New Requirements Have Potentially Significant Impact on the Provision of Notice and Administration of Customer Loyalty Programs 

  • The California Attorney General Xavier Becerra on Oct. 10, 2019, released the proposed text for the California Consumer Privacy Act (CCPA) Regulations. The following day, Gov. Gavin Newsom signed into law five amendments to the Act, and laws to regulate data brokers and social media accounts.
  • The proposed regulations are intended to guide businesses on how to comply with CCPA with a focus on notices to consumers, business practices for handling consumer requests, verification of requests, special rules regarding minors and nondiscrimination.
  • Public comments on the draft regulations are due on Dec. 6, 2019, at 5 p.m. PST. The Attorney General will hold four public hearings to address the regulations during the first week of December.

The California Attorney General Xavier Becerra on Oct. 10, 2019, released the proposed text for the California Consumer Privacy Act Regulations (Regulations). The Regulations are intended to guide businesses on CCPA compliance with a focus on five areas: notices to consumers, business practices for handling consumer requests, verification of requests, special rules regarding minors and nondiscrimination. The following day, Gov. Gavin Newsom signed into law five amendments to the Act, and laws to regulate data brokers and social media accounts. (See Holland & Knight's previous alert, "Hospitality Industry Prepares for Slate of New Consumer Privacy Protections," Oct. 7, 2019.)

Industry has until Dec. 6, 2019, to submit comments on the Regulations, and the Attorney General will hold four public hearings to address the Regulations, on Dec. 2 in Sacramento, Dec. 3 in Los Angeles, Dec. 4 in San Francisco and Dec. 5 in Fresno. While CCPA becomes operational on Jan. 1, 2020, enforcement of the law will not occur until the regulations have been finalized, but no later than July 1, 2020.

CCPA's Proposed Regulations: Key Takeaways

Consumer Notice Separate from Privacy Policy?

Many businesses had interpreted CCPA's notice requirement as satisfied through provision of a privacy policy. The Regulations, however, introduce ambiguity around consumer disclosures by discussing notice requirements separately from a privacy policy. § 999.305(c). This raises operational questions related to the provision of notice that are unanswered in the Regulations. In response, some businesses may elect to proceed with a separate stand-alone notice, perhaps as a pop-up or banner, which directs consumers to a linked privacy policy.

An "Easy to Read" Notice Could be a Tall Order

The Regulations emphasize that both notices and privacy policies should be straightforward and in "plain English" in order to provide consumers with a clear description of a business' online and offline practices regarding collection, use, disclosure and sale of personal information, and also explain consumers' access and request rights.

That instruction is in tension with the complicated definitions that CCPA assigns to key terms. For instance, because "sale" is defined under Civil Code Section 1798.140(t)(1) more broadly than that word is normally used or understood, a business may reasonably struggle to explain its practices in language familiar to consumers.

Drafting a "plain English" disclosure is all the more challenging given the level of granularity that the Regulations specify must be included in notices to consumers and a company's privacy policy. A privacy policy alone, for instance, is now required to:

  • list the categories of personal information (which alone is defined to include 30-plus data points under Civil Code Section 1798.140(o)(1)) that the business has collected about consumers in the prior 12 months, § 999.308(b)(1)(d)(1)
  • for each category of personal information, provide: 1) the "categories of sources" from which the information was collected, 2) the business or commercial purpose for which the information was collected, and 3) the categories of third parties with whom the business shares personal information, § 999.308(b)(1)(d)(2)
  • explain that a consumer has the right to request that the business disclose what categories of personal information it collects, uses, discloses and sells, and to share the information specific to the consumer held by the business, § 999.308(b)(1)-(3)
  • explain that a consumer has the right to request that the business delete his or her personal information
  • explain that a consumer has the right to request that the business not sell his or her personal information to third parties
  • explain that a consumer has the right not to be discriminated against for exercising his or her rights under the CCPA, § 999.308(b)(4)
  • describe how a consumer can submit a request exercising his or her rights and the process that the business will use to verify such request, including any information the consumer, or his or her authorized agent, will need to provide, § 999.308(b)(1); § 999.308(b)(5)
  • explain any financial incentive or price or service difference offered by the business, and why it is reasonably related to the value of the consumer's data to the business, § 999.305(b); § 999.336(e)

In addition:

  • If an incentive is offered, a business must further provide a good faith estimate of the value of the consumer's data and a description of the method used to calculate that amount. § 999.307(b)(5)
  • Despite the Act's prohibition against selling the personal information of minors without affirmative authorization [Civil Code § 1798.120(d)], the Regulations require a business to state whether or not it sells personal information of minors under 16 years of age without affirmative authorization. § 999.308(b)(1)(e)(3)

The Regulations Complicate Administration of Customer Loyalty Programs

The CCPA prohibits a business from discriminating against consumers — denying goods or services, charging different prices or rates for goods or services, or providing a different level or quality of goods or services to the consumer — for exercising their rights under CCPA. Civil Code § 1798.125. The Act includes an exception however. A business may offer a financial incentive or price or service difference in exchange for retention or sale of a consumer's personal information, provided that the incentive or price or service difference is reasonably related to the value of the consumer's data. Civil Code § 1798.125(a)(2) (as amended in AB 1355); Reg. § 999.336(a)-(b)

A few examples are illustrative:

  1. A hotel offers standard-speed Wi-Fi for free and a premium service that costs $5 per night. If only the consumers who pay for Wi-Fi are allowed to opt-out of the sale of their personal information, then the practice is discriminatory, unless the $5 per night payment is reasonably related to the value of the consumer's data to the business.
  2. An amusement park offers discounted prices to consumers who sign up to be on its mailing list. If the consumer on the mailing list can continue to receive discounted ticket prices even after she has made a request to know, request to delete, and/or request to opt-out, the differing price level is not discriminatory.

See Reg. § 999.336(c)

Calculating "the value of the consumer's data" presents its own challenge. The Regulations list eight methods of calculation. § 999.337(b). The broadest permissible method — "any other practical and reliable method of calculation used in good-faith" — would seem to offer businesses flexibility, but it also gives the Attorney General significant authority to interpret how it is applied.

Changes to Business Practices

The Regulations include new requirements and restrictions that a business must consider in complying with the CCPA, including responding to consumer requests, training employees and record keeping. The following are key changes to business practices that are described in the Regulations:

  • Responding to Consumer Requests: A business is prohibited from providing certain data elements in response to consumer access requests, if disclosure creates a "substantial, articulable and unreasonable risk of security" to the personal information, the consumer's account, or the security of the business' systems. § 999.313(c)(3). Though this standard is not defined in the CCPA or the Regulations, businesses will need to have a mechanism for determining whether disclosure of data would meet this threshold and providing an appropriate response to a consumer request. The Regulations also prohibit a business from providing a social security number, driver's license, financial account number, health insurance/medical ID number, account password, security questions/answers in responding to an access request. § 999.313(c)(3)-(4)
  • Training: Business must provide training on the CCPA and the Regulations to individuals responsible for handling the business' consumer inquiries. § 999.317(a)
  • Record keeping: The Regulations also include new record-keeping requirements. A business must maintain records of consumer requests and how it responded for 24 months. § 999.317(b), (c). Additional record keeping and disclosure requirements exist for businesses that annually buy, receive, sell or share the personal information of 4 million or more consumers. § 999.317(g). The Regulations provide no guidance about how to determine the number of consumers touched by a business. It is unclear, for instance, whether a business must count all subscribers to marketing emails separately from social media engagement, even though there is likely substantial overlap between the two groups. Or would a business be required to take steps to reconcile various databases and pinpoint geography for those users, in order to make a good faith determination that the 4 million threshold does not apply.

Either way, a business that meets the 4 million consumer threshold must:

  1. compile for the previous calendar year a) the number of requests to know that the business received, complied with in whole or in part, and denied; b) the number of requests to delete that the business received, complied with in whole or in part, and denied; c) the number of requests to opt-out that the business received, complied with in whole or in part, and denied; and d) the median number of days within which the business substantively responded to requests to know, requests to delete, and requests to opt-out.
  2. disclose the compiled information within the business' privacy policy or post it on the business' website and make the information accessible from a link included in their privacy policy.
  3. establish, document and comply with a training policy to ensure that all individuals responsible for handling consumer requests or the business' compliance with the CCPA are informed of all the requirements in these regulations and the CCPA.

See § 999.317(g).

Do Not Sell Requirements

While the State Attorney General has yet to release details regarding the appearance of the Do Not Sell button, the Regulations do provide guidance and clarity on the Act's opt-out requirement, and the new requirement to opt a consumer back in after a business processes an earlier Do Not Sell request.

  1. "Do Not Sell" Requirements: Under the CCPA, a business is required to provide two or more methods for consumers to submit requests to opt-out, "including, at a minimum, an interactive webform accessible via a clear and conspicuous link titled 'Do Not Sell My Personal Information,' or 'Do Not Sell My Info,' on the business's website or mobile application." Civil Code § 1798.135. A business can offer additional methods for submitting these requests, such as a designated email address, but at least one of the methods must reflect the manner in which the business primarily interacts with the consumer.
  2. Do Not Track: User-enabled privacy controls, such as a browser plugin or privacy setting, that signal a consumer's choice to opt-out of the sale of their personal information constitute a valid and direct opt-out request for that browser, device or consumer. § 999.315(c). Given the absence of an industry standard as to how such "signals" work or are communicated, however, it is unclear how this new requirement can be implemented with any consistency.
  3. Authorized Agent: A consumer may use an authorized agent to submit a request to opt-out by providing the authorized agent with written permission. A business may deny a request from an agent who does not submit proof that he or she is authorized to act on the consumer's behalf. § 999.315(g).
  4. Key Timing Requirements: A business must act upon a request to opt-out no later than 15 days from receipt. § 999.315(e). A business must also notify all third parties to whom it has sold the consumer's personal information within 90 days from when the business received the consumer's opt-out request and instruct them not to further sell the information, and notify the consumer when this has been completed. § 999.315(f).
  5. Unverified Requests: Opt-out requests need not be a "verifiable consumer request." A business, however, may deny a request if it has a good-faith and reasonable belief the request is fraudulent. § 999.315(h). That decision should be documented, and the business should inform the requesting party that the request has been denied and provide an explanation for why the business believes the request is fraudulent.
  6. Consequences for Omitting Do Not Sell Link: If a business states in its privacy policy that it "does not sell" personal information, or if it does not have a Do Not Sell link on its website, consumers are deemed to have validly submitted a request to opt-out. § 999.306(d)(2). Practically speaking, this means that a business could not later decide to "sell" consumers' personal information without first obtaining a clear confirmation from the consumer of his or her new choice to opt in.
  7. Two-Step Process for Opting-In After a Prior Opt-Out: Businesses must use a two-step opt-in process for the sale of personal information whereby the consumer clearly requests to opt-in, and then separately confirms his or her choice. A business is allowed to inform a consumer who has opted-out that a transaction requires the sale of their personal information as a condition of completing the transaction and provide instructions for opting-in. § 999.316(a)-(b)
  8. Third Party Obligations Before Reselling Personal Information: A company that resells personal information received from a CCPA-covered business, must, before it sells personal information: 1) contact the consumer directly to give notice that it sells personal information about the consumer and provide an opportunity for the consumer to opt-out; or 2) contact the business and confirm notice and an opportunity to opt-out was provided to the consumer at the point of collection, and obtain a signed attestation from the collecting business describing how it gave notice and an example of such notice. The third party must maintain the attestation for two years and make it available to the consumer upon request. § 999.305(d)

Requests to Access or Delete Household Information

The Regulations clean up a definitional gap in CCPA and define "household" as a person or group of people occupying a single dwelling. § 999.301(h). If a consumer does not have a password-protected account with the business, a business may respond to a request to know or delete as it relates to the household by providing aggregate personal information (subject to verification requirements detailed below). A business must comply with such a request if all consumers of the household jointly request access to specific pieces or deletion of household personal information, and the business can individually verify all members of the household. § 999.318(a)-(b). Treating consumers as individuals and as part of a group could cause confusion and duplication regarding requests and responses.

Verifying Consumer Requests

The Regulations detail stringent requirements for verification of consumer requests. A business is required to establish a method to verify the identity of consumers making access or deletion requests. § 999.323(a). This can include matching identifying information provided by the consumer to the personal information held by the business or by using a third-party identity verification service. § 999.323(b)(1). Alternatively, a business can verify a consumer's identity through existing authentication practices for the consumer's password-protected account, as long as the consumer re-authenticates themselves before a business discloses or deletes data. § 999.324(a).

A business must deny a consumer's request, however, if it suspects fraudulent or malicious activity on or from the password-protected account, which places the onus businesses to make a determination about what should be considered suspect activity. § 999.324(a)-(b). If a business has no reasonable method to verify the identity of the consumer, the business may decline the request and must explain why in its response. § 999.325(f).

In keeping with the principles of CCPA, businesses are encouraged to minimize data collection for verification purposes and protect consumer data. § 999.323(c). Specifically, businesses are required to implement "reasonable security measures" to detect fraudulent identity-verification activity and prevent unauthorized access to a consumer's personal information. § 999.323(d). What constitutes "reasonable security measures" will likely depend on the personal information held by a business.

Conclusion

While these proposed Regulations offer guidance about how businesses can comply with CCPA, it remains unclear how California's Attorney General will interpret and enforce key CCPA provisions. The Attorney General is expected to secure additional funding in the coming years to support staff dedicated to CCPA. However, the 2020 ballot measure on privacy proposed by Alastair Mactaggart in September 2019 adds another element of uncertainty for businesses determining compliance strategies.

Despite this uncertainty, companies should use the next 60 days before the law becomes operational on Jan. 1, 2020, to become familiar with the CCPA and these Regulations, identify questions and gaps posed by the law, develop and implement compliance plans, and to train employees.