 
including model forms for affiliate marketing notices. The Commission 
welcomes comment on any alternative system that would be consistent 
with the FACT Act but would minimize the impact on small entities. 
Comments should describe the nature of any impact on small entities and 
provide empirical data to support the existence of the impact.

VIII. Analysis of Effects on Efficiency, Competition, and Capital 
Formation

    Section 3(f) of the Exchange Act and Section 2(c) of the Investment 
Company Act require the Commission, whenever it engages in rulemaking 
and must consider or determine if an action is necessary or appropriate 
in the public interest, to consider, in addition to the protection of 
investors, whether the action would promote efficiency, competition, 
and capital formation. In addition, Section 23(a)(2) of the Exchange 
Act requires the Commission, when proposing rules under the Exchange 
Act, to consider the impact the proposed rules may have upon 
competition. Section 23(a)(2) of the Exchange Act prohibits the 
Commission from adopting any rule that would impose a burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Exchange Act.
    We do not believe the proposed rules would result in anti-
competitive effects. The proposed rules, which implement Section 214 of 
the FACT Act, would apply to all brokers, dealers, investment 
companies, registered investment advisers, and registered transfer 
agents. All other affiliated persons that make marketing solicitations 
based on the communication of eligibility information between 
affiliates would be subject to the substantially similar rules proposed 
by the Agencies. Therefore, all persons that engage in affiliate 
marketing based on eligibility information would be required to bear 
the costs of implementing the proposed rules or substantially similar 
rules. Although these costs would vary among

[[Page 42318]]

persons subject to proposed Regulation S-AM, we do not believe that the 
costs would be significantly greater for any particular entity or 
entities when calculated as a percentage of overall costs.
    Moreover, we believe the proposed rules would have little effect on 
efficiency and capital formation. We have estimated that the proposed 
rules would result in some additional costs for persons that make 
marketing solicitations based on the communication of eligibility 
information by affiliates and on the affiliates that communicate that 
information. Nevertheless, we believe the additional costs are small 
enough that they would not affect the efficiency of these entities.
    The Commission seeks comment regarding the impact of the proposed 
rules on efficiency, competition, and capital formation. For purposes 
of the Small Business Regulatory Enforcement Fairness Act of 1996, the 
Commission also requests information regarding the potential effect of 
the proposed rules on the U.S. economy on an annual basis. Commentators 
are requested to provide empirical data to support their views.

IX. Statutory Authority and Text of Proposed Rules

    The Commission is proposing Regulation S-AM under the authority set 
forth in Section 214 of the FACT Act,\114\ Sections 17, 23, and 36 of 
the Exchange Act,\115\ Sections 31 and 38 of the Investment Company 
Act,\116\ and Sections 204 and 211 of the Investment Advisers Act.\117\
---------------------------------------------------------------------------

    \114\ Pub. L. 108-159, section 214, 117 Stat. 1952 (2003).
    \115\ 15 U.S.C. 78q, 78w, and 78mm.
    \116\ 15 U.S.C. 80a-30(a) and 80a-37.
    \117\ 15 U.S.C. 80b-4 and 80b-11.
---------------------------------------------------------------------------

List of Subjects in 17 CFR Part 247

    Affiliate marketing, Brokers, Dealers, Investment advisers, 
Investment companies, Transfer agents, Reporting and recordkeeping 
requirements.

Text of Proposed Rules

    For the reasons set out in the preamble, the Commission proposes to 
amend Title 17, Chapter II of the Code of Federal Regulations by adding 
part 247 to read as follows:

PART 247--REGULATION S-AM: LIMITATIONS ON AFFILIATE MARKETING

Sec.
247.1 Purpose and scope.
247.2 Examples.
247.3 Definitions.
247.4 through 247.19 [Reserved]
247.20 Affiliate use of eligibility information for marketing.
247.21 Contents of opt-out notice.
247.22 Reasonable opportunity to opt out.
247.23 Reasonable and simple methods of opting out.
247.24 Delivery of opt-out notices.
247.25 Duration and effect of opt-out.
247.26 Extension of opt-out.
247.27 Consolidated and equivalent notices.

Appendix A to Part 247--Model Forms for Opt-Out Notices

    Authority: 15 U.S.C. 1681s-3 and note; 15 U.S.C. 78q, 78w, 78mm, 
80a-30(a), 80a-37, 80b-4, and 80b-11.


Sec.  247.1  Purpose and scope.

    (a) Purpose. The purpose of this part is to implement the affiliate 
marketing provisions in section 214 of the Fair and Accurate Credit 
Transactions Act of 2003, Pub. L. No. 108-159, 117 Stat. 1952 (2003) 
(``FACT Act''), which amends the Fair Credit Reporting Act.
    (b) Scope. This part applies to brokers, dealers, and investment 
companies and to investment advisers and transfer agents that are 
registered with the Commission. These entities are referred to in this 
part as ``you.''


Sec.  247.2  Examples.

    The examples in this part are not exclusive. The examples in this 
part provide guidance concerning the rule's application in ordinary 
circumstances. The facts and circumstances of each individual 
situation, however, will determine whether compliance with an example 
constitutes compliance with the applicable rule. Examples in a 
paragraph illustrate only the issue described in the paragraph and do 
not illustrate any other issue that may arise.


Sec.  247.3  Definitions.

    As used in this part, unless the context requires otherwise:
    (a) Affiliate of a broker, dealer, or investment company, or an 
investment adviser or transfer agent registered with the Commission 
means any person that is related by common ownership or common 
corporate control with the broker, dealer, or investment company, or 
the investment adviser or transfer agent registered with the 
Commission. In addition, a broker, dealer, or investment company, or an 
investment adviser or transfer agent registered with the Commission 
will be deemed an affiliate of a company for purposes of this part if:
    (1) That company is regulated under section 214 of the FACT Act, 
Pub. L. No. 108-159, 117 Stat. 1952 (2003), by a government regulator 
other than the Commission; and
    (2) Rules adopted by the other government regulator under section 
214 of the FACT Act treat the broker, dealer, or investment company, or 
investment adviser or transfer agent registered with the Commission as 
an affiliate of that company.
    (b) Broker has the same meaning as in section 3(a)(4) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)). A ``broker'' 
does not include a broker registered by notice with the Commission 
under section 15(b)(11) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o(b)(11)).
    (c) Clear and conspicuous means reasonably understandable and 
designed to call attention to the nature and significance of the 
information presented.
    (d) Commission means the Securities and Exchange Commission.
    (e) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association, or similar 
organization.
    (f) Consumer means an individual.
    (g) Control of a company means the power to exercise a controlling 
influence over the management or policies of a company whether through 
ownership of securities, by contract, or otherwise. Any person who owns 
beneficially, either directly or through one or more controlled 
companies, more than 25 percent of the voting securities of any company 
is presumed to control the company. Any person who does not own more 
than 25 percent of the voting securities of any company will be 
presumed not to control the company. Any presumption regarding control 
may be rebutted by evidence, but, in the case of an investment company, 
will continue until the Commission makes a decision to the contrary 
according to the procedures described in section 2(a)(9) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(9)).
    (h) Dealer has the same meaning as in section 3(a)(5) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)). A ``dealer'' 
does not include a broker registered by notice with the Commission 
under section 15(b)(11) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o(b)(11)).
    (i) Eligibility information means any information the communication 
of which would be a consumer report if the exclusions from the 
definition of ``consumer report'' in section 603(d)(2)(A) of the FCRA 
did not apply.
    (j) FCRA means the Fair Credit Reporting Act (15 U.S.C. 1681 et 
seq.).
    (k) GLB Act means the Gramm-Leach-Bliley Act (15 U.S.C. 6801 et 
seq.).
    (l) Investment adviser has the same meaning as in section 
202(a)(11) of the

[[Page 42319]]

Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)).
    (m) Investment company has the same meaning as in section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3), and includes a 
separate series of the investment company.
    (n) Marketing solicitation--(1) In general. Marketing solicitation 
means marketing initiated by a person to a particular consumer that is:
    (i) Based on eligibility information communicated to that person by 
its affiliate as described in this part; and
    (ii) Intended to encourage the consumer to purchase or obtain such 
product or service.
    (2) Exclusion of marketing directed at the general public. A 
marketing solicitation does not include communications that are 
directed at the general public and distributed without the use of 
eligibility information communicated by an affiliate. For example, 
television, magazine, and billboard advertisements do not constitute 
marketing solicitations, even if those communications are intended to 
encourage consumers to purchase products and services from the person 
initiating the communications.
    (3) Examples of marketing solicitations. A marketing solicitation 
would include, for example, a telemarketing call, direct mail, e-mail, 
or other form of marketing communication directed to a specific 
consumer that is based on eligibility information communicated by an 
affiliate.
    (o) Person means any individual, partnership, corporation, trust, 
estate, cooperative, association, government or governmental 
subdivision or agency, or other entity.
    (p) Pre-existing business relationship means a relationship between 
a person and a consumer based on:
    (1) A financial contract between the person and the consumer which 
is in force on the date on which the consumer is sent a marketing 
solicitation covered by this part;
    (2) The purchase, rental, or lease by the consumer of the person's 
goods or services, or a financial transaction (including holding an 
active account or a policy in force or having another continuing 
relationship) between the consumer and the person, during the 18-month 
period immediately preceding the date on which a marketing solicitation 
covered by this part is made or sent to the consumer; or
    (3) An inquiry or application by the consumer regarding a product 
or service offered by that person during the 3-month period immediately 
preceding the date on which a marketing solicitation covered by this 
part is made or sent to the consumer.
    (q) Transfer agent has the same meaning as in section 3(a)(25) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(25)).
    (r) You means:
    (1) Any broker or dealer;
    (2) Any investment company;
    (3) Any investment adviser registered with the Commission under the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.); and
    (4) Any transfer agent registered with the Commission under section 
17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1).


Sec. Sec.  247.4 through 247.19  [Reserved]


Sec.  247.20  Affiliate use of eligibility information for marketing.

    (a) General duties of a person communicating eligibility 
information to an affiliate--(1) Notice and opt-out. If you communicate 
eligibility information about a consumer to your affiliate, your 
affiliate may not use the information to make or send marketing 
solicitations to the consumer, unless prior to such use by the 
affiliate:
    (i) You provide a clear and conspicuous notice to the consumer 
stating that the information may be communicated to and used by your 
affiliate to make or send marketing solicitations to the consumer about 
its products and services;
    (ii) You provide the consumer a reasonable opportunity and a simple 
method to ``opt out'' of such use of that information by your 
affiliate; and
    (iii) The consumer has not chosen to opt out.
    (2) Rules of construction--(i) In general. The notice required by 
this paragraph may be provided either in the name of a person with 
which the consumer currently does or previously has done business or in 
one or more common corporate names shared by members of an affiliated 
group of companies that includes the common corporate name used by that 
person, and may be provided in the following manner:
    (A) You may provide the notice directly to the consumer;
    (B) Your agent may provide the notice on your behalf, so long as:
    (1) Your agent, if your affiliate, does not include any marketing 
solicitation other than yours on or with the notice, unless it falls 
within one of the exceptions in paragraph (c) of this section; and
    (2) Your agent gives the notice in your name or a common corporate 
name or names used by the family of companies; or
    (C) You may provide a joint notice with one or more of your 
affiliates or under a common corporate name or names used by the family 
of companies as provided in Sec.  247.24(c).
    (ii) Avoiding duplicate notices. If Affiliate A communicates 
eligibility information about a consumer to Affiliate B, and Affiliate 
B communicates that same information to Affiliate C, Affiliate B does 
not have to give an opt-out notice to the consumer when it provides 
eligibility information to Affiliate C, so long as Affiliate A's notice 
is broad enough to cover Affiliate C's use of the eligibility 
information to make marketing solicitations to the consumer.
    (iii) Examples of rules of construction. A, B, and C are 
affiliates. The consumer currently has a business relationship with 
Affiliate A, but has never done business with Affiliates B or C. 
Affiliate A communicates eligibility information about the consumer to 
B for purposes of making marketing solicitations. B communicates the 
information it received from A to C for purposes of making marketing 
solicitations. In this circumstance, the rules of construction would:
    (A) Permit B to use the information to make marketing solicitations 
if:
    (1) A has provided the opt-out notice directly to the consumer; or
    (2) B or C has provided the opt-out notice on behalf of A.
    (B) Permit B or C to use the information to make marketing 
solicitations if:
    (1) A's notice is broad enough to cover both B's and C's use of the 
eligibility information; or
    (2) A, B, or C has provided a joint opt-out notice on behalf of the 
entire affiliated group of companies.
    (C) Not permit B or C to use the information to make marketing 
solicitations if B has provided the opt-out notice only in B's own 
name, because no notice would have been provided by or on behalf of A.
    (b) General duties of an affiliate receiving eligibility 
information. If you receive eligibility information from an affiliate, 
you may not use the information to make or send marketing solicitations 
to a consumer, unless the consumer has been provided an opt-out notice, 
as described in paragraph (a) of this section, that applies to your use 
of eligibility information and the consumer has not opted out.
    (c) Exceptions. The provisions of this part do not apply if you use 
eligibility information you receive from an affiliate:
    (1) To make or send a marketing solicitation to a consumer with 
whom

[[Page 42320]]

you have a pre-existing business relationship as defined in Sec.  
247.3(p);
    (2) To facilitate communications to an individual for whose benefit 
you provide employee benefit or other services pursuant to a contract 
with an employer related to and arising out of the current employment 
relationship or status of the individual as a participant or 
beneficiary of an employee benefit plan;
    (3) To perform services on behalf of an affiliate, except that this 
shall not be construed as permitting you to make or send marketing 
solicitations on your behalf or on behalf of an affiliate if you or the 
affiliate, as applicable, would not be permitted to make or send the 
marketing solicitation as a result of the election of the consumer to 
opt out under this part;
    (4) In response to a communication initiated by the consumer 
orally, electronically, or in writing;
    (5) In response to an affirmative authorization or request by the 
consumer orally, electronically, or in writing to receive a marketing 
solicitation; or
    (6) If your compliance with this part would prevent you from 
complying with any provision of state insurance laws pertaining to 
unfair discrimination in any state in which you are lawfully doing 
business.
    (d) Examples of exceptions--(1) Examples of pre-existing business 
relationships.
    (i) If a consumer has an insurance policy with your insurance 
affiliate that is currently in force, your insurance affiliate has a 
pre-existing business relationship with the consumer and can therefore 
use eligibility information it has received from you to make marketing 
solicitations.
    (ii) If a consumer has an insurance policy with your insurance 
affiliate that has lapsed, your insurance affiliate has a pre-existing 
business relationship with the consumer for 18 months after the date on 
which the policy ceases to be in force and can therefore use 
eligibility information it has received from you to make marketing 
solicitations for 18 months after the date on which the policy ceases 
to be in force.
    (iii) If a consumer applies to your affiliate for a product or 
service, or inquires about your affiliate's products or services and 
provides contact information to your affiliate for receipt of that 
information, your affiliate has a pre-existing business relationship 
with the consumer for 3 months after the date of the inquiry or 
application and can therefore use eligibility information it has 
received from you to make marketing solicitations for 3 months after 
the date of the inquiry or application.
    (iv) If a consumer makes a telephone call to a centralized call 
center for an affiliated group of companies to inquire about the 
consumer's securities account, the call does not constitute an inquiry 
with any affiliate other than the broker-dealer that holds the 
consumer's securities account and does not establish a pre-existing 
business relationship between the consumer and any affiliate of the 
broker-dealer.
    (2) Examples of consumer-initiated communications. (i) If a 
consumer who has an account with you initiates a telephone call to your 
insurance affiliate to request information about insurance and provides 
contact information for receiving that information, your insurance 
affiliate may use eligibility information about the consumer it obtains 
from you to make marketing solicitations in response to the consumer-
initiated call.
    (ii) If your affiliate makes the initial marketing call, leaves a 
message for the consumer to call back, and the consumer responds, the 
communication is not initiated by the consumer, but by your affiliate.
    (iii) If the consumer calls your affiliate to ask about retail 
locations and hours, but does not request information about your 
affiliate's products or services, marketing solicitations by your 
affiliate using eligibility information about the consumer it obtains 
from you would not be responsive to the consumer-initiated 
communication.
    (3) Example of consumer affirmative authorization or request. If a 
consumer who obtains brokerage services from you requests or 
affirmatively authorizes information about life insurance from your 
insurance affiliate, such authorization or request, whether given to 
you or to your insurance affiliate, would permit your insurance 
affiliate to use eligibility information about the consumer it obtains 
from you to make marketing solicitations about life insurance to the 
consumer. A pre-selected check box would not satisfy the requirement 
for an affirmative authorization or request.
    (e) Prospective application. The provisions of this part shall not 
prohibit your affiliate from using eligibility information communicated 
by you to make or send marketing solicitations to a consumer if such 
information was received by your affiliate prior to [MANDATORY 
COMPLIANCE DATE PURSUANT TO THE FINAL RULE].
    (f) Relation to affiliate-sharing notice and opt-out. Nothing in 
this part limits the responsibility of a company to comply with the 
notice and opt-out provisions of section 603(d)(2)(A)(iii) of the FCRA 
before it shares information other than transaction or experience 
information among affiliates to avoid becoming a consumer reporting 
agency.


Sec.  247.21  Contents of opt-out notice.

    (a) In general. A notice must be clear, conspicuous, and concise, 
and must accurately disclose:
    (1) That the consumer may elect to limit your affiliate from using 
eligibility information about the consumer that it obtains from you to 
make or send marketing solicitations to the consumer;
    (2) If applicable, that the consumer's election will apply for a 
specified period of time and that the consumer will be allowed to 
extend the election once that period expires; and
    (3) A reasonable and simple method for the consumer to opt out.
    (b) Concise--(1) In general. For purposes of this part, the term 
``concise'' means a reasonably brief expression or statement.
    (2) Combination with other required disclosures. A notice required 
by this part may be concise even if it is combined with other 
disclosures required or authorized by federal or state law.
    (3) Use of model form. The requirement for a concise notice is 
satisfied by use of a model form contained in Appendix A of this part, 
although use of the model form is not required.
    (c) Providing a menu of opt-out choices. With respect to the opt-
out election, you may allow a consumer to choose from a menu of 
alternatives when opting out of affiliate use of eligibility 
information for marketing, such as by selecting certain types of 
affiliates, certain types of information, or certain methods of 
delivery from which to opt out, so long as you offer as one of the 
alternatives the opportunity to opt out with respect to all affiliates, 
all eligibility information, and all methods of delivery.
    (d) Alternative contents. If you provide the consumer with a 
broader right to opt out of marketing than is required by law, you 
satisfy the requirements of this section by providing the consumer with 
a clear, conspicuous, and concise notice that accurately discloses the 
consumer's opt-out rights. A model notice is provided in Appendix A of 
this part for guidance, although use of the model notice is not 
required.


Sec.  247.22  Reasonable opportunity to opt out.

    (a) In general. Before your affiliate uses eligibility information

[[Page 42321]]

communicated by you to make or send marketing solicitations to a 
consumer, you must provide the consumer with a reasonable opportunity, 
following the delivery of the opt-out notice, to opt out of such use by 
your affiliate.
    (b) Examples of a reasonable opportunity to opt out. You provide a 
consumer with a reasonable opportunity to opt out if:
    (1) By mail. You mail the opt-out notice to a consumer and give the 
consumer 30 days from the date you mailed the notice to elect to opt 
out by any reasonable means.
    (2) By electronic means. You notify the consumer electronically and 
give the consumer 30 days after the date that the consumer acknowledges 
receipt of the electronic notice to elect to opt out by any reasonable 
means.
    (3) At the time of an electronic transaction. You provide the opt-
out notice to the consumer at the time of an electronic transaction, 
such as a transaction conducted on an Internet Web site, and request 
that the consumer decide, as a necessary part of proceeding with the 
transaction, whether to opt out before completing the transaction, so 
long as you provide a simple process at the Internet Web site that the 
consumer may use at that time to opt out.
    (4) By including in a privacy notice. You include the opt-out 
notice in a GLB Act privacy notice and allow the consumer to exercise 
the opt-out within a reasonable period of time and in the same manner 
as the opt-out under the GLB Act, 15 U.S.C. 6801 et seq.
    (5) By providing an ``opt-in''. If you have a policy of not 
allowing an affiliate to use eligibility information to make or send 
marketing solicitations to the consumer unless the consumer 
affirmatively consents, you give the consumer the opportunity to ``opt 
in'' by affirmative consent to such use by your affiliate. You must 
document the consumer's affirmative consent. A pre-selected check box 
does not constitute evidence of the consumer's affirmative consent.


Sec.  247.23  Reasonable and simple methods of opting out.

    (a) Reasonable and simple methods of opting out. You provide a 
reasonable and simple method for a consumer to exercise a right to opt 
out if you:
    (1) Designate check-off boxes in a prominent position on the 
relevant forms included with the opt-out notice required by this part;
    (2) Include a reply form and a self-addressed envelope together 
with the opt-out notice required by this part;
    (3) Provide an electronic means to opt out, such as a form that can 
be electronically mailed or processed at your Web site, if the consumer 
agrees to the electronic delivery of information; or
    (4) Provide a toll-free telephone number that consumers may call to 
opt out.
    (b) Methods of opting out that are not reasonable or simple. You do 
not provide a reasonable and simple method for exercising an opt-out 
right if you:
    (1) Require the consumer to write his or her own letter to you;
    (2) Require the consumer to call or write to you to obtain a form 
for opting out, rather than including the form with the notice; or
    (3) Require the consumer who agrees to receive the opt-out notice 
in electronic form only, such as by electronic mail or at your Web 
site, to opt out solely by telephone or by paper mail.


Sec.  247.24  Delivery of opt-out notices.

    (a) In general. You must provide an opt-out notice so that each 
consumer can reasonably be expected to receive actual notice. For opt-
out notices you provide electronically, you may either comply with the 
electronic disclosure provisions in this part or with the provisions in 
Section 101 of the Electronic Signatures in Global and National 
Commerce Act, 15 U.S.C. 7001 et seq.
    (b) Examples of expectation of actual notice--(1) You may 
reasonably expect that a consumer will receive actual notice if you:
    (i) Hand-deliver a printed copy of the notice to the consumer;
    (ii) Mail a printed copy of the notice to the last known mailing 
address of the consumer; or
    (iii) For the consumer who obtains a product or service from you 
electronically, such as on an Internet Web site, post the notice on 
your electronic site and require the consumer to acknowledge receipt of 
the notice as a necessary step to obtaining a particular product or 
service.
    (2) You may not reasonably expect that a consumer will receive 
actual notice if you:
    (i) Only post a sign in your branch or office or generally publish 
advertisements presenting your notice; or
    (ii) Send the notice via electronic mail to a consumer who has not 
agreed to the electronic delivery of information.
    (c) Joint notice with affiliates--(1) In general. You may provide a 
joint notice from you and one or more of your affiliates, as identified 
in the notice, so long as the notice is accurate with respect to you 
and each affiliate.
    (2) Identification of affiliates. You do not have to list each 
affiliate providing the joint notice by its name. If each affiliate 
shares a common name, such as ``ABC,'' then the joint notice may state 
that it applies to ``all institutions with the ABC name'' or ``all 
affiliates in the ABC family of companies.'' If, however, an affiliate 
does not have ABC in its name, then the joint notice must separately 
identify each family of companies with a common name or the 
institution.
    (d) Joint relationships--(1) In general. If two or more consumers 
jointly obtain a product or service from you (joint consumers), the 
following rules apply:
    (i) You may provide a single opt-out notice.
    (ii) Any of the joint consumers may exercise the right to opt out.
    (iii) You may either:
    (A) Treat an opt-out direction by a joint consumer as applying to 
all of the associated joint consumers; or
    (B) Permit each joint consumer to opt out separately.
    (iv) If you permit each joint consumer to opt out separately, you 
must permit:
    (A) One of the joint consumers to opt out on behalf of all of the 
joint consumers; and
    (B) One or more joint consumers to notify you of their opt-out 
directions in a single response.
    (v) You must explain in your opt-out notice which of the policies 
in paragraph (d)(1)(iii) of this section you will follow, as well as 
the information required by paragraph (d)(1)(iv) of this section.
    (vi) You may not require all joint consumers to opt out before you 
implement any opt-out direction.
    (vii) If you receive an opt-out by a particular joint consumer that 
does not apply to the others, you may use eligibility information about 
the others as long as no eligibility information is used about the 
consumer who opted out.
    (2) Example. If consumers A and B, who have different addresses, 
have a joint checking account with you and arrange for you to send 
statements to A's address, you may do any of the following, but you 
must explain in your opt-out notice which opt-out policy you will 
follow. You may send a single opt-out notice to A's address and:
    (i) Treat an opt-out direction by A as applying to the entire 
account. If you do so and A opts out, you may not require B to opt out 
as well before implementing A's opt-out direction.
    (ii) Treat A's opt-out direction as applying to A only. If you do 
so, you must also permit:

[[Page 42322]]

    (A) A and B to opt out for each other; and
    (B) A and B to notify you of their opt-out directions in a single 
response (such as on a single form) if they choose to give separate 
opt-out directions.
    (iii) If A opts out only for A, and B does not opt out, your 
affiliate may use information only about B to send marketing 
solicitations to B, but may not use information about A and B jointly 
to send marketing solicitations to B.


Sec.  247.25  Duration and effect of opt-out.

    (a) Duration of opt-out. The election of a consumer to opt out 
shall be effective for the opt-out period, which is a period of at 
least 5 years beginning as soon as reasonably practicable after the 
consumer's opt-out election is received. You may establish an opt-out 
period of more than 5 years, including an opt-out period that does not 
expire unless the consumer revokes it in writing, or if the consumer 
agrees, electronically.
    (b) Effect of opt-out. A receiving affiliate may not make or send 
marketing solicitations to a consumer during the opt-out period based 
on eligibility information it receives from an affiliate, except as 
provided in the exceptions in Sec.  247.20(c) or if the opt-out is 
revoked by the consumer.
    (c) Time of opt-out. A consumer may opt out at any time.
    (d) Termination of relationship. If the consumer's relationship 
with you terminates when a consumer's opt-out election is in force, the 
opt-out will continue to apply indefinitely, unless revoked by the 
consumer.


Sec.  247.26  Extension of opt-out.

    (a) In general. For a consumer who has opted out, a receiving 
affiliate may not make or send marketing solicitations to the consumer 
after the expiration of the opt-out period based on eligibility 
information it receives or has received from an affiliate, unless the 
person responsible for providing the initial opt-out notice, or its 
successor, has given the consumer an extension notice and a reasonable 
opportunity to extend the opt-out, and the consumer does not extend the 
opt-out.
    (b) Duration of extension. Each opt-out extension shall comply with 
Sec.  247.25.
    (c) Contents of extension notice. The notice provided at extension 
must be clear, conspicuous, and concise, and must accurately disclose 
either:
    (1) The same contents specified in Sec.  247.21(a) for the initial 
notice, along with a statement explaining that the consumer's previous 
opt-out has expired or is about to expire, as applicable, and that the 
consumer must opt out again if the consumer wishes to keep the opt-out 
election in force; or
    (2) Each of the following items:
    (i) That the consumer previously elected to limit your affiliate 
from using information about the consumer that it obtains from you to 
make or send marketing solicitations to the consumer;
    (ii) That the consumer's election has expired or is about to 
expire, as applicable;
    (iii) That the consumer may elect to extend the consumer's previous 
election; and
    (iv) A reasonable and simple method for the consumer to opt out.
    (d) Timing of the extension notice--(1) In general. An extension 
notice may be provided to the consumer either:
    (i) A reasonable period of time before the expiration of the opt-
out period; or
    (ii) Any time after the expiration of the opt-out period but before 
any affiliate makes or sends marketing solicitations to the consumer 
that would have been prohibited by the expired opt-out.
    (2) Reasonable period of time before expiration. Providing an 
extension notice on or with the last annual privacy notice required by 
the GLB Act that is provided to the consumer before expiration of the 
opt-out period shall be deemed reasonable in all cases.
    (e) No effect on opt-out period. The opt-out period may not be 
shortened to a period of less than 5 years by sending an extension 
notice to the consumer before expiration of the opt-out period.


Sec.  247.27  Consolidated and equivalent notices.

    (a) Coordinated and consolidated notices. A notice required by this 
part may be coordinated and consolidated with any other notice or 
disclosure required to be issued under any other provision of law, 
including but not limited to the notice described in section 
603(d)(2)(A)(iii) of the FCRA and the GLB Act privacy notice.
    (b) Equivalent notices. A notice or other disclosure that is 
equivalent to the notice required by this part, and that you provide to 
a consumer together with disclosures required by any other provision of 
law, shall satisfy the requirements of this part.

Appendix A to Part 247--Model Forms for Opt-Out Notices

A-1 Model Form for Initial Opt-Out Notice
A-2 Model Form for Extension Notice
A-3 Model Form for Voluntary ``No Marketing'' Notice

A-1--Model Form for Initial Opt-Out Notice

Your Choice To Limit Marketing

     You may limit our affiliates from marketing their 
products or services to you based on information that we share with 
them, such as your income, your account history with us, and your 
credit score.
     [Include if applicable.] Your decision to limit 
marketing offers from our affiliates will apply for 5 years. Once 
that period expires, you will be allowed to extend your decision.
     [Include if applicable.] This limitation does not apply 
in certain circumstances, such as if you currently do business with 
one of our affiliates or if you ask to receive information or offers 
from them.
    To limit marketing offers [include all that apply]:

     Call us toll-free at 877--
; or
     Visit our Web site at http://www.websiteaddress.com; or
     Check the box below and mail it to:

    [Company name]
    [Company address]

    --I do not want your affiliates to market their products or 
services to me based on information that you share with them.

A-2--Model Form for Extension Notice

Extending Your Choice To Limit Marketing

     You previously chose to limit our affiliates from 
marketing their products or services to you based on information 
that we share with them, such as your income, your account history 
with us, and your credit score.
     Your choice has expired or is about to expire.
     [Include if applicable.] This limitation does not apply 
in certain circumstances, such as if you currently do business with 
one of our affiliates or if you ask to receive information or offers 
from them.
    To extend your choice for another 5 years [include all that 
apply]:

     Call us toll-free at 877--
; or
     Visit our Web site at http://www.websiteaddress.com; or
     Check the box below and mail it to:

    [Company name]
    [Company address]

    --I want to extend my choice for another 5 years.

A-3--Model Form for Voluntary ``No Marketing'' Notice

Your Choice To Stop Marketing

     You may choose to stop all marketing offers from us and 
our affiliates.
    To stop all marketing offers [include all that apply]:

     Call us toll-free at 877--
; or
     Visit our Web site at www.websiteaddress.com; or
     Check the box on the form below and mail it to:

    [Company name]
    [Company address]

    --I do not want you or your affiliates to send me marketing 
offers.

    Dated: July 8, 2004.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.

[FR Doc. 04-15875 Filed 7-13-04; 8:45 am]
BILLING CODE 8010-01-P