Volume 13 Issue 3 -- May/June 2001
Buried in a bank deregulation law called the Gramm-Leach-Bliley Act of 1999 is a set of legal requirements intended to protect “consumer privacy.” Effective July 1, 2001, these requirements apply broadly to a variety of “financial service” providers.
Why is Tax & Business Insights even mentioning this subject? As it turns out, many accountants and some attorneys could be engaged in providing “financial services” without even knowing it!
Although designed primarily to apply to banks, insurance companies, stock brokers, some real estate companies, and the like, the law actually casts a much wider net.
In essence, the law requires that companies offering financial services to consumers must provide their customers with notice of their “privacy policies” and, in some cases, give the customers an opportunity to prevent the release of their personal financial information to certain third parties. Another part of the law creates criminal sanctions for certain types of conduct in the gathering and disseminating of such information.
The law is designed to prevent a financial institution from releasing to third parties, whether or not affiliated, any personal financial information unless the customer has received prior notice of the financial institution’s policies and practices relating to: (i) disclosing to affiliates and nonaffiliated parties nonpublic information of present and past customers; and (ii) protecting the nonpublic personal information of consumers.
The law defines the types of financial activities that become subject to the law in a way that carries the application of the law far beyond the types of businesses that most people think of as “financial institutions.”
For example, included in the scope of financial service providers subject to the law is anyone, such as an accountant, who regularly engages in the business of preparing income tax returns or providing tax planning services. Also included are some businesses that provide real estate settlement services.
Even though the Federal Trade Commission (FTC) and other federal financial institution regulators have issued regulations to implement the law, there remain a number of questions about how far the law goes in covering the traditional tax and real estate practices of attorneys and accountants.
One point is clear: the law only applies to “consumer” transactions. Those providing financial services solely to “business” customers are not covered. But what about providing tax preparation services to a sole proprietor? Is that a business or consumer transaction? The answer is uncertain.
Similarly, the law talks only about “real estate settlement services.” Does that mean it applies to all attorneys who handle real estate closings? That too is not clear.
Ostensibly, attorneys who provide significant tax planning services to individuals as part of their practice are subject to the law, as may be accountants who provide individual financial management or planning services.
For those who are subject to the law, the first notices must be given by July 1, 2001. The FTC regulations spell out in considerable detail what the notices must provide and when the notices must be given. Generally, notices must be given at the commencement of the relationship with the consumer and annually thereafter so long as the relationship continues.
In some cases, privacy notices may be required where potential clients may disclose nonpublic information prior to becoming clients, even if they never become clients.
For attorneys and accountants without affiliates who do not intend to disclose any nonpublic information about their clients, except as permitted by law in the course of providing their professional services, a relatively short notice may be all that is required.
The FTC explanations accompanying the regulations give a useful example of such a notice. Click here to see that example.
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