```

[Senate Report 111-110]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 208
111th Congress                                                   Report
                                 SENATE
 1st Session                                                    111-110

======================================================================

 
             PERSONAL DATA PRIVACY AND SECURITY ACT OF 2009

                                _______
                                

               December 17, 2009.--Ordered to be printed

                                _______
                                

Mr. Leahy, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                         [To accompany S. 1490]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 1490), to prevent and mitigate identity theft, to 
ensure privacy, to provide security protections for personal 
data, to provide notice of security breaches, and to enhance 
criminal penalties, law enforcement assistance, and other 
protections against security breaches, fraudulent access, and 
misuse of personally identifiable information, having 
considered the same, reports favorably thereon, with an 
amendment, and recommends that the bill, as amended, do pass.

                                CONTENTS

                                                                   Page
  I. Background and Purpose of the Personal Data Privacy and Security 
     Act of 2009......................................................1
 II. History of the Bill and Committee Consideration..................8
III. Section-by-Section Summary of the Bill..........................10
 IV. Congressional Budget Office Cost Estimate.......................18
  V. Regulatory Impact Evaluation....................................23
 VI. Conclusion......................................................23
VII. Minority Views..................................................25
VIII.Changes to Existing Law Made by the Bill, as Reported...........30

I. Background and Purpose of the Personal Data Privacy and Security Act 
                                of 2009

                               A. SUMMARY

    Advanced technologies, combined with the realities of the 
post-9/11 digital era, have created strong incentives and 
opportunities for collecting and selling personal information 
about ordinary Americans. Today, private sector and 
governmental entities alike routinely traffic in billions of 
electronic personal records about Americans. Americans rely on 
this data to facilitate financial transactions, provide 
services, prevent fraud, screen employees, investigate crimes, 
and find loved ones. The Government also relies upon this 
information to enhance national security and to combat crime.
    The growing market for personal information has also become 
a treasure trove that is both valuable and vulnerable to 
identity thieves. As a result, the consequences of a data 
security breach can be quite serious. For Americans caught up 
in the endless cycle of watching their credit unravel, undoing 
the damage caused by security breaches and identity theft can 
become a time-consuming and lifelong endeavor. In addition, 
while identity theft is a major privacy concern for most 
Americans, the use and collection of personal data by 
Government agencies can have an even greater impact on 
Americans' privacy. The loss or theft of Government data can 
potentially expose ordinary citizens, Government employees, and 
members of the armed services alike to national security and 
personal security threats.
    Despite these well-known dangers, the Nation's privacy laws 
lag far behind the capabilities of technology and the cunning 
of identity thieves. The Personal Data Privacy and Security Act 
of 2009 is a comprehensive, bipartisan privacy bill that seeks 
to close this privacy gap, by establishing meaningful national 
standards for providing notice of data security breaches, and 
addressing the underlying problem of lax data security, to make 
it less likely for data security breaches to occur in the first 
place.

  B. THE GROWING PROBLEM OF DATA SECURITY BREACHES AND IDENTITY THEFT

    According to the Privacy Rights Clearinghouse, more than 
340 million records containing sensitive personal information 
have been involved in data security breaches since 2005.\1\ 
Since the Personal Data Privacy and Security Act was first 
reported by the Judiciary Committee in November 2005, there 
have been at least 599 different data security breaches in the 
United States, affecting millions of American consumers.\2\ For 
example, in January 2009, Heartland Payment Systems, one of the 
Nation's leading processors of credit and debit card 
transactions, announced that its processing system records 
containing more than 130 million credit card accounts had been 
breached by hackers. In January 2007, mega-retailer TJX 
disclosed that it suffered a data breach affecting at least 
45.7 million credit and debit cards.\3\ These data breaches 
follow many other commercial data breaches, collectively 
affecting millions of Americans, including data security 
breaches at ChoicePoint and LexisNexis.
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    \1\See ``Privacy Rights Clearinghouse Chronology of Data 
Breaches,'' available at http://www.privacyrights.org/.
    \2\Id.
    \3\``Breach of data at TJX is called the biggest ever, Stolen 
numbers put at 45 .7 million,'' Boston Globe, March 29, 2007.
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    Federal Government agencies have also suffered serious data 
security breaches. In February 2009, the Federal Aviation 
Administration revealed that computer hackers breached one of 
its servers and stole sensitive personal information concerning 
45,000 current and former FAA employees.\4\ In June 2008, 
Walter Reed Medical Center reported that the personal 
information of 1,000 Military Health System beneficiaries may 
have been improperly disclosed through the unauthorized sharing 
of data.\5\ In May 2006, the Department of Veterans Affairs 
lost an unsecured laptop computer hard drive containing the 
health records and other sensitive personal information of 
approximately 26.5 million veterans and their spouses.\6\ And, 
in May, 2007, the Transportation Security Administration (TSA) 
reported that the personal and financial records of 100,000 TSA 
employees were lost after a computer hard drive was reported 
missing from the Agency's headquarters, exposing the Department 
of Homeland Security to potential national security risks.\7\
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    \4\``FAA Breach Heightens Cybersecurity Concerns,'' Federal 
Computer Week, February 23, 2009.
    \5\``Walter Reed: Data Breach at Military Hospitals,'' The 
Associated Press, June 3, 2008.
    \6\See Testimony of the Honorable James Nicholson, Secretary of 
Veterans Affairs, before the House Committee on Government Reform, June 
8, 2006.
    \7\See ``TSA seeks hard drive, personal data for 100,000,'' USA 
Today, May 5, 2007; see also, the Federal Times, ``Union Sues TSA over 
loss of data on employees,'' May 9, 2007.
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    The steady wave of data security breaches in recent years 
is a window into a broader, more challenging trend. Insecure 
databases are now low-hanging fruit for hackers looking to 
steal identities and commit fraud. Lax data security is also a 
threat to American businesses. The President's recent report on 
Cyberspace Policy Review noted that industry estimates of 
losses from intellectual property to data theft in 2008 range 
as high as $1 trillion.\8\ Because data security breaches 
adversely affect many segments of the American community, a 
meaningful solution to this growing problem must carefully 
balance the interests and needs of consumers, business, and the 
Government.
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    \8\``President's Report on Cyberspace Policy Review,'' May 29, 
2009, at page 2.
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         C. THE PERSONAL DATA PRIVACY AND SECURITY ACT OF 2009

    The Personal Data Privacy and Security Act of 2009 takes 
several meaningful and important steps to balance the interests 
and needs of consumers, business, and the Government in order 
to better protect Americans sensitive personal data. This 
legislation is supported by a wide range of consumer, business, 
and Government organizations, including, the United States 
Secret Service, the Federal Trade Commission, Microsoft, the 
Business Software Alliance, Consumer Federation of America, 
Consumers Union, the American Federation of Government 
Employees, Facebook, the Center for Democracy & Technology, and 
the ACLU.

1. Access and correction

    First, to provide consumers with tools that enable them to 
guard against identity theft, the bill gives consumers the 
right to know what sensitive personal information commercial 
data brokers have about them. In addition, the bill extends the 
protections afforded under the Fair and Accurate Credit 
Transactions Act (FACTA) to this data, by allowing consumers to 
correct their personal information if it is inaccurate. Under 
circumstances where a business entity makes an adverse decision 
based on information provided to it by a data broker, the bill 
also requires that the business entity notify the consumer of 
the adverse decision and provide the consumer with the 
information needed to contact the data broker and correct the 
information. There is an exemption to this requirement for 
fraud databases, to ensure that the Government can detect and 
combat fraud. The right of consumers to access and correct 
their own sensitive personal data is a simple matter of 
fairness. The principles of access and correction incorporated 
in the bill have precedent in the credit reporting industry 
context and these principles have been adapted to the data 
broker industry.

2. Data Security Program

    Second, the bill recognizes that, in the Information Age, 
any company that wants to be trusted by the public must earn 
that trust by vigilantly protecting the information that it 
uses and collects. The bill takes important steps to accomplish 
this goal, by requiring that companies that have databases with 
sensitive personal information on more than 10,000 Americans 
establish and implement a data privacy and security program. 
There are exemptions to this requirement for companies already 
subject to data security requirements under the Gramm-Leach-
Bliley (GLB) Act and the Health Information Portability and 
Accountability (HIPAA) Act.

3. Notice

    Third, because American consumers should know when they are 
at risk of identity theft, or other harms because of a data 
security breach, the bill also requires that business entities 
and Federal agencies promptly notify affected individuals and 
law enforcement when a data security breach occurs. Armed with 
such knowledge, consumers can take steps to protect themselves, 
their families, and their personal and financial well-being. 
The trigger for notice to individuals is ``significant risk of 
harm,'' and this trigger includes appropriate checks and 
balances to prevent over-notification and underreporting of 
data security breaches.
    In this regard, the bill recognizes that there are harms 
other than identity theft that can result from a data security 
breach, including harm from other financial crimes, stalking, 
and other criminal activity. Consequently, the bill adopts a 
trigger of ``significant risk of harm,'' rather than a weaker 
trigger of ``significant risk of identity theft,'' for the 
notice requirement for individuals in the legislation.\9\ There 
are exemptions to the notice requirements for individuals for 
national security and law enforcement reasons, as well as an 
exemption to this requirement for credit card companies that 
have effective fraud-prevention programs.\10\ The bill 
contemplates that a reasonable delay of notice could include 
the time necessary for a victim company to conduct a risk 
assessment under Section 302(a)(3).
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    \9\A notice trigger based upon ``significant risk of identity 
theft'' would weaken the notice provisions in S. 1490 and such a 
standard would also fail to adequately protect consumers. First, the 
weaker ``significant risk of identity theft'' standard only requires 
notification of consumers when a business entity or Federal agency 
affirmatively finds that there is a significant risk of the specific 
crime of identity theft. In addition, as discussed above, there are 
other harms that could result from data security breaches, such as 
stalking, physical harm, or threats to national security, that are not 
addressed or covered under a notice standard based solely on the risk 
of identity theft.
    \10\Some have incorrectly argued that S. 1490 will result in over-
notification of consumers and in a lack of clarity for business. To the 
contrary, the bill contains meaningful checks and balances, including 
the risk assessment and financial fraud prevention provisions in 
Section 312, to prevent over-notification and the underreporting of 
data security breaches. The risk assessment provision in Section 
312(b), furthermore, provides businesses with an opportunity to fully 
evaluate data security breaches when they occur, to determine whether 
notice should be provided to consumers. In addition, the bill 
complements and properly builds upon other Federal statutes governing 
data privacy and security to ensure clarity for business in this area. 
For example, to avoid conflicting obligations regarding the bill's data 
security program requirements, Section 301(c) specifically exempts 
financial institutions that are already subject to, and complying with, 
the data privacy and security requirements under GLB, as well as HIPAA-
regulated entities. The bill also builds upon existing Federal laws and 
guidance, such as the data security protections established by the 
Office of the Comptroller of the Currency for financial institutions 
and the access and correction provisions in the Fair Credit Reporting 
Act and the Fair and Accurate Credit Transactions Act, to clarify the 
obligations of business.
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    In addition, to strengthen the tools available to law 
enforcement to investigate data security breaches and to combat 
identity theft, the bill also requires that business entities 
and Federal agencies notify the Secret Service of a data 
security breach within 14 days of the occurrence of the breach. 
This notice will provide law enforcement with a valuable head 
start in pursuing the perpetrators of cyber intrusions and 
identity theft. The bill also empowers the Secret Service to 
obtain additional information about the data breach from 
business entities and Federal agencies to determine whether 
notice of the breach should be given to consumers and other law 
enforcement agencies. This mechanism gives businesses and 
agencies certainty as to their legal obligation to provide 
notice and prevents them from sending notices when they are 
unnecessary, which over time, could result in consumers 
ignoring such notices. The notice of breach provisions for 
electronic health records that Congress enacted in the American 
Reinvestment and Recovery Act (ARRA) apply to information that 
is accessed or disclosed from personal health records. The 
notice of breach provisions in this bill are not intended to 
preempt the notice requirements established by ARRA.
    The bill also recognizes the benefits of separating the 
notice obligations of owners of personally identifiable 
information and third parties who use and manage personally 
identifiable information on the owner's behalf. The bill 
imposes an obligation on third parties that suffer a data 
security breach to notify the owners or licensees of the 
personally identifiable information, who would, in turn, notify 
consumers. If the owner or licensee of the data gives notice of 
the breach to the consumer, then the breached third party does 
not have to give notice. The bill also states that it does not 
abrogate any agreement between a breached entity and a data 
owner or licensee to provide the required notice in the event 
of a breach. Separating the notice obligations between data 
owners and licensees, and third parties, will encourage data 
owners and licensees to address the notice obligation in 
agreements with third parties and will help to ensure that 
consumers will receive timely notice from the entity with which 
they have a direct relationship and would recognize upon 
receiving such notice, in the event of a data security breach. 
However, this notice can only be effective if the entity which 
suffers the breach, and any other third parties, provide to the 
entity who will give the notice complete and timely information 
about the nature and scope of the breach and the identity of 
the entity breached.

4. Enforcement

    Fourth, this legislation also establishes tough, but fair, 
enforcement provisions to punish those who fail to notify 
consumers of a data security breach, or to maintain a data 
security program. The bill makes it a crime for any individual, 
with knowledge of the obligation to provide notice of a 
security breach, to intentionally and willfully conceal the 
breach that subsequently causes economic harm to consumers. 
Violators of this provision are subject to a criminal fine 
under title 18, or imprisonment of up to five years, or both. 
This provision is no more onerous than criminal provisions for 
other types of fraudulent conduct which causes similar harm to 
individuals.
    The bill also contains strong civil enforcement provisions. 
The bill authorizes the Federal Trade Commission (FTC) to bring 
a civil enforcement action for violations of the data security 
program requirements in the bill and to recover a civil penalty 
of not more than $5,000 per violation, per day and a maximum 
penalty of $500,000 per violation.\11\ In addition, the bill 
authorizes State Attorneys General, or the U.S. Attorney 
General, to bring a civil enforcement action against violators 
of the notice requirements in the bill and to recover a civil 
penalty of not more than $1,000 per individual, per day and a 
maximum penalty of $1,000,000 per violation, unless the 
violation is willful or intentional. It is not uncommon for 
Congress to authorize both Federal and State regulators to 
enforce Federal consumer protection laws. In fact, Federal 
antitrust laws, the CAN-SPAM Act (Controlling the Assault of 
Non-
Solicited Pornography and Marketing Act of 2003), and the 
Communications Act of 1934 also authorize State Attorneys 
General to seek damages or to enjoin further Federal law 
violations. The State enforcement provisions in this bill are 
modeled after those laws.
---------------------------------------------------------------------------
    \11\Double penalties may be recovered for intentional or willful 
violations of this provision.
---------------------------------------------------------------------------
    The bill authorizes the Secret Service to investigate data 
security breaches and to provide guidance to companies that 
have been the victim of a data security breach on their notice 
obligations under the bill. Since 1984, Congress has provided 
statutory authority for the Secret Service to investigate a 
wide range of financial crimes, including offenses under 18 
U.S.C. Sec. 1028 (false identification fraud), Sec. 1029 
(access device fraud) and Sec. 1030 (computer fraud). In the 
last two decades, the Secret Service has conducted more than 
733,000 financial fraud and identity theft investigations 
involving these statutes, leading to the prosecution of more 
than 116,000 individuals.\12\ Pursuant to the notice 
requirements in the bill, the Secret Service's Criminal 
Intelligence Section would analyze, coordinate and monitor all 
data breach investigations reported to it by victim companies.
---------------------------------------------------------------------------
    \12\See Secret Service White Paper, ``Data Broker Legislation--S. 
1490,'' May 2007.
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    When the Criminal Intelligence Section receives 
notification of a data breach, it would immediately analyze the 
information and refer the case to the appropriate field office 
and/or electronic/financial crimes task force, for 
investigation and prosecution. Throughout this process, the 
Criminal Intelligence Section would stand ready to support the 
victim company, investigating field office or task force, and 
prosecuting U.S. Attorney's Office as needed. The Criminal 
Intelligence Section would also coordinate with the Computer 
Crime and Intellectual Property Sections (CCIPS) of the 
Department of Justice to ensure proper and timely response 
through the Federal judicial system, regardless of where the 
data breach occurred. In addition, the Criminal Intelligence 
Section would have the responsibility of notifying Federal law 
enforcement and State Attorneys General as mandated by the 
legislation.
    Section 316(b) of the bill expressly requires that the FBI 
must be notified of any data security breach that involves 
espionage, foreign counterintelligence, or national security 
matters. Under title 18, section 1030(d)(1), the Secret Service 
and FBI have concurrent jurisdiction to investigate Section 
1030 violations relating to false identification fraud, access 
device fraud, and computer fraud. Section 1030 designates the 
FBI as the primary investigative agency for such offenses if 
they involve espionage, foreign counterintelligence, and other 
national security matters. Accordingly, the bill incorporates 
this requirement in the context of breach notice, so that the 
FBI is promptly notified of any data breach matters that 
involve espionage, foreign counterintelligence, or national 
security.

5. Preemption

    The legislation also carefully balances the need for 
Federal uniformity in certain data privacy laws and the 
important role of States as leaders on privacy issues. Section 
304 of the bill (relation to other laws) preempts State laws 
with respect to requirements for administrative, technical, and 
physical safeguards for the protection of sensitive personally 
identifying information. These requirements, which are referred 
to in this Section, are the same requirements set forth in 
Section 302 of the bill.
    Section 319 of the bill (effect on Federal and State laws) 
also preempts State laws on breach notification. However, in 
recognition of the important role that the States have played 
in developing breach notification, the bill carves out an 
exception to preemption for State laws regarding providing 
consumers with information about victim protection assistance 
that is provided for by the State.
    In addition, Section 319 of the bill provides that the 
notice requirements in S. 1490 supersede ``any provision of law 
of any State relating to notification of a security breach, 
except as provided in Section 314(b) of the bill.'' The bill's 
subtitle on security breach notification applies to ``any 
agency, or business entity engaged in interstate commerce,'' 
and the term ``agency'' is defined in the bill by referencing 
section 551 of title 5, United States Code, which pertains to 
Federal Governmental entities. As a result, the security breach 
notification requirements in the bill have no application to 
State and local governmental entities, and the Committee does 
not intend for this provision to preempt or displace State laws 
that address obligations of State and local governmental 
entities to provide notice of security breach.

6. Government Use

    Finally, the bill establishes important new checks on the 
Government's use of personal data. In July 2009, the Government 
Accountability Office (GAO) released a new report on Government 
information security policies that found persistent weaknesses 
in Federal agency data security policies and practices.\13\ 
According to the report, all 24 of the major Federal agencies 
had weaknesses in their information security controls.\14\ To 
address these concerns, the bill requires that Federal agencies 
consider whether data brokers can be trusted with Government 
contracts that involve sensitive information about Americans 
before awarding Government contracts. The bill also requires 
that Federal agencies audit and evaluate the information 
security practices of Government contractors and third parties 
that support the information technology systems of Government 
agencies. In addition, the bill requires that Federal agencies 
adopt regulations that specify the personnel allowed to access 
Government data bases containing personally identifiable 
information and adopt regulations that establish the standards 
for ensuring, among other things, the legitimate Government use 
of sensitive personal information.\15\
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    \13\See Report of the U.S. Government Accountability Office, 
``Information Security: Agencies Continue to Report Progress, but Need 
to Mitigate Persistent Weaknesses,'' (July 2009).
    \14\Id.
    \15\In their accompanying views, the Minority makes several 
arguments in opposition to the bill that are without merit. First, the 
arguments that the bill's definitions for ``sensitive personally 
identifiable information'' and ``security breach'' are too broad are 
wholly unfounded. The Committee crafted the definition for sensitive 
personally identifiable information after careful consultation with the 
United States Secret Service, the FTC and several consumer 
organizations that have had significant experience with the kinds of 
information that is most vulnerable to identity theft and other cyber 
crimes. Moreover, the definition of security breach is fully consistent 
with other Federal computer fraud and privacy laws. See, e.g., 
Sec. Sec. 18 U.S.C. 1030 (a)(2) and (3) (Computer Fraud and Abuse Act); 
18 U.S.C. Sec. Sec. 2510(4) (definition of ``intercept'' means ``the 
aural or other acquisition of the contents of any wire, electronic, or 
oral communication through the use of any electronic, mechanical, or 
other device.''). The Minority also incorrectly states that the bill 
does not exempt entities that are already regulated by other Federal 
laws governing data privacy and security. Section 201(b) of the bill 
clearly and expressly exempts FCRA, GLB and HIPPA-regulated entities 
from the transparency and accuracy provisions of the bill. Moreover, 
section 301(c) expressly exempts GLB and HIPPA-regulated entities from 
the data privacy and security program requirements in the bill. Lastly, 
the notion that the bill should exclude all law enforcement and 
counterterrorism programs from the privacy impact assessment 
requirements in the bill is simply without merit. The Minority cites no 
evidence to demonstrate that privacy impact assessments posed a unique 
concern for Federal agencies that are engaged in law enforcement or 
counterterrorism activities. To the contrary, many Federal agencies 
already conduct privacy impact assessments for these kinds of programs, 
to the benefit of all Americans.
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          II. History of the Bill and Committee Consideration

                      A. INTRODUCTION OF THE BILL

    Chairman Leahy introduced the Personal Data Privacy and 
Security Act of 2009 on July 22, 2009. This bipartisan, 
comprehensive privacy bill is cosponsored by Senators Specter, 
Hatch, Schumer, Durbin, Feingold, Cardin, and Brown.
    This legislation is very similar to the Personal Data 
Privacy and Security Act of 2007, S. 495, which Senators Leahy 
and Specter introduced on July 6, 2007 and to the Personal Data 
Privacy and Security Act of 2005, S. 1789, which Senators Leahy 
and Specter introduced on September 29, 2005. The Judiciary 
Committee favorably reported S. 495 on May 3, 2007 by voice 
vote and S. 1789 on November 17, 2005, by a bipartisan vote of 
13 to 5.
    The Committee has held three hearings related to S. 1490. 
On April 13, 2005, the Judiciary Committee held a hearing 
titled, ``Securing Electronic Personal Data: Striking a Balance 
between Privacy and Commercial and Governmental Use.'' This 
hearing examined the practices and weaknesses of the rapidly 
growing data broker industry and, in particular, how data 
brokers were handling the most sensitive personal information 
about Americans. The hearing also explored how Congress could 
establish a sound legal framework for future data privacy 
legislation that would ensure that privacy, security, and civil 
liberties will not be pushed aside in the new Digital Age. The 
following witnesses testified at this hearing: Deborah Platt 
Majoras, Chairman of the Federal Trade Commission; Chris 
Swecker, Assistant Director for the Criminal Investigative 
Division at the Federal Bureau of Investigation; Larry D. 
Johnson, Special Agent in Charge of the Criminal Investigative 
Division of the U.S. Secret Service; William H. Sorrell, 
President of the National Association of Attorneys General; 
Douglas C. Curling, President, Chief Operating Officer, and 
Director of ChoicePoint, Inc.; Kurt P. Sanford, President & CEO 
of the U.S. Corporate & Federal Markets LexisNexis Group; 
Jennifer T. Barrett, Chief Privacy Officer of Acxiom Corp.; 
James X. Dempsey, Executive Director of the Center for 
Democracy & Technology; and Robert Douglas, CEO of 
PrivacyToday.com.
    On March 21, 2007, the Judiciary Committee's Subcommittee 
on Terrorism, Technology and Homeland Security held a hearing 
titled, ``Identity Theft: Innovative Solutions for an Evolving 
Problem.'' This hearing examined the problem of identity theft 
and legislative solutions to this problem, and discussed the 
need for Federal legislation on data breach notification. The 
following witnesses testified at this hearing: Ronald Tenpas, 
Associate Deputy Attorney General, United States Department of 
Justice; Lydia Parnes, Director, Bureau of Consumer Protection, 
Federal Trade Commission; James Davis, Chief Information 
Officer and Vice Chancellor for Information Technology, 
University of California, Los Angeles; Joanne McNabb, Chief, 
California Office of Privacy Protection; and Chris Jay 
Hoofnagle, Senior Staff Attorney, Samuelson Law, Technology & 
Public Policy Clinic, School of Law (Boalt Hall), University of 
California, Berkeley.
    On January 27, 2009, the Committee held a hearing titled, 
``Health IT: Protecting Americans' Privacy in the Digital 
Age.'' This hearing examined best practices for protecting 
electronic health records and for protecting Americans' health 
privacy. The following witnesses appeared at that hearing: 
Adrienne Hahn, Senior Attorney and Program Manager for Health 
Policy, Consumers Union; James Hester, Jr. Ph.D., Director, 
Health Care Reform Commission, Vermont State Legislature; Deven 
McGraw, Director, Health Privacy Project, Center for Democracy 
and Technology; Michael Stokes, Principal Lead Program Manager, 
HealthVault, Microsoft Corporation; John Houston, Vice 
President of Information Security and Privacy, University of 
Pittsburgh Medical Center; and David Merritt, Project Director, 
Center for Health Transformation and the Gingrich Group.

                       B. COMMITTEE CONSIDERATION

    On October 23, 2009, S. 1490 was placed on the Judiciary 
Committee's agenda. The Committee considered this legislation 
on November 5, 2009.
    During the Committee's consideration of S. 1490, three 
amendments to the bill were offered and one amendment was 
unanimously adopted by the Committee:
    First, the Committee adopted, without objection, a 
manager's amendment to S. 1490 which Chairman Leahy offered on 
behalf of himself and Senator Specter. The manager's amendment 
clarifies enforcement provisions in the bill, including: (1) 
adding a fraud data base exemption to the provisions allowing 
consumers to access and correct their personal data; (2) 
clarifying that the FTC has the authority to enforce the civil 
enforcement provisions in the bill with respect to business 
entities; (3) harmonizing the notice of breach provisions in 
the bill; (4) striking the provision establishing an Office of 
Federal Identity Protection within the FTC; (5) clarifying the 
definition of encryption and the standards for the data privacy 
and security program safe harbor; and (6) amending the 
definition of security breach to clarify that fraud is a harm 
that the bill seeks to prevent and address.
    The Committee rejected by a vote of 6 to 13 an amendment 
offered by Senator Sessions (GRA09859) which would limit the 
information included in the definition of ``security breach.''
    The Committee rejected by a vote of 7 to 12 an amendment 
offered by Senator Kyl (GRA09884) which would create an 
exception to the requirement that that Federal agencies appoint 
a Chief Privacy Officer and conduct privacy impact assessments 
for law enforcement and national security matters.
    The Committee then voted to report the Personal Data 
Privacy and Security Act of 2009, as amended, favorably to the 
Senate. The Committee proceeded by roll call vote as follows:
    Tally: 14 Yeas, 5 Nays
    Yeas (14): Cardin (D-MD), Durbin (D-IL), Feingold (D-WI), 
Feinstein (D-CA), Franken (D-MN), Grassley (R-IA), Hatch (R-
UT), Kaufman (D-DE), Klobuchar (D-MN), Kohl (D-WI), Leahy (D-
VT), Schumer (D-NY), Specter (D-PA), Whitehouse (D-RI).
    Nays (5): Coburn (R-OK), Cornyn (R-TX), Graham (R-SC), Kyl 
(R-AZ), Sessions (R-AL).

              III. Section-by-Section Summary of the Bill

Section 1. Short title

    This section provides that the legislation may be cited as 
the ``Personal Data Privacy and Security Act of 2009.''

 TITLE I--ENHANCING PUNISHMENT FOR IDENTITY THEFT AND OTHER VIOLATIONS 
                      OF DATA PRIVACY AND SECURITY

Section 101. Organized criminal activity in connection with 
        unauthorized access to personally identifiable information

    Section 101 amends 18 U.S.C. 1961(1) to add intentionally 
accessing a computer without authorization to the definition of 
racketeering activity.

Section 102. Concealment of security breaches involving personally 
        identifiable information

    Section 102 makes it a crime for a person who knows of a 
security breach requiring notice to individuals under title III 
of this Act, and of the obligation to provide such notice, to 
intentionally and willfully conceal the fact of, or information 
related to, that security breach. Punishment is either a fine 
under title 18, or imprisonment of up to 5 years, or both.

Section 103. Review and amendment of Federal sentencing guidelines 
        related to fraudulent access to or misuse of digitized or 
        electronic personally identifiable information

    Section 103 requires the U.S. Sentencing Commission to 
review and, if appropriate, amend the Federal sentencing 
guidelines for persons convicted of using fraud to access, or 
to misuse, digitized or electronic personally identifiable 
information, including sentencing guidelines for the offense of 
identity theft or any offense under 18 U.S.C. Sec. Sec. 1028, 
1028A, 1030, 1030A, 2511, and 2701.

Section 104. Effects of identity theft on bankruptcy proceedings

    Section 104 amends 11 U.S.C. Sec. Sec. 101 and 707(b) to 
exempt debtors from section 707(b)(2) means testing under the 
Bankruptcy Abuse Prevention and Consumer Protection Act, if the 
debtor's financial problems were caused by identity theft. This 
section requires that, to be eligible for this exemption, the 
identity theft must result in at least $20,000 in debt in one 
year, 50 percent of the debtor's bankruptcy claims, or 25 
percent of the debtor's gross income for a 12-month period. The 
purpose of this provision is to ensure that victims who incur 
debts due to identity theft have all available protections 
under the bankruptcy code.

                         TITLE II--DATA BROKERS

    Title II addresses the data brokering industry that has 
come of age, prompted by technology developments and changes in 
marketplace incentives. Data brokers collect and sell billions 
of private and public records about individuals, including 
personal, financial, insurance, medical and ``lifestyle'' data, 
as well as other sensitive information, such as details on 
neighbors and relatives, or even digital photographs of 
individuals. Companies like ChoicePoint, LexisNexis, and 
Acxiom, which are generally regarded as leaders in this 
industry, use this information to provide a variety of products 
and services, including fraud prevention, identity 
verification, background screening, risk assessments, 
individual digital dossiers, and tools for analyzing data.
    Although some of the products and services offered by data 
brokers are subject to existing privacy and security 
protections aimed at credit reporting agencies and the 
financial industry under the Fair Credit Reporting Act (FCRA) 
and Gramm-Leach-Bliley (GLB), many are not subject to such 
protections. In addition, there has been insufficient oversight 
of the industry's practices, including the accuracy and 
handling of sensitive data. These concerns have been 
highlighted by numerous reports of harm caused by inaccurate 
data records. This title draws from the principles in FCRA and 
GLB to close these loopholes.

Section 201. Transparency and accuracy of data collection

    Section 201 applies disclosure and accuracy requirements to 
data brokers that engage in interstate commerce and offer any 
product or service to third parties that allows access to, or 
use, compilation, distribution, processing, analyzing or 
evaluating of personally identifiable information. Section 201 
requirements are not applicable to products and services 
already subject to similar disclosure and accuracy provisions 
under FCRA and GLB, and implementing regulations.
    Section 201 requires data brokers to disclose to 
individuals, upon their request and for a reasonable fee, all 
personal electronic records pertaining to that individual that 
the data broker maintains for disclosure to third parties. 
Section 201 also requires data brokers to establish a fair 
process for individuals to dispute, flag or correct 
inaccuracies in any information that was not obtained from a 
licensor or public record. Modeled after section 611 of FCRA, 
section 201 requires data brokers to: (1) investigate disputed 
information within 30 days; (2) notify any data furnishers who 
provided disputed information and identify such data furnishers 
to the individual disputing the information; (3) provide notice 
to individuals on dispute resolution procedures and the status 
of dispute investigations, including whether the dispute was 
determined to be frivolous or irrelevant, whether the disputed 
information was confirmed to be accurate, or whether the 
disputed information was deleted as inaccurate; and (4) allow 
individuals to include a statement of dispute in the electronic 
records containing the disputed personal information. If the 
information was obtained from a licensor or public record, the 
data broker must provide the individual with contact 
information for the source of the data.
    Section 201 also provides that, under circumstances where a 
person or business takes an adverse action regarding a 
consumer, which is based in whole or in part on data maintained 
by a data broker, the person or business must notify the 
consumer in writing of the adverse action and provide contact 
information for the data broker that furnished the information, 
a copy of the information at no cost and the procedures for 
correcting such information. There is an exemption for fraud 
databases.

Section 202. Enforcement

    A data broker that violates the access and correction 
provisions of section 201 is subject to penalties of $1,000 per 
violation per day with a maximum penalty of $250,000 per 
violation. A data broker that intentionally or willfully 
violates these provisions is subject to additional penalties of 
$1,000 per violation per day, with a maximum of an additional 
penalty of $250,000 per violation.
    The Federal Trade Commission (FTC) will enforce section 202 
and may bring an enforcement action to recover penalties under 
this provision. States have the right to bring civil actions 
under this section on behalf of their residents in U.S. 
district courts, and this section requires that States provide 
advance notice of such court proceedings to the FTC, where 
practicable. The FTC also has the right to stay any State 
action brought under this section and to intervene in a State 
action.

Section 203--Relation to State Laws

    Section 203 preempts State laws with respect to the access 
and correction of personal electronic records held by data 
brokers.

Section 204--Effective Date

    Section 204 provides that title II will take effect 180 
days after the date of the enactment of the Personal Data 
Privacy and Security Act.

 TITLE III--PRIVACY AND SECURITY OF PERSONALLY IDENTIFIABLE INFORMATION

            SUBTITLE A--A DATA PRIVACY AND SECURITY PROGRAM

Section 301. Purpose and Applicability of Data Privacy and Security 
        Program

    Section 301 addresses the data privacy and security 
requirements of section 302 for business entities that compile, 
access, use, process, license, distribute, analyze or evaluate 
personally identifiable information in electronic or digital 
form on 10,000 or more U.S. persons. Section 301 exempts from 
the data privacy and security requirements of section 302 
businesses already subject to, and complying with, similar data 
privacy and security requirements under GLB and implementing 
regulations, as well as examination for compliance by Federal 
functional regulators as defined in GLB, and HIPAA regulated 
entities.

Section 302. Requirements for a Data Privacy and Security Program

    Section 302 requires covered business entities to create a 
data privacy and security program to protect and secure 
sensitive data. The requirements for the data security program 
are modeled after those established by the Office of the 
Comptroller of the Currency for financial institutions in its 
Interagency Guidelines Establishing Standards for Safeguarding 
Customer Information, 12 C.F.R. Sec. 30.6 Appendix B (2005).
    A data privacy and security program must be designed to 
ensure security and confidentiality of personal records, 
protect against anticipated threats and hazards to the security 
and integrity of personal electronic records, protect against 
unauthorized access and use of personal records, and ensure 
proper back-up storage and disposal of personally identifiable 
information. In addition, section 302 requires a covered 
business entity to: (1) regularly assess, manage and control 
risks to improve its data privacy and security program; (2) 
provide employee training to implement its data privacy and 
security program; (3) conduct tests to identify system 
vulnerabilities; (4) ensure that overseas service providers 
retained to handle personally identifiable information, but 
which are not covered by the provisions of this Act, take 
reasonable steps to secure that data; and (5) periodically 
assess its data privacy and security program to ensure that the 
program addresses current threats. Section 302 also requires 
that the data security program include measures that allow the 
data broker to: (1) track who has access to sensitive 
personally identifiable information maintained by the data 
broker; and (2) ensure that third parties or customers who are 
authorized to access this information have a valid legal reason 
for accessing or acquiring the information.

Section 303. Enforcement

    Section 303 gives the FTC the right to bring an enforcement 
action for violations of sections 301 and 302 in subtitle A. 
Business entities that violate sections 301 and 302 are subject 
to a civil penalty of not more than $5,000 per violation, per 
day and a maximum penalty of $500,000 per violation. 
Intentional and willful violations of these sections are 
subject to an additional civil penalty of $5,000 per violation, 
per day and an additional maximum penalty of $500,000 per 
violation. This section also grants States the right to bring 
civil actions on behalf of their residents in U.S. district 
courts, and requires States to give advance notice of such 
court proceedings to the FTC, where practicable. There is no 
private right of action under this subtitle.

Section 304. Relation to other laws

    Section 304 preempts State laws relating to administrative, 
technical, and physical safeguards for the protection of 
sensitive personally identifying information. The requirements 
referred to in this section are the same requirements set forth 
in section 302.

                SUBTITLE B--SECURITY BREACH NOTIFICATION

Section 311. Notice to individuals

    Section 311 requires that a business entity or Federal 
agency give notice to an individual whose sensitive personally 
identifiable information has been, or is reasonably believed to 
have been, compromised, following the discovery of a data 
security breach. The notice required under section 311 must be 
made without unreasonable delay. Section 311(b) requires that a 
business entity or Federal agency that does not own or license 
the information compromised as a result of a data security 
breach notify the owner or licensee of the data. The owner or 
licensee of the data would then provide the notice to 
individuals as required under this section. However, agreements 
between owners, licensees and third parties regarding the 
obligation to provide notice under section 311 are preserved.

Section 312. Exemptions

    Section 312 allows a business entity or Federal agency to 
delay notification by providing a written certification to the 
U.S. Secret Service that providing such notice would impede a 
criminal investigation, or damage national security. This 
provision further requires that the Secret Service must review 
all certifications from business entities (and may review 
certifications from agencies) seeking an exemption from the 
notice requirements based upon national security or law 
enforcement, to determine if the exemption sought has merit. 
The Secret Service has 10 business days to conduct this review, 
which can be extended by the Secret Service if additional 
information is needed. Upon completion of the review, the 
Secret Service must provide written notice of its determination 
to the agency or business entity that provided the 
certification. If the Secret Service determines that the 
exemption is without merit, the exemption will not apply. 
Section 312 also prohibits Federal agencies from providing a 
written certification to delay notice, to conceal violations of 
law, prevent embarrassment or restrain competition.
    Section 312(b) exempts a business entity or agency that 
conducts a risk assessment after a data breach occurs, and 
finds no significant risk of harm to the individuals whose 
sensitive personally identifiable information has been 
compromised, from the notice requirements of section 311, 
provided that: (1) the business entity or Federal agency 
notifies the Secret Service of the results of the risk 
assessment within 45 days of the security breach; and (2) the 
Secret Service does not determine within 10 business days of 
receipt the notification that a significant risk of harm does 
in fact exist and that notice of the breach should be given. 
Under section 312(b) a rebuttable presumption exists that the 
use of encryption technology, or other technologies that render 
the sensitive personally identifiable information 
indecipherable, and thus, that there is no significant risk of 
harm.
    Section 312(c) also provides a financial fraud prevention 
exemption from the notice requirement, if a business entity has 
a program to block the fraudulent use of information--such as 
credit card numbers--to avoid fraudulent transactions. Debit 
cards and other financial instruments are not covered by this 
exemption.

Section 313. Methods of notice

    Section 313 provides that notice to individuals may be 
given in writing to the individuals last known address, by 
telephone or via email notice, if the individual has consented 
to email notice. Media notice is also required if the number of 
residents in a particular State whose information was, or is 
reasonably believed to have been, compromised exceeds 5,000 
individuals.

Section 314. Content of notification

    Section 314 requires that the notice detail the nature of 
the personally identifiable information that has been 
compromised by the data security beach, a toll free number to 
contact the business entity or Federal agency that suffered the 
breach, and the toll free numbers and addresses of major credit 
reporting agencies. Section 314 also preserves the right of 
States to require that additional information about victim 
protection assistance be included in the notice.

Section 315. Coordination of notification with credit reporting 
        agencies

    Section 315 requires that, for situations where notice of a 
data security breach is required for 5,000 or more individuals, 
a business entity or Federal agency must also provide advance 
notice of the breach to consumer reporting agencies.

Section 316. Notice to law enforcement

    Section 316 requires that business entities and Federal 
agencies notify the Secret Service of the fact that a security 
breach occurred within 14 days of the breach, if the data 
security breach involves: (1) more than 10,000 individuals; (2) 
a database that contains information about more than one 
million individuals; (3) a Federal Government database; or (4) 
individuals known to be Government employees or contractors 
involved in national security or law enforcement. The Secret 
Service is responsible for notifying other Federal law 
enforcement agencies, including the FBI, and the relevant State 
Attorneys General within 14 days of receiving notice of a data 
security breach.

Section 317. Enforcement

    Section 317 allows the Attorney General to bring a civil 
action to recover penalties for violations of the notification 
requirements in subtitle B. Violators are subject to a civil 
penalty of up to $1,000 per day, per individual and a maximum 
penalty of $1 million per violation, unless the violation is 
willful or intentional.

Section 318. Enforcement by State Attorneys General

    Section 318 allows State Attorneys General to bring a civil 
action in U.S. district court to enforce subtitle B. The 
Attorney General may stay, or intervene in, any State action 
brought under this subtitle.

Section 319. Effect on Federal and State law

    Section 319 preempts State laws on breach notification, 
with the exception of State laws regarding providing consumers 
with information about victim protection assistance that is 
available to consumers in a particular State. Because the 
breach notification requirements in the bill do not apply to 
State and local Government entities, this provision does not 
preempt State or local laws regarding the obligations of State 
and local government entities to provide notice of a data 
security breach.

Section 320. Authorization of appropriations

    Section 320 authorizes funds for the Secret Service as may 
be necessary to carry out investigations and risk assessments 
of security breaches under the requirements of subtitle B.

Section 321. Reporting on risk assessment exemptions

    Section 321 requires that the Secret Service report to 
Congress on the number and nature of data security breach 
notices invoking the risk assessment exemption and the number 
and nature of data security breaches subject to the national 
security and law enforcement exemptions.

Section 322. Effective date

    Subtitle B takes effect 90 days after the date of enactment 
of the Personal Data Privacy and Security Act.

       TITLE IV--GOVERNMENT ACCESS TO AND USE OF COMMERCIAL DATA

Section 401. General Services Administration review of government 
        contracts

    Section 401 requires the General Services Administration 
(GSA), when issuing contracts for more than $500,000, to review 
and consider Government contractors' programs for securing the 
privacy and security of personally identifiable information, 
contractors' compliance with such programs, and any data 
security breaches of contractors' systems and the responses to 
those breaches.
    In addition, GSA is required to include penalties in 
contracts involving personally identifiable information for (1) 
failure to comply with subtitle A (Data Privacy and Security 
Programs) and subtitle B (Security Breach Notification) of 
title III of this Act; and (2) knowingly providing inaccurate 
information. Section 401 also requires that GSA include a 
contract requirement that Government contractors exercise due 
diligence in selecting service providers that handle personally 
identifiable information and that Government contractors take 
reasonable steps to select service providers that maintain 
appropriate data privacy and security safeguards.

Section 402. Requirement to audit information security practices of 
        contractors and third party business entities

    Section 402 amends 44 Sec. U.S.C. 3544 to require that 
Federal agencies audit and evaluate the information security 
practices of Government contractors and third parties that 
support the information technology systems of Government 
agencies.

Section 403. Privacy impact assessment of Government use of commercial 
        information services containing personally identifiable 
        information

    Section 403(a) updates the E-Government Act of 2002 to 
require Federal departments and agencies that purchase or 
subscribe to personally identifiable information from a 
commercial entity, to conduct privacy impact assessments on the 
use of those services. In addition, section 403(b) requires 
Federal departments and agencies that use such services to 
publish a description of the database, the name of the provider 
and the contract amount.
    Section 403 also requires that Federal departments and 
agencies adopt regulations that specify the personnel allowed 
to access Government databases containing personally 
identifiable information and the standards for ensuring, among 
other things, the legitimate Government use of such 
information, the retention and disclosure of such information, 
and the accuracy, relevance, completeness and timeliness of 
such information. Section 403 further provides that Federal 
departments and agencies must include in contracts for more 
than $500,000 and agreements with commercial data services, 
penalty provisions for circumstances where a data broker 
delivers personally identifiable information that it knows to 
be inaccurate, or has been informed is inaccurate and is in 
fact inaccurate. Section 403(c) also requires that data brokers 
that engage service providers, who are not subject to the data 
security program requirements of the bill, exercise due 
diligence in retaining these service providers to ensure that 
adequate safeguards for personally identifiable information are 
in place.
    Section 403(d) directs the Government Accountability Office 
to conduct a follow-up study and report to Congress on Federal 
agency use of commercial databases, including the impact of 
such use on privacy and security, sufficiency of privacy and 
security protections, and the extent to which commercial data 
providers are penalized for privacy and security failures.

Section 404. Implementation of Chief Privacy Officer requirements

    Section 522 of the Transportation, Treasury, Independent 
Agencies, and General Government Appropriations Act, 2005 
requires each agency to create a Chief Privacy Officer. Section 
404 facilitates the efficient and effective implementation of 
this requirement by directing the Department of Justice to 
implement this provision by designating a Department-wide Chief 
Privacy Officer, whose primary role is to fulfill the duties 
and responsibilities of Chief Privacy Officer. In addition, the 
DOJ Chief Privacy Officer will report directly to the Deputy 
Attorney General.
    Section 404 also stipulates responsibilities for the DOJ 
Chief Privacy Officer that are tailored to the mission of the 
Department and the requirements of this Act. Specifically, this 
section directs the Chief Privacy Officer to: (1) oversee DOJ's 
implementation of the privacy impact assessment requirement 
under section 402; (2) promote the use of law enforcement 
technologies that sustain, rather than erode, privacy 
protections and ensure that technologies relating to the use, 
collection and disclosure of personally identifiable 
information preserve privacy and security; and (3) coordinate 
implementation with the Privacy and Civil Liberties Oversight 
Board, established in the Intelligence Reform and Terrorism 
Prevention Act of 2004.

             IV. Congressional Budget Office Cost Estimate

    The Committee sets forth, with respect to the bill, S. 
1490, the following estimate and comparison prepared by the 
Director of the Congressional Budget Office under section 402 
of the Congressional Budget Act of 1974:

                                                  December 2, 2009.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1490, the Personal 
Data Privacy and Security Act of 2009.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 1490--Personal Data Privacy and Security Act of 2009

    Summary: S. 1490 would establish new federal crimes 
relating to the unauthorized access of sensitive personal 
information. The bill also would require most government 
agencies or businesses that collect, transmit, store, or use 
personal information to notify any individuals whose 
information has been unlawfully accessed. In addition, S. 1490 
would require data brokers to allow individuals access to their 
electronic records and to publish procedures for individuals to 
respond to inaccuracies.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing S. 1490 would cost $25 million over 
the 2010-2014 period. Enacting S. 1490 could increase civil and 
criminal penalties and thus could affect federal revenues and 
direct spending, but CBO estimates that such effects would not 
be significant in any year. Further, enacting S. 1490 could 
affect direct spending by agencies not funded through annual 
appropriations. CBO estimates, however, that any changes in net 
spending by those agencies would be negligible.
    S. 1490 contains intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that 
the cost of complying with the requirements would be small and 
would not exceed the threshold established in UMRA ($69 million 
in 2009, adjusted annually for inflation).
    The new standards and requirements for data security in S. 
1490 would constitute private-sector mandates as defined in 
UMRA. While much of the industry already complies in large part 
with the many of those requirements, a large number of entities 
in the private sector would face new security standards. CBO 
estimates that the aggregate direct cost of complying with 
those new standards would probably exceed the annual threshold 
established in UMRA for private-sector mandates ($139 million 
in 2009, adjusted annually for inflation) in at least one of 
the first five years the mandates are in effect.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 1490 is shown in the following table. 
The costs of this legislation fall within budget functions 750 
(administration of justice), 800 (general government), and any 
other budget functions that contain salaries and expenses.

----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                    ------------------------------------------------------------
                                                       2010      2011      2012      2013      2014    2010-2014
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level......................         3         5         7         7         7         29
Estimated Outlays..................................         1         3         7         7         7         25
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted early in calendar year 2010, that the 
necessary amounts will be provided each year, and that spending 
will follow historical patterns for similar programs.
    Most of the provisions of the bill would codify the current 
practices of the federal government regarding data security and 
procedures for notification of security breaches. While 
existing laws generally do not require agencies to notify 
affected individuals of data breaches, agencies that have 
experienced security breaches have generally provided such 
notification. Therefore, CBO expects that codifying this 
practice would probably not lead to a significant increase in 
spending. Nonetheless, the federal government is one of the 
largest providers, collectors, consumers, and disseminators of 
personnel information in the United States. Although CBO cannot 
anticipate the number or extent of security breaches, a 
significant breach of security involving a major collector of 
personnel information, such as the Internal Revenue Service or 
the Social Security Administration, could involve millions of 
individuals and result in significant costs to notify 
individuals of such a breach.
    S. 1490 also would require federal agencies to provide 
several reports to the Congress concerning data security 
issues. The legislation would require agencies to conduct 
additional privacy impact assessments on commercially purchased 
data that contains personally identifiable information, and the 
Government Accountability Office would be required to report to 
the Congress on federal agencies' use of commercial 
information. In addition, the General Services Administration 
(GSA) would provide additional security assessments for certain 
government contracts involving personally identifiable 
information. Those assessments would include payroll 
processing, emergency response and recall, and medical data. 
Based on information from the Office of Management and Budget 
and GSA, CBO estimates that the additional staff needed to 
carry out those tasks and reporting requirements would cost $7 
million annually when fully implemented. We expect that it 
would take about three years to fully implement the 
requirements.
    The legislation also would require a business entity or 
agency--under certain circumstances--to notify the Secret 
Service that a security breach has occurred but would permit 
entities or agencies to apply to the Secret Service for 
exemption from notice requirements if the personal data was 
encrypted or similarly protected or if notification would 
threaten national security. Based on information from the 
Secret Service, CBO estimates that any additional investigative 
or administrative costs to that agency would likely be less 
than $500,000 annually, subject to the availability of 
appropriated funds.
    Other provisions of the bill would require the Federal 
Trade Commission (FTC) to develop and enforce regulations that 
would require data brokers to allow individuals to access their 
personal information and to require companies to assess the 
vulnerability of their data systems. The FTC would be 
authorized to collect civil penalties for violations of those 
new regulations. CBO estimates that those provisions would have 
no significant effect on spending.

Direct spending and revenues

    S. 1490 would establish new federal crimes relating to the 
unauthorized access of sensitive personal information. Enacting 
the bill could increase collections of civil and criminal fines 
for violations of the bill's provisions. CBO estimates that any 
additional collections would not be significant because of the 
relatively small number of additional cases likely to result. 
Civil fines are recorded as revenues. Criminal fines are 
recorded as revenues, deposited in the Crime Victims Fund, and 
subsequently spent without further appropriation.
    Estimated impact on state, local, and tribal governments: 
S. 1490 contains intergovernmental mandates as defined in UMRA. 
The bill would preempt laws in 45 states regarding the 
treatment of personal information. It also would place 
procedural requirements and limitations on state attorneys 
general and state insurance authorities. The preemptions would 
impose no costs on states. CBO estimates that the costs to 
attorneys general and insurance authorities of complying with 
the procedural requirements would be small and would not exceed 
the threshold established in UMRA ($69 million in 2009, 
adjusted annually for inflation).
    Estimated impact on the private sector: S. 1490 would 
impose several private-sector mandates as defined in UMRA, 
including requirements that:
           Certain business entities that handle 
        personally identifiable information for 10,000 or more 
        individuals establish and maintain a data privacy and 
        security program;
           Any business entity engaged in interstate 
        commerce notify individuals if a security breach occurs 
        in which such individuals' sensitive personally 
        identifiable information is compromised;
           Data brokers provide individuals with their 
        personally identifiable information and to change the 
        information if it is incorrect; and
           Any entity taking an adverse action against 
        an individual based on information obtained from a 
        database maintained by a data broker notify the 
        individual of that action.
    The majority of businesses already comply with procedures 
for data security and breach notification that are similar to 
many of the bill's requirements. However, some of the 
requirements in the bill would impose new standards for data 
maintenance and security on a large number of entities in the 
private sector. CBO estimates that the aggregate direct cost of 
all the mandates in the bill would probably exceed the annual 
threshold established in UMRA for private-sector mandates ($139 
million in 2009, adjusted annually for inflation) in at least 
one of the first five years the mandates are in effect.

Data privacy and security requirements

    Subtitle A of title III would require businesses engaging 
in interstate commerce that involves collecting, accessing, 
transmitting, using, storing, or disposing of sensitive, 
personally identifiable information in electronic or digital 
form on 10,000 or more individuals to establish and maintain a 
program for data privacy and security. The program would be 
designed to protect against both unauthorized access and any 
anticipated vulnerabilities. Business entities would be 
required to conduct periodic risk assessments to identify such 
vulnerabilities and to assess possible security risks in 
establishing the program. Additionally, entities would have to 
train their employees in implementing the data security 
program.
    The bill would direct the FTC to develop rules that 
identify privacy and security requirements for the business 
entities covered under subtitle A. Some entities would be 
exempt from the requirements of subtitle A. Those include 
certain financial institutions that are subject to the data 
security requirements under Gramm-Leach-Bliley Act and entities 
that are subject to the data security requirements of the 
Health Insurance Portability and Accountability Act.
    The cost per entity of the data privacy and security 
requirements would depend in part on the rules to be 
established by the FTC, the size of the entity, its current 
ability to secure, record, and monitor access to data, as well 
as the amount of sensitive, personally identifiable information 
maintained by the entity. The majority of states already have 
laws requiring businesses to utilize data security programs, 
and it is the current practice of many businesses to use 
security measures to protect sensitive data. However, some of 
the new standards for data security in the bill could impose 
additional costs on a large number of private-sector entities.
    For example, under the bill, business entities covered 
under subtitle A would be required to enhance their security 
standards to include the ability to trace access and 
transmission of all records containing personally identifiable 
information (PII). The current industry standard on data 
security has not reached that level. According to industry 
experts, information on a particular individual can be 
collected from several places and, for large companies, can be 
accessed by thousands of people from several different 
locations. The ability to trace each transaction of data 
containing PII would be a significant enhancement of data 
management hardware and software for the majority of business 
entities. The aggregate cost of implementing such changes could 
be substantial.

Security breach notification

    Subtitle B of title III would require businesses engaged in 
interstate commerce that use, access, transmit, store, dispose 
of, or collect sensitive personally identifiable information to 
notify individuals in the event of a security breach if the 
individuals' information is compromised. Entities would be able 
to notify individuals using written letters, the telephone, or 
email under certain circumstances. The bill also would require 
those entities to notify the owner or licensee of any such 
information that the entity does not own or license. A notice 
in major media outlets serving a state or jurisdiction also 
would have to be provided for any breach of more than 5,000 
residents' records within a particular state. In addition, 
business entities would be required to notify other entities 
and agencies in the event of a large security breach. Entities 
that experience the breach of such data would have to notify 
the affected victims and consumer reporting agencies if the 
breach involves more than 5,000 individuals. They would have to 
notify the U.S. Secret Service if the breach involves more than 
10,000 individuals. The bill, however, would exempt business 
entities from the notification requirements under certain 
circumstances.
    According to industry sources, millions of individuals' 
sensitive personally identifiable information is illegally 
accessed or otherwise breached every year. However, according 
to those sources, 45 states already have laws requiring 
notification in the event of a security breach. In addition, it 
is the standard practice of most business entities to notify 
individuals if a security breach occurs. Therefore, CBO 
estimates the notification requirements would not impose 
significant additional costs on businesses.

Requirements for data brokers

    The bill would impose new disclosure and data collection 
requirements on data brokers. The bill defines a data broker as 
a business entity which for monetary fees or dues regularly 
collects for the practice of collecting, transmitting, or 
providing access to sensitive, personally identifiable 
information on more than 5,000 individuals who are not the 
customers or employees of that business entity or affiliate 
primarily for the purposes of providing such information to 
nonaffiliated third parties on an interstate basis.
    Section 201 would require certain data brokers to disclose 
to individuals, upon their request, all personal electronic 
records relating to an individual that are kept primarily for 
third parties. Additionally, if an individual disputes the 
accuracy of the information that is contained in the data 
brokers' records, the data brokers would be required to change 
the information or provide the individual with contact 
information for the source from which they obtained the 
information. Upon investigation, data brokers could determine 
that some requests to change an individual's information are 
frivolous. However, the data broker would be required to notify 
any individual requesting a change of information if such an 
action is taken.
    The cost of providing records upon request depends on the 
costs of gathering and distributing the information to 
individuals and the number of individuals requesting their 
information. Under the bill, data brokers would be allowed to 
charge a reasonable fee for this service. Data brokers would 
likely be able to cover their costs of providing individuals 
with their personal information with the fee they could charge. 
However, the cost to data brokers of having to change 
individuals' information and notifying the individuals could be 
large. According to information from industry sources, however, 
some data brokers already correct information based on requests 
from individuals.
    The average cost to large data brokers that currently 
provide this service is about $8.50 each time a record is 
disclosed and information is disputed by an individual, 
according to some industry experts. However, the cost per 
record may be higher for data brokers who do not currently have 
systems in place to handle such disputes. Some evidence exists 
that many individuals' personally identifiable information 
housed at data brokerage firms is in part incorrect. If a large 
number of individuals request data changes, CBO estimates that 
the time and notification costs to data brokers could be high. 
Because of uncertainty about the number of individuals who 
would request information under the bill and as a result of 
those requests, the amount of information that would need to be 
changed, CBO cannot estimate the cost of this mandate.

Adverse actions using information from data brokers

    Section 201 also would require any entity taking an adverse 
action with respect to an individual based on information 
contained in a personal electronic record maintained, updated, 
owned, or possessed by a data broker to notify the individual 
of the adverse action. The notification can be written or 
electronic and must include certain information about the data 
broker. While the per-individual cost of notification would be 
small, the cost of complying with the mandate would depend on 
the number of adverse actions that would be taken against 
individuals by entities. Because data about the incidence of 
such actions are unavailable, CBO has no basis to determine the 
direct cost of complying with this mandate.
    Estimate prepared by: Federal costs: Federal Agencies--
Matthew Pickford; U.S. Secret Service--Mark Grabowicz; Impact 
on state, local, and tribal governments: Elizabeth Cove 
Delisle; Impact on the private sector: Marin Randall.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                    V. Regulatory Impact Evaluation

    In compliance with Rule XXVI of the Standing Rules of the 
Senate, the Committee finds that no significant regulatory 
impact will result from the enactment of S. 1490.

                             VI. Conclusion

    The Personal Data Privacy and Security Act of 2009, S. 
1490, provides greatly needed privacy protections to American 
consumers and businesses, to ensure that all Americans have the 
tools necessary to protect themselves from identity theft and 
other data security risks. This legislation will also ensure 
that the most effective mechanisms and technologies for dealing 
with the underlying problem of lax data security are 
implemented by the Nation's businesses to help prevent data 
breaches from occurring in the first place. The passage and 
enactment of this important privacy legislation is long 
overdue.

           VII. MINORITY VIEWS FROM SENATORS SESSIONS AND KYL

    This legislation deals with two issues about which there is 
bipartisan agreement on the need for congressional action: data 
security and identity theft. We fully support the goals behind 
the provisions on this legislation dealing with notice to law 
enforcement and to consumers in the event of a data breach. 
Such notice provides law enforcement with valuable information 
on how to fight data and identity theft crimes which have 
exploded in recent years, and which are now increasingly 
committed by sophisticated criminal enterprises with global 
reach. Timely notice of genuine threats to individuals' 
identity information also gives consumers the ability to 
protect themselves. We believe, however, that notice to 
consumers must occur after an intelligent assessment of the 
risk a breach poses to consumers. Requiring notice for trivial 
security breaches will cause consumers to be inundated by 
inconsequential warnings, and if consumers find themselves 
overwhelmed by trivial notices, they will be more likely to 
ignore warnings that matter--when their identity information is 
genuinely at risk. Such a notice regime would not help 
consumers, but will affirmatively harm them.
    While we commend the Chairman's efforts in this area, we 
unfortunately cannot support S. 1490 because we believe that it 
will be counterproductive to our shared goal of consumer 
protection, and because we fear that it strays far afield from 
the core objective of protecting consumers whose information 
has been compromised. S. 1490 seeks to impose new regulations 
not only on ``Data Brokers''--a class of businesses defined so 
broadly as to ensnare companies not engaged in the data broker 
business--but also on any entity or person that merely uses 
information obtained from commercial data sources. The 
regulations proposed in this bill will confuse consumers and 
businesses alike, and eventually harm the economy at large.

                               BACKGROUND

    Identity theft is a major concern for consumers and for 
businesses, and the threat from increasingly sophisticated 
criminal enterprises is both serious and growing. Both business 
and government have spent a great deal of time and effort to 
understand and combat this crime. Law enforcement at the 
federal, state and local levels have increased their 
cooperation, and businesses have adopted more rigorous internal 
controls to protect their customers' information. During the 
last Administration, the President's Identity Theft Task Force 
issued a report in April 2007 after 10 months of study, showing 
that the business community had spent billions of dollars 
enhancing data security, building better ways to detect and 
stop fraud and identity theft before it occurs, and working 
with victims.
    State governments have also become very active in this 
area. Already 45 states and the District of Columbia have 
enacted laws to combat identity theft and to require businesses 
who are victimized by a data breach to contact consumers and 
inform them of the risk to their sensitive personal identity 
information. There are significant differences across the 
various state laws, however, and so a Federal response--to 
provide consistency and predictability which will promote 
interstate commerce--is clearly necessary.
    Our first priority must be to ensure that consumers have 
the tools to protect themselves in the event of a data breach. 
Americans need to be notified when information pertaining to 
them is compromised in a way that may jeopardize their 
identities. For such notices to be effective, however, they 
must be issued only when there are reasonable grounds to do so. 
We know from the experience of the Gramm-Leach-Bliley Act 
(GLBA) that over-notification leads to consumer apathy, with 
the result that consumers are exposed to greater risks.

SPECIFIC CONCERNS WITH S. 1490, THE PERSONAL DATA PRIVACY AND SECURITY 
                                  ACT

    Though we support many of the stated goals of this 
legislation, we have several specific concerns with S. 1490 as 
reported by the Committee.

1. The Notice provisions will likely result in over-notification to 
        consumers of data breaches

    The bill sets a default rule that consumers must be 
notified of any breach ``following the discovery'' of a breach. 
It then provides a ``safe harbor'' that excuses companies from 
that obligation if the company conducts a risk assessment and 
concludes that the breach does not bear a reasonable risk of 
``harm'' to the consumer. The term ``harm'' is potentially very 
broad, and the bill does not define it. Although supporters of 
the bill have been repeatedly asked what ``harm'' would cover, 
they have never provided a clear answer. In the face of such 
ambiguity, and in the face of the severe consequences for 
failure to issue notices when required, businesses are likely 
to minimize their legal risk by simply notifying consumers even 
of minor non-threatening breaches. Such defensive behavior, 
however rational from the perspective of the business 
victimized by a data breach, will almost certainly dull 
consumers' sensitivity to breach notices and leave them at 
greater risk than they face in the absence of federal 
legislation.

2. The scope of protected information is over-broad, and will 
        contribute to over-notification

    The bill also defines the protected class of information--
``sensitive personally identifiable information''--to include 
widely available information that is not sufficient to pose a 
risk of identity theft. But the bill's notice and ``safe 
harbor'' provisions would be triggered even where the data 
breach only revealed such relatively innocuous information.

3. The definition of Security Breach is over-broad

    The bill defines a breach as including unauthorized 
``access'' or ``acquisition'' of sensitive personally 
identifiable information. While ``access'' to such information 
is a common term used in the criminal code, its use alongside 
``acquisition'' implies that ``access'' refers only to 
instances where the personal data is not ``acquired''--i.e. 
where the data is not in some way recorded, collected, or taken 
for future, potentially harmful, use. Thus, the current 
definition of a ``breach'' would appear to cover instances 
where information is viewed in passing, or possibly where a 
person obtains unauthorized access to a computer system that 
contains personal information, even if the invader never views 
or downloads the information. Such activity, however, does not 
threaten individuals whose data was ``accessed'' with any harm.
    The problems posed by this definition may be reduced in 
part by the new proviso added to the definition of a ``security 
breach'' in committee, which limits the definition of a breach 
to incidents ``which present a significant risk of harm or 
fraud to any individual.'' That language, however, leads to 
different problems.
    One of the most valuable aspects of S. 1490 is the 
requirement for companies who suffer data breaches to report 
those incidents to law enforcement. That reporting requirement 
will assist our law enforcement agencies to better analyze and 
defend against the methods of increasingly sophisticated and 
global criminal enterprises that commonly engage in data theft. 
In order to avoid desensitizing the public through over-
notification of such breaches, however, any legislation in this 
area should include a clear risk-based standard for requiring 
companies to take the additional step of notifying individual 
consumers who might have been affected by the breach.
    Inserting the ``significant risk of harm or fraud'' test in 
the definition of a ``security breach,'' however, places the 
threshold too early in the process. This language also places 
the determination of whether there is a ``substantial risk,'' 
and thus, the applicability of the entire breach notice regime, 
largely within the discretion of the business that experienced 
the data breach. While S. 1490 imposes severe penalties on 
companies who refuse to provide appropriate notice to 
consumers, the inclusion of a ``significant risk'' test in the 
definition of a ``breach'' dramatically increases the risk that 
a company might incorrectly conclude that the attack it 
suffered did not meet the statutory definition of a ``security 
breach'' and thus fail to notify or seek the views of law 
enforcement.

4. The legislation should specifically and completely exempt entities 
        regulated by other federal laws from the provisions of this Act

    Consumer reporting agencies (CRAs) are already fully 
regulated under requirements under the Fair Credit Reporting 
Act (FCRA), and financial institutions are regulated under the 
Gramm-Leach-Bliley Act. Companies that are already regulated 
under the FCRA and Gramm-Leach-Bliley (GLB) should be 
specifically exempt from this Act, and from the definition of 
``data broker'' because they are already subject to rigorous 
data safeguard requirements under these statutes.
    The Fair Credit Reporting Act (15 U.S.C. Sec. 1681 et seq.) 
is a time-tested statute that has received frequent and 
thoughtful review by Congress, and was most recently updated in 
2003, with extensive changes implemented by the FACT Act (Pub. 
L. 108-159).\1\
---------------------------------------------------------------------------
    \1\That Act contained a number of significant provisions designed 
to protect consumers and combat identity theft, and I again complement 
Senator Shelby for his work on that legislation as the then--Chairman 
of the Senate Banking Committee.
---------------------------------------------------------------------------
    The requirements laid out in this legislation would create 
a host of conflicting, inconsistent, unworkable and potentially 
negative impacts on FCRA-regulated entities, and could have 
significant negative effects on consumers.
    Further, assuming that it was the Committee's intent to 
exempt FCRA and GLB covered entities from the scope of some 
provisions of this Act, the exemption crafted by the Committee 
is incomplete, and would in many cases subject FCRA regulated 
entities to duplicative and conflicting standards. Rather than 
having the Judiciary Committee attempt to craft those 
exemptions, we should defer to the Banking Committee, which has 
the expertise to determine that the exemptions are as complete 
as intended.

5. Other issues

    In addition to these flaws, S. 1490 also contains 
unnecessary provisions that might be politically attractive to 
their advocates but which do not ultimately serve the interests 
of the consumers we are pledged to protect.
    The data broker regulations in Title II of S. 1490 are the 
best example of the ``bloat'' that afflicts this bill. 
Notwithstanding the exemptions incorporated into this title, 
the bill's definition of ``data broker'' is far too broad and 
runs the risk of covering a range of entities--including on-
line payment or banking service providers--that are not engaged 
in a business that fits the common understanding of what 
constitutes a ``data broker.''
    Title II also attempts to treat data broker services as 
analogous to credit reporting services, while overlooking the 
fact that the uses of these databases--e.g., for authenticating 
identity and fraud prevention, as well as for things such as 
locating deadbeat parents--is very different from the 
predominant use of credit report data as a financial 
transactions tool. For example, Title II contains a vague and 
potentially wide-ranging notice obligation by any person or 
entity who takes ``adverse action'' against an individual based 
in whole or in part on information obtained from a data broker. 
Yet ``adverse action'' is never defined, and the potential 
reach of this obligation is enormous. In addition, Title II 
creates a reach-through right for any consumer to contest 
information held by a data broker by being referred to the 
source of the information, including any commercial business 
with which the individual has a transaction history. Such a 
requirement would impose enormous costs on the U.S. economy, in 
exchange for little protection gained for the individual 
consumer.
    Title IV of S. 1490 is also problematic, since it would 
require federal agencies that use data broker services to 
publish privacy impact notices in the Federal Register. Not 
only does this take an obligation that attaches to records in 
government's own control and attach it to privately held data 
which the government reviews under contract, but the privacy 
impact analysis language in the bill contains no exception for 
law enforcement or counterterrorism uses of the data broker's 
services. According to a 2005 GAO audit, 91% of government use 
of data broker services was for these two types of activities, 
and publication of details about the government's data use 
(e.g. for security investigations or other sensitive 
activities) could hamper these critical functions.

                               CONCLUSION

    For these reasons, we dissent from the views and policy 
represented by S.1490, and we would urge our colleagues to 
revisit many of the policy and drafting problems created by 
this bill.
                                   Jeff Sessions.
                                   Jon Kyl.
      VIII. Changes to Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of Rule XXVI of the 
Standing Rules of the Senate, the Committee finds that it is 
necessary to dispense with the requirement of paragraph 12 to 
expedite the business of the Senate.

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