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Judge Upholds Tough Credit Data Rules

A federal judge has upheld the government's contention that under the Gramm-Leach-Bliley law, consumers can opt out of the sale or trade of header information on their credit reports.

In a decision dated April 30 but released yesterday, Judge Ellen Segal Huvelle upheld federal regulators' interpretation of the 1999 law restricting disclosure of “personally identifiable financial information.” The Federal Trade Commission and other government agencies interpreted that restriction to include basic consumer data, such as name, address, telephone number and Social Security number, available through the header of credit reports.

An industry group made up of heavy hitters in the data industry — including Trans Union LLC, Acxiom Corp., Equifax Inc. and First Data Solutions — challenged the interpretation in federal court. List firms and direct marketers commonly use such information to confirm consumer addresses.

If Huvelle's decision survives possible legal appeals, credit header information would not be permitted to be sold or otherwise disclosed unless consumers receive notice of their right to opt out. The rules will go into effect July 1 unless Huvelle or an appeals court grants a stay. However, appeals of Huvelle's ruling could extend the case many months past that date.

Emilio Cividanes, an attorney representing the Individual References Services Group, the group of data firms that issued the challenge, said the group is considering its options.

FTC attorney John Daly said federal regulators are prepared to defend against any appeals. The federal agencies believe that their interpretation of the law reflects what Congress intended when it drew up Gramm-Leach-Bliley.

“The statute represents a congressional compromise based on what consumers care about,” Daly said.

But Cividanes said the government overstepped its authority in its interpretation. Information in credit report headers is not financial in nature and thus is outside the bounds of the restrictions, he said.

Industry watchers said the new rules, once they take effect, could have an immediate impact on direct marketers.

“In terms of information sources, they're beginning to tighten the noose a little bit,” said Robert Gellman, a privacy attorney in Washington. “You're really cutting off the information sources these companies rely on.”

Huvelle's decision eventually could result in increased cost for both direct marketers and consumers, said Lou Mastria, spokesman for the Direct Marketing Association. The ruling will lead to an increase in the amount of direct mail materials sent to incorrect addresses, causing an increase in marketing costs that eventually will be passed on to consumers.

“We really haven't had a chance to digest this,” Mastria said. “But preliminarily I will tell you that this will have an impact on the direct marketing industry.”

Data collectors have suffered recent legal setbacks that have damaged their ability to gather consumer information. In April, a federal appeals court upheld an FTC order for national credit bureau Trans Union to cease sales of specific credit data to unauthorized marketers.

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