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Thursday, October 6, 2016

Eligibility Information in Affiliate Marketing

We are a bank that was recently cited for violations of affiliate marketing procedures. We did not have a pre-existing business relationship, but it seems that our violation also was caused by our use of “eligibility information.” What is “eligibility information?” Also, how is it a factor in affiliate marketing?

A consumer has the right to restrict affiliate marketing from a financial institution, where the former does not have a pre-existing business relationship with the latter. The restriction applies to using certain information obtained from an affiliate to make solicitations to that consumer. This provision is distinct from giving a consumer the right to restrict the sharing of certain consumer information among affiliates. [Section 603(d)(2)(A)(iii)]

A financial institution may not use information received from an affiliate to market its products or services to a consumer, unless the consumer is given notice and a reasonable opportunity and a reasonable and simple method to opt out of the making of such solicitations. The affiliate marketing opt-out applies to both “transaction” or “experience” and “other” information, such as information from credit reports and credit applications.

To be clear, exceptions to the notice and opt out requirements apply when an entity uses “eligibility information” in certain ways. Eligibility information includes not only transaction and experience information, but also the type of information found in consumer reports, such as information from third party sources and credit scores. Eligibility information does not include aggregate or blind data that does not contain personal identifiers such as account numbers, names, or addresses. [12 CFR 571.20(b)(3)]

Specifically, “eligibility information” is defined in the affiliate marketing regulation as 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 Fair Credit Reporting Act do not apply.

With respect to the pre-existing business relationship, a financial institution establishes this relationship based on:
  • A financial contract between the person and the consumer which is in force on the date on which the consumer is sent a solicitation covered by the affiliate marketing regulation;
  • 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 the consumer is sent a solicitation covered by the affiliate marketing regulation; or
  • 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 the consumer is sent a solicitation covered by the affiliate marketing regulation. 

One of the regulatory triggers for affiliate marketing violations is in the area of solicitations, which is the marketing of a product or service initiated by a person, such as a financial institution, to a particular consumer that is:
  • Based on eligibility information communicated to that person by its affiliate; and
  • Intended to encourage the consumer to purchase or obtain such product or service. [12 CFR 571.20(b)(5)]

Examples of a solicitation include a telemarketing call, direct mail, e-mail, or other form of marketing communication directed to a particular consumer that is based on eligibility information received from an affiliate. A solicitation does not include marketing communications that are directed at the general public (i.e., television, general circulation magazine, and billboard advertisements).

Jonathan Foxx
Managing Director
Lenders Compliance Group