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[House Report 111-362]
[From the U.S. Government Publishing Office]

111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    111-362

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

 
                   DATA ACCOUNTABILITY AND TRUST ACT

                                _______
                                

December 8, 2009.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Waxman, from the Committee on Energy and Commerce, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 2221]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Energy and Commerce, to whom was referred 
the bill (H.R. 2221) to protect consumers by requiring 
reasonable security policies and procedures to protect 
computerized data containing personal information, and to 
provide for nationwide notice in the event of a security 
breach, having considered the same, report favorably thereon 
with amendments and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................    11
Background and Need for Legislation..............................    11
Legislative History..............................................    13
Committee Consideration..........................................    13
Committee Votes..................................................    13
Statement of Committee Oversight Findings and Recommendations....    13
New Budget Authority, Entitlement Authority, and Tax Expenditures    14
Statement of General Performance Goals and Objectives............    14
Constitutional Authority Statement...............................    14
Earmarks and Tax and Tariff Benefits.............................    14
Federal Advisory Committee Statement.............................    14
Applicability of Law to Legislative Branch.......................    14
Federal Mandates Statement.......................................    14
Committee Cost Estimate..........................................    15
Congressional Budget Office Cost Estimate........................    15
Section-by-Section Analysis of the Legislation...................    20
Explanation of Amendments........................................    30
Changes in Existing Law Made by the Bill, as Reported............    31

                               AMENDMENT

  The amendments are as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Data Accountability and Trust Act''.

SEC. 2. REQUIREMENTS FOR INFORMATION SECURITY.

  (a) General Security Policies and Procedures.--
          (1) Regulations.--Not later than 1 year after the date of 
        enactment of this Act, the Commission shall promulgate 
        regulations under section 553 of title 5, United States Code, 
        to require each person engaged in interstate commerce that owns 
        or possesses data containing personal information, or contracts 
        to have any third party entity maintain such data for such 
        person, to establish and implement policies and procedures 
        regarding information security practices for the treatment and 
        protection of personal information taking into consideration--
                  (A) the size of, and the nature, scope, and 
                complexity of the activities engaged in by, such 
                person;
                  (B) the current state of the art in administrative, 
                technical, and physical safeguards for protecting such 
                information; and
                  (C) the cost of implementing such safeguards.
          (2) Requirements.--Such regulations shall require the 
        policies and procedures to include the following:
                  (A) A security policy with respect to the collection, 
                use, sale, other dissemination, and maintenance of such 
                personal information.
                  (B) The identification of an officer or other 
                individual as the point of contact with responsibility 
                for the management of information security.
                  (C) A process for identifying and assessing any 
                reasonably foreseeable vulnerabilities in the system or 
                systems maintained by such person that contains such 
                data, which shall include regular monitoring for a 
                breach of security of such system or systems.
                  (D) A process for taking preventive and corrective 
                action to mitigate against any vulnerabilities 
                identified in the process required by subparagraph (C), 
                which may include implementing any changes to security 
                practices and the architecture, installation, or 
                implementation of network or operating software.
                  (E) A process for disposing of data in electronic 
                form containing personal information by shredding, 
                permanently erasing, or otherwise modifying the 
                personal information contained in such data to make 
                such personal information permanently unreadable or 
                undecipherable.
                  (F) A standard method or methods for the destruction 
                of paper documents and other non-electronic data 
                containing personal information.
          (3) Treatment of entities governed by other law.--Any person 
        who is in compliance with any other Federal law that requires 
        such person to maintain standards and safeguards for 
        information security and protection of personal information 
        that, taken as a whole and as the Commission shall determine in 
        the rulemaking required under paragraph (1), provide 
        protections substantially similar to, or greater than, those 
        required under this subsection, shall be deemed to be in 
        compliance with this subsection.
  (b) Special Requirements for Information Brokers.--
          (1) Submission of policies to the ftc.--The regulations 
        promulgated under subsection (a) shall require each information 
        broker to submit its security policies to the Commission in 
        conjunction with a notification of a breach of security under 
        section 3 or upon request of the Commission.
          (2) Post-breach audit.--For any information broker required 
        to provide notification under section 3, the Commission may 
        conduct audits of the information security practices of such 
        information broker, or require the information broker to 
        conduct independent audits of such practices (by an independent 
        auditor who has not audited such information broker's security 
        practices during the preceding 5 years).
          (3) Accuracy of and individual access to personal 
        information.--
                  (A) Accuracy.--
                          (i) In general.--Each information broker 
                        shall establish reasonable procedures to assure 
                        the maximum possible accuracy of the personal 
                        information it collects, assembles, or 
                        maintains, and any other information it 
                        collects, assembles, or maintains that 
                        specifically identifies an individual, other 
                        than information which merely identifies an 
                        individual's name or address.
                          (ii) Limited exception for fraud databases.--
                        The requirement in clause (i) shall not prevent 
                        the collection or maintenance of information 
                        that may be inaccurate with respect to a 
                        particular individual when that information is 
                        being collected or maintained solely--
                                  (I) for the purpose of indicating 
                                whether there may be a discrepancy or 
                                irregularity in the personal 
                                information that is associated with an 
                                individual; and
                                  (II) to help identify, or 
                                authenticate the identity of, an 
                                individual, or to protect against or 
                                investigate fraud or other unlawful 
                                conduct.
                  (B) Consumer access to information.--
                          (i) Access.--Each information broker shall--
                                  (I) provide to each individual whose 
                                personal information it maintains, at 
                                the individual's request at least 1 
                                time per year and at no cost to the 
                                individual, and after verifying the 
                                identity of such individual, a means 
                                for the individual to review any 
                                personal information regarding such 
                                individual maintained by the 
                                information broker and any other 
                                information maintained by the 
                                information broker that specifically 
                                identifies such individual, other than 
                                information which merely identifies an 
                                individual's name or address; and
                                  (II) place a conspicuous notice on 
                                its Internet website (if the 
                                information broker maintains such a 
                                website) instructing individuals how to 
                                request access to the information 
                                required to be provided under subclause 
                                (I), and, as applicable, how to express 
                                a preference with respect to the use of 
                                personal information for marketing 
                                purposes under clause (iii).
                          (ii) Disputed information.--Whenever an 
                        individual whose information the information 
                        broker maintains makes a written request 
                        disputing the accuracy of any such information, 
                        the information broker, after verifying the 
                        identity of the individual making such request 
                        and unless there are reasonable grounds to 
                        believe such request is frivolous or 
                        irrelevant, shall--
                                  (I) correct any inaccuracy; or
                                  (II)(aa) in the case of information 
                                that is public record information, 
                                inform the individual of the source of 
                                the information, and, if reasonably 
                                available, where a request for 
                                correction may be directed and, if the 
                                individual provides proof that the 
                                public record has been corrected or 
                                that the information broker was 
                                reporting the information incorrectly, 
                                correct the inaccuracy in the 
                                information broker's records; or
                                  (bb) in the case of information that 
                                is non-public information, note the 
                                information that is disputed, including 
                                the individual's statement disputing 
                                such information, and take reasonable 
                                steps to independently verify such 
                                information under the procedures 
                                outlined in subparagraph (A) if such 
                                information can be independently 
                                verified.
                          (iii) Alternative procedure for certain 
                        marketing information.--In accordance with 
                        regulations issued under clause (v), an 
                        information broker that maintains any 
                        information described in clause (i) which is 
                        used, shared, or sold by such information 
                        broker for marketing purposes, may, in lieu of 
                        complying with the access and dispute 
                        requirements set forth in clauses (i) and (ii), 
                        provide each individual whose information it 
                        maintains with a reasonable means of expressing 
                        a preference not to have his or her information 
                        used for such purposes. If the individual 
                        expresses such a preference, the information 
                        broker may not use, share, or sell the 
                        individual's information for marketing 
                        purposes.
                          (iv) Limitations.--An information broker may 
                        limit the access to information required under 
                        subparagraph (B)(i)(I) and is not required to 
                        provide notice to individuals as required under 
                        subparagraph (B)(i)(II) in the following 
                        circumstances:
                                  (I) If access of the individual to 
                                the information is limited by law or 
                                legally recognized privilege.
                                  (II) If the information is used for a 
                                legitimate governmental or fraud 
                                prevention purpose that would be 
                                compromised by such access.
                                  (III) If the information consists of 
                                a published media record, unless that 
                                record has been included in a report 
                                about an individual shared with a third 
                                party.
                          (v) Rulemaking.--Not later than 1 year after 
                        the date of the enactment of this Act, the 
                        Commission shall promulgate regulations under 
                        section 553 of title 5, United States Code, to 
                        carry out this paragraph and to facilitate the 
                        purposes of this Act. In addition, the 
                        Commission shall issue regulations, as 
                        necessary, under section 553 of title 5, United 
                        States Code, on the scope of the application of 
                        the limitations in clause (iv), including any 
                        additional circumstances in which an 
                        information broker may limit access to 
                        information under such clause that the 
                        Commission determines to be appropriate.
                  (C) FCRA regulated persons.--Any information broker 
                who is engaged in activities subject to the Fair Credit 
                Reporting Act and who is in compliance with sections 
                609, 610, and 611 of such Act with respect to 
                information subject to such Act, shall be deemed to be 
                in compliance with this paragraph with respect to such 
                information.
          (4) Requirement of audit log of accessed and transmitted 
        information.--Not later than 1 year after the date of the 
        enactment of this Act, the Commission shall promulgate 
        regulations under section 553 of title 5, United States Code, 
        to require information brokers to establish measures which 
        facilitate the auditing or retracing of any internal or 
        external access to, or transmissions of, any data containing 
        personal information collected, assembled, or maintained by 
        such information broker.
          (5) Prohibition on pretexting by information brokers.--
                  (A) Prohibition on obtaining personal information by 
                false pretenses.--It shall be unlawful for an 
                information broker to obtain or attempt to obtain, or 
                cause to be disclosed or attempt to cause to be 
                disclosed to any person, personal information or any 
                other information relating to any person by--
                          (i) making a false, fictitious, or fraudulent 
                        statement or representation to any person; or
                          (ii) providing any document or other 
                        information to any person that the information 
                        broker knows or should know to be forged, 
                        counterfeit, lost, stolen, or fraudulently 
                        obtained, or to contain a false, fictitious, or 
                        fraudulent statement or representation.
                  (B) Prohibition on solicitation to obtain personal 
                information under false pretenses.--It shall be 
                unlawful for an information broker to request a person 
                to obtain personal information or any other information 
                relating to any other person, if the information broker 
                knew or should have known that the person to whom such 
                a request is made will obtain or attempt to obtain such 
                information in the manner described in subparagraph 
                (A).
  (c) Exemption for Certain Service Providers.--Nothing in this section 
shall apply to a service provider for any electronic communication by a 
third party that is transmitted, routed, or stored in intermediate or 
transient storage by such service provider.

SEC. 3. NOTIFICATION OF INFORMATION SECURITY BREACH.

  (a) Nationwide Notification.--Any person engaged in interstate 
commerce that owns or possesses data in electronic form containing 
personal information shall, following the discovery of a breach of 
security of the system maintained by such person that contains such 
data--
          (1) notify each individual who is a citizen or resident of 
        the United States whose personal information was acquired or 
        accessed as a result of such a breach of security; and
          (2) notify the Commission.
  (b) Special Notification Requirements.--
          (1) Third party agents.--In the event of a breach of security 
        by any third party entity that has been contracted to maintain 
        or process data in electronic form containing personal 
        information on behalf of any other person who owns or possesses 
        such data, such third party entity shall be required to notify 
        such person of the breach of security. Upon receiving such 
        notification from such third party, such person shall provide 
        the notification required under subsection (a).
          (2) Service providers.--If a service provider becomes aware 
        of a breach of security of data in electronic form containing 
        personal information that is owned or possessed by another 
        person that connects to or uses a system or network provided by 
        the service provider for the purpose of transmitting, routing, 
        or providing intermediate or transient storage of such data, 
        such service provider shall be required to notify of such a 
        breach of security only the person who initiated such 
        connection, transmission, routing, or storage if such person 
        can be reasonably identified. Upon receiving such notification 
        from a service provider, such person shall provide the 
        notification required under subsection (a).
          (3) Coordination of notification with credit reporting 
        agencies.--If a person is required to provide notification to 
        more than 5,000 individuals under subsection (a)(1), the person 
        shall also notify the major credit reporting agencies that 
        compile and maintain files on consumers on a nationwide basis, 
        of the timing and distribution of the notices. Such notice 
        shall be given to the credit reporting agencies without 
        unreasonable delay and, if it will not delay notice to the 
        affected individuals, prior to the distribution of notices to 
        the affected individuals.
  (c) Timeliness of Notification.--
          (1) In general.--Unless subject to a delay authorized under 
        paragraph (2), a notification required under subsection (a) 
        shall be made not later than 60 days following the discovery of 
        a breach of security, unless the person providing notice can 
        show that providing notice within such a time frame is not 
        feasible due to extraordinary circumstances necessary to 
        prevent further breach or unauthorized disclosures, and 
        reasonably restore the integrity of the data system, in which 
        case such notification shall be made as promptly as possible.
          (2) Delay of notification authorized for law enforcement or 
        national security purposes.--
                  (A) Law enforcement.--If a Federal, State, or local 
                law enforcement agency determines that the notification 
                required under this section would impede a civil or 
                criminal investigation, such notification shall be 
                delayed upon the written request of the law enforcement 
                agency for 30 days or such lesser period of time which 
                the law enforcement agency determines is reasonably 
                necessary and requests in writing. A law enforcement 
                agency may, by a subsequent written request, revoke 
                such delay or extend the period of time set forth in 
                the original request made under this paragraph if 
                further delay is necessary.
                  (B) National security.--If a Federal national 
                security agency or homeland security agency determines 
                that the notification required under this section would 
                threaten national or homeland security, such 
                notification may be delayed for a period of time which 
                the national security agency or homeland security 
                agency determines is reasonably necessary and requests 
                in writing. A Federal national security agency or 
                homeland security agency may revoke such delay or 
                extend the period of time set forth in the original 
                request made under this paragraph by a subsequent 
                written request if further delay is necessary.
  (d) Method and Content of Notification.--
          (1) Direct notification.--
                  (A) Method of notification.--A person required to 
                provide notification to individuals under subsection 
                (a)(1) shall be in compliance with such requirement if 
                the person provides conspicuous and clearly identified 
                notification by one of the following methods (provided 
                the selected method can reasonably be expected to reach 
                the intended individual):
                          (i) Written notification.
                          (ii) Notification by email or other 
                        electronic means , if--
                                  (I) the person's primary method of 
                                communication with the individual is by 
                                email or such other electronic means; 
                                or
                                  (II) the individual has consented to 
                                receive such notification and the 
                                notification is provided in a manner 
                                that is consistent with the provisions 
                                permitting electronic transmission of 
                                notices under section 101 of the 
                                Electronic Signatures in Global 
                                Commerce Act (15 U.S.C. 7001).
                  (B) Content of notification.--Regardless of the 
                method by which notification is provided to an 
                individual under subparagraph (A), such notification 
                shall include--
                          (i) a description of the personal information 
                        that was acquired or accessed by an 
                        unauthorized person;
                          (ii) a telephone number that the individual 
                        may use, at no cost to such individual, to 
                        contact the person to inquire about the breach 
                        of security or the information the person 
                        maintained about that individual;
                          (iii) notice that the individual is entitled 
                        to receive, at no cost to such individual, 
                        consumer credit reports on a quarterly basis 
                        for a period of 2 years, or credit monitoring 
                        or other service that enables consumers to 
                        detect the misuse of their personal information 
                        for a period of 2 years, and instructions to 
                        the individual on requesting such reports or 
                        service from the person, except when the only 
                        information which has been the subject of the 
                        security breach is the individual's first name 
                        or initial and last name, or address, or phone 
                        number, in combination with a credit or debit 
                        card number, and any required security code;
                          (iv) the toll-free contact telephone numbers 
                        and addresses for the major credit reporting 
                        agencies; and
                          (v) a toll-free telephone number and Internet 
                        website address for the Commission whereby the 
                        individual may obtain information regarding 
                        identity theft.
          (2) Substitute notification.--
                  (A) Circumstances giving rise to substitute 
                notification.--A person required to provide 
                notification to individuals under subsection (a)(1) may 
                provide substitute notification in lieu of the direct 
                notification required by paragraph (1) if the person 
                owns or possesses data in electronic form containing 
                personal information of fewer than 1,000 individuals 
                and such direct notification is not feasible due to--
                          (i) excessive cost to the person required to 
                        provide such notification relative to the 
                        resources of such person, as determined in 
                        accordance with the regulations issued by the 
                        Commission under paragraph (3)(A); or
                          (ii) lack of sufficient contact information 
                        for the individual required to be notified.
                  (B) Form of substitute notification.--Such substitute 
                notification shall include--
                          (i) email notification to the extent that the 
                        person has email addresses of individuals to 
                        whom it is required to provide notification 
                        under subsection (a)(1);
                          (ii) a conspicuous notice on the Internet 
                        website of the person (if such person maintains 
                        such a website); and
                          (iii) notification in print and to broadcast 
                        media, including major media in metropolitan 
                        and rural areas where the individuals whose 
                        personal information was acquired reside.
                  (C) Content of substitute notice.--Each form of 
                substitute notice under this paragraph shall include--
                          (i) notice that individuals whose personal 
                        information is included in the breach of 
                        security are entitled to receive, at no cost to 
                        the individuals, consumer credit reports on a 
                        quarterly basis for a period of 2 years, or 
                        credit monitoring or other service that enables 
                        consumers to detect the misuse of their 
                        personal information for a period of 2 years, 
                        and instructions on requesting such reports or 
                        service from the person, except when the only 
                        information which has been the subject of the 
                        security breach is the individual's first name 
                        or initial and last name, or address, or phone 
                        number, in combination with a credit or debit 
                        card number, and any required security code; 
                        and
                          (ii) a telephone number by which an 
                        individual can, at no cost to such individual, 
                        learn whether that individual's personal 
                        information is included in the breach of 
                        security.
          (3) Regulations and guidance.--
                  (A) Regulations.--Not later than 1 year after the 
                date of enactment of this Act, the Commission shall, by 
                regulation under section 553 of title 5, United States 
                Code, establish criteria for determining circumstances 
                under which substitute notification may be provided 
                under paragraph (2), including criteria for determining 
                if notification under paragraph (1) is not feasible due 
                to excessive costs to the person required to provided 
                such notification relative to the resources of such 
                person. Such regulations may also identify other 
                circumstances where substitute notification would be 
                appropriate for any person, including circumstances 
                under which the cost of providing notification exceeds 
                the benefits to consumers.
                  (B) Guidance.--In addition, the Commission shall 
                provide and publish general guidance with respect to 
                compliance with this subsection. Such guidance shall 
                include--
                          (i) a description of written or email 
                        notification that complies with the 
                        requirements of paragraph (1); and
                          (ii) guidance on the content of substitute 
                        notification under paragraph (2), including the 
                        extent of notification to print and broadcast 
                        media that complies with the requirements of 
                        such paragraph.
  (e) Other Obligations Following Breach.--
          (1) In general.--A person required to provide notification 
        under subsection (a) shall, upon request of an individual whose 
        personal information was included in the breach of security, 
        provide or arrange for the provision of, to each such 
        individual and at no cost to such individual--
                  (A) consumer credit reports from at least one of the 
                major credit reporting agencies beginning not later 
                than 60 days following the individual's request and 
                continuing on a quarterly basis for a period of 2 years 
                thereafter; or
                  (B) a credit monitoring or other service that enables 
                consumers to detect the misuse of their personal 
                information, beginning not later than 60 days following 
                the individual's request and continuing for a period of 
                2 years.
          (2) Limitation.--This subsection shall not apply if the only 
        personal information which has been the subject of the security 
        breach is the individual's first name or initial and last name, 
        or address, or phone number, in combination with a credit or 
        debit card number, and any required security code.
          (3) Rulemaking.--As part of the Commission's rulemaking 
        described in subsection (d)(3), the Commission shall determine 
        the circumstances under which a person required to provide 
        notification under subsection (a)(1) shall provide or arrange 
        for the provision of free consumer credit reports or credit 
        monitoring or other service to affected individuals.
  (f) Exemption.--
          (1) General exemption.--A person shall be exempt from the 
        requirements under this section if, following a breach of 
        security, such person determines that there is no reasonable 
        risk of identity theft, fraud, or other unlawful conduct.
          (2) Presumption.--
                  (A) In general.--If the data in electronic form 
                containing personal information is rendered unusable, 
                unreadable, or indecipherable through encryption or 
                other security technology or methodology (if the method 
                of encryption or such other technology or methodology 
                is generally accepted by experts in the information 
                security field), there shall be a presumption that no 
                reasonable risk of identity theft, fraud, or other 
                unlawful conduct exists following a breach of security 
                of such data. Any such presumption may be rebutted by 
                facts demonstrating that the encryption or other 
                security technologies or methodologies in a specific 
                case, have been or are reasonably likely to be 
                compromised.
                  (B) Methodologies or technologies.--Not later than 1 
                year after the date of the enactment of this Act and 
                biannually thereafter, the Commission shall issue rules 
                (pursuant to section 553 of title 5, United States 
                Code) or guidance to identify security methodologies or 
                technologies which render data in electronic form 
                unusable, unreadable, or indecipherable, that shall, if 
                applied to such data, establish a presumption that no 
                reasonable risk of identity theft, fraud, or other 
                unlawful conduct exists following a breach of security 
                of such data. Any such presumption may be rebutted by 
                facts demonstrating that any such methodology or 
                technology in a specific case has been or is reasonably 
                likely to be compromised. In issuing such rules or 
                guidance, the Commission shall consult with relevant 
                industries, consumer organizations, and data security 
                and identity theft prevention experts and established 
                standards setting bodies.
          (3) FTC guidance.--Not later than 1 year after the date of 
        the enactment of this Act the Commission shall issue guidance 
        regarding the application of the exemption in paragraph (1).
  (g) Website Notice of Federal Trade Commission.--If the Commission, 
upon receiving notification of any breach of security that is reported 
to the Commission under subsection (a)(2), finds that notification of 
such a breach of security via the Commission's Internet website would 
be in the public interest or for the protection of consumers, the 
Commission shall place such a notice in a clear and conspicuous 
location on its Internet website.
  (h) FTC Study on Notification in Languages in Addition to English.--
Not later than 1 year after the date of enactment of this Act, the 
Commission shall conduct a study on the practicality and cost 
effectiveness of requiring the notification required by subsection 
(d)(1) to be provided in a language in addition to English to 
individuals known to speak only such other language.
  (i) General Rulemaking Authority.--The Commission may promulgate 
regulations necessary under section 553 of title 5, United States Code, 
to effectively enforce the requirements of this section.
  (j) Treatment of Persons Governed by Other Law.--A person who is in 
compliance with any other Federal law that requires such person to 
provide notification to individuals following a breach of security, and 
that, taken as a whole, provides protections substantially similar to, 
or greater than, those required under this section, as the Commission 
shall determine by rule (under section 553 of title 5, United States 
Code), shall be deemed to be in compliance with this section.

SEC. 4. APPLICATION AND ENFORCEMENT.

  (a) General Application.--The requirements of sections 2 and 3 shall 
only apply to those persons, partnerships, or corporations over which 
the Commission has authority pursuant to section 5(a)(2) of the Federal 
Trade Commission Act.
  (b) Enforcement by the Federal Trade Commission.--
          (1) Unfair or deceptive acts or practices.--A violation of 
        section 2 or 3 shall be treated as an unfair and deceptive act 
        or practice in violation of a regulation under section 
        18(a)(1)(B) of the Federal Trade Commission Act (15 U.S.C. 
        57a(a)(1)(B)) regarding unfair or deceptive acts or practices.
          (2) Powers of commission.--The Commission shall enforce this 
        Act in the same manner, by the same means, and with the same 
        jurisdiction, powers, and duties as though all applicable terms 
        and provisions of the Federal Trade Commission Act (15 U.S.C. 
        41 et seq.) were incorporated into and made a part of this Act. 
        Any person who violates such regulations shall be subject to 
        the penalties and entitled to the privileges and immunities 
        provided in that Act.
          (3) Limitation.--In promulgating rules under this Act, the 
        Commission shall not require the deployment or use of any 
        specific products or technologies, including any specific 
        computer software or hardware.
  (c) Enforcement by State Attorneys General.--
          (1) Civil action.--In any case in which the attorney general 
        of a State, or an official or agency of a State, has reason to 
        believe that an interest of the residents of that State has 
        been or is threatened or adversely affected by any person who 
        violates section 2 or 3 of this Act, the attorney general, 
        official, or agency of the State, as parens patriae, may bring 
        a civil action on behalf of the residents of the State in a 
        district court of the United States of appropriate 
        jurisdiction--
                  (A) to enjoin further violation of such section by 
                the defendant;
                  (B) to compel compliance with such section; or
                  (C) to obtain civil penalties in the amount 
                determined under paragraph (2).
          (2) Civil penalties.--
                  (A) Calculation.--
                          (i) Treatment of violations of section 2.--
                        For purposes of paragraph (1)(C) with regard to 
                        a violation of section 2, the amount determined 
                        under this paragraph is the amount calculated 
                        by multiplying the number of days that a person 
                        is not in compliance with such section by an 
                        amount not greater than $11,000.
                          (ii) Treatment of violations of section 3.--
                        For purposes of paragraph (1)(C) with regard to 
                        a violation of section 3, the amount determined 
                        under this paragraph is the amount calculated 
                        by multiplying the number of violations of such 
                        section by an amount not greater than $11,000. 
                        Each failure to send notification as required 
                        under section 3 to a resident of the State 
                        shall be treated as a separate violation.
                  (B) Adjustment for inflation.--Beginning on the date 
                that the Consumer Price Index is first published by the 
                Bureau of Labor Statistics that is after 1 year after 
                the date of enactment of this Act, and each year 
                thereafter, the amounts specified in clauses (i) and 
                (ii) of subparagraph (A) shall be increased by the 
                percentage increase in the Consumer Price Index 
                published on that date from the Consumer Price Index 
                published the previous year.
                  (C) Maximum total liability.--Notwithstanding the 
                number of actions which may be brought against a person 
                under this subsection the maximum civil penalty for 
                which any person may be liable under this subsection 
                shall not exceed--
                          (i) $5,000,000 for each violation of section 
                        2; and
                          (ii) $5,000,000 for all violations of section 
                        3 resulting from a single breach of security.
          (3) Intervention by the ftc.--
                  (A) Notice and intervention.--The State shall provide 
                prior written notice of any action under paragraph (1) 
                to the Commission and provide the Commission with a 
                copy of its complaint, except in any case in which such 
                prior notice is not feasible, in which case the State 
                shall serve such notice immediately upon instituting 
                such action. The Commission shall have the right--
                          (i) to intervene in the action;
                          (ii) upon so intervening, to be heard on all 
                        matters arising therein; and
                          (iii) to file petitions for appeal.
                  (B) Limitation on state action while federal action 
                is pending.--If the Commission has instituted a civil 
                action for violation of this Act, no State attorney 
                general, or official or agency of a State, may bring an 
                action under this subsection during the pendency of 
                that action against any defendant named in the 
                complaint of the Commission for any violation of this 
                Act alleged in the complaint.
          (4) Construction.--For purposes of bringing any civil action 
        under paragraph (1), nothing in this Act shall be construed to 
        prevent an attorney general of a State from exercising the 
        powers conferred on the attorney general by the laws of that 
        State to--
                  (A) conduct investigations;
                  (B) administer oaths or affirmations; or
                  (C) compel the attendance of witnesses or the 
                production of documentary and other evidence.
  (d) Affirmative Defense for a Violation of Section 3.--
          (1) In general.--It shall be an affirmative defense to an 
        enforcement action brought under subsection (b), or a civil 
        action brought under subsection (c), based on a violation of 
        section 3, that all of the personal information contained in 
        the data in electronic form that was acquired or accessed as a 
        result of a breach of security of the defendant is public 
        record information that is lawfully made available to the 
        general public from Federal, State, or local government records 
        and was acquired by the defendant from such records.
          (2) No effect on other requirements.--Nothing in this 
        subsection shall be construed to exempt any person from the 
        requirement to notify the Commission of a breach of security as 
        required under section 3(a).

SEC. 5. DEFINITIONS.

  In this Act the following definitions apply:
          (1) Breach of security.--The term ``breach of security'' 
        means unauthorized access to or acquisition of data in 
        electronic form containing personal information.
          (2) Commission.--The term ``Commission'' means the Federal 
        Trade Commission.
          (3) Data in electronic form.--The term ``data in electronic 
        form'' means any data stored electronically or digitally on any 
        computer system or other database and includes recordable tapes 
        and other mass storage devices.
          (4) Encryption.--The term ``encryption'' means the protection 
        of data in electronic form in storage or in transit using an 
        encryption technology that has been adopted by an established 
        standards setting body which renders such data indecipherable 
        in the absence of associated cryptographic keys necessary to 
        enable decryption of such data. Such encryption must include 
        appropriate management and safeguards of such keys to protect 
        the integrity of the encryption.
          (5) Identity theft.--The term ``identity theft'' means the 
        unauthorized use of another person's personal information for 
        the purpose of engaging in commercial transactions under the 
        name of such other person.
          (6) Information broker.--The term ``information broker''--
                  (A) means a commercial entity whose business is to 
                collect, assemble, or maintain personal information 
                concerning individuals who are not current or former 
                customers of such entity in order to sell such 
                information or provide access to such information to 
                any nonaffiliated third party in exchange for 
                consideration, whether such collection, assembly, or 
                maintenance of personal information is performed by the 
                information broker directly, or by contract or 
                subcontract with any other entity; and
                  (B) does not include a commercial entity to the 
                extent that such entity processes information collected 
                by and received from a nonaffiliated third party 
                concerning individuals who are current or former 
                customers or employees of such third party to enable 
                such third party to (1) provide benefits for its 
                employees or (2) directly transact business with its 
                customers.
          (7) Personal information.--
                  (A) Definition.--The term ``personal information'' 
                means an individual's first name or initial and last 
                name, or address, or phone number, in combination with 
                any 1 or more of the following data elements for that 
                individual:
                          (i) Social Security number.
                          (ii) Driver's license number, passport 
                        number, military identification number, or 
                        other similar number issued on a government 
                        document used to verify identity.
                          (iii) Financial account number, or credit or 
                        debit card number, and any required security 
                        code, access code, or password that is 
                        necessary to permit access to an individual's 
                        financial account.
                  (B) Modified definition by rulemaking.--The 
                Commission may, by rule promulgated under section 553 
                of title 5, United States Code, modify the definition 
                of ``personal information'' under subparagraph (A)--
                          (i) for the purpose of section 2 to the 
                        extent that such modification will not 
                        unreasonably impede interstate commerce, and 
                        will accomplish the purposes of this Act; or
                          (ii) for the purpose of section 3, to the 
                        extent that such modification is necessary to 
                        accommodate changes in technology or practices, 
                        will not unreasonably impede interstate 
                        commerce, and will accomplish the purposes of 
                        this Act.
          (8) Public record information.--The term ``public record 
        information'' means information about an individual which has 
        been obtained originally from records of a Federal, State, or 
        local government entity that are available for public 
        inspection.
          (9) Non-public information.--The term ``non-public 
        information'' means information about an individual that is of 
        a private nature and neither available to the general public 
        nor obtained from a public record.
          (10) Service provider.--The term ``service provider'' means 
        an entity that provides to a user transmission, routing, 
        intermediate and transient storage, or connections to its 
        system or network, for electronic communications, between or 
        among points specified by such user of material of the user's 
        choosing, without modification to the content of the material 
        as sent or received . Any such entity shall be treated as a 
        service provider under this Act only to the extent that it is 
        engaged in the provision of such transmission, routing, 
        intermediate and transient storage or connections.

SEC. 6. EFFECT ON OTHER LAWS.

  (a) Preemption of State Information Security Laws.--This Act 
supersedes any provision of a statute, regulation, or rule of a State 
or political subdivision of a State, with respect to those entities 
covered by the regulations issued pursuant to this Act, that 
expressly--
          (1) requires information security practices and treatment of 
        data containing personal information similar to any of those 
        required under section 2; and
          (2) requires notification to individuals of a breach of 
        security resulting in unauthorized access to or acquisition of 
        data in electronic form containing personal information.
  (b) Additional Preemption.--
          (1) In general.--No person other than a person specified in 
        section 4(c) may bring a civil action under the laws of any 
        State if such action is premised in whole or in part upon the 
        defendant violating any provision of this Act.
          (2) Protection of consumer protection laws.--This subsection 
        shall not be construed to limit the enforcement of any State 
        consumer protection law by an Attorney General of a State.
  (c) Protection of Certain State Laws.--This Act shall not be 
construed to preempt the applicability of--
          (1) State trespass, contract, or tort law; or
          (2) other State laws to the extent that those laws relate to 
        acts of fraud.
  (d) Preservation of FTC Authority.--Nothing in this Act may be 
construed in any way to limit or affect the Commission's authority 
under any other provision of law.

SEC. 7. EFFECTIVE DATE.

  This Act shall take effect 1 year after the date of enactment of this 
Act.

SEC. 8. AUTHORIZATION OF APPROPRIATIONS.

  There is authorized to be appropriated to the Commission $1,000,000 
for each of fiscal years 2010 through 2015 to carry out this Act.

  Amend the title so as to read:

      A bill to protect consumers by requiring reasonable 
security policies and procedures to protect data containing 
personal information, and to provide for nationwide notice in 
the event of a security breach.

                          PURPOSE AND SUMMARY

    H.R. 2221, the ``Data Accountability and Trust Act'', was 
introduced on April 30, 2009, by Reps. Bobby L. Rush (D-IL), 
Cliff Stearns (R-FL), Joe Barton (R-TX), George Radanovich (R-
CA), and Janice Schakowsky (D-IL). The goal of H.R. 2221 is to 
both reduce the number of data breaches and provide new rights 
to individuals whose personal information is compromised when a 
breach occurs. The bill has two major requirements: (1) an 
entity holding data containing personal information must adopt 
reasonable and appropriate security measures to protect such 
data; and (2) that same entity must notify affected consumers 
in the event of a breach unless the entity determines there is 
``no reasonable risk of identity theft, fraud, or other 
unlawful conduct.'' In addition, the bill requires information 
brokers to implement reasonable procedures that will ensure 
data accuracy and provide consumers with access to information 
and the ability to dispute inaccurate information in certain 
circumstances.

                  BACKGROUND AND NEED FOR LEGISLATION

    Data breaches can severely compromise the financial well-
being of individuals whose personal information is exploited to 
commit identity theft or fraud. Despite increased publicity 
surrounding high-profile data breaches, enforcement by the 
Federal Trade Commission (FTC), and ongoing calls for better 
data security from Congress and other governmental bodies, data 
breaches continue at an alarming pace. According to the Privacy 
Rights Clearinghouse, almost 340 million records containing 
``sensitive personal information'' have been ``involved in 
security breaches since January 2005.''\1\
---------------------------------------------------------------------------
    \1\Privacy Rights Clearinghouse, A Chronology of Data Breaches 
(online at www.privacyrights.org/ar/ChronDataBreaches.htm) (accessed 
Oct. 6, 2009).
---------------------------------------------------------------------------
    Data breaches have an impact on every sector of the 
economy. High-profile data breaches have plagued financial 
institutions, nationwide retailers, online merchants, 
information brokers, credit card processors, healthcare 
institutions, high-tech companies, research facilities, and 
government agencies. The causes of these breaches range from 
high-tech hacking and skimming to dumpster diving and simple 
laptop theft.
    Data breaches can result in substantial harm to consumers. 
Personal information that is lost or compromised may be 
exploited by criminals to commit identity theft, fraud, or 
other unlawful conduct. According to the FTC's most recent 
identity theft survey, approximately 8.3 million American 
adults--3.7% of all American adults--discovered that they were 
victims of identity theft in 2005.\2\ By some estimates, 
identity theft is the fastest growing type of fraud in the 
United States.\3\ Moreover, although identity theft often is 
associated with financial transactions, it also can take place 
in other contexts. For example, thieves can steal identities to 
gain employment, immigrate into this country, obtain medical 
care, apply for benefits, and evade law enforcement.
---------------------------------------------------------------------------
    \2\See Federal Trade Commission, Identity Theft Survey Report, 
prepared by Synovate, at 3 (2007) www.ftc.gov/os/2007/11/
SynovateFinalReportIDTheft2006.pdf.
    \3\ Congressional Research Service, Identity Theft: Trends and 
Issues, at 1 (Aug. 2009) (CRS-R40599).
---------------------------------------------------------------------------
    The best way to prevent identity theft and other harm is 
for individuals and businesses to properly secure personal 
information so that it does not fall into the wrong hands in 
the first place. Currently, several laws address data security 
requirements for narrow categories of information or specific 
sectors of the marketplace. These laws include the Gramm-Leach-
Bliley Act (``GLB Act'') Safeguards Rule,\4\ which contains 
data security requirements for financial institutions and the 
Fair Credit Reporting Act (``FCRA'') Disposal Rule,\5\ which 
imposes safe disposal obligations on entities that maintain 
consumer report information. In addition, FTC has used its 
enforcement authority under the FTC Act\6\ to bring actions 
against companies that have made misleading claims about data 
security procedures or failed to employ reasonable security 
measures in circumstances that caused substantial injury. There 
is no comprehensive federal law, however, that requires all 
companies that hold consumer personal information to implement 
reasonable measures to protect that data.
---------------------------------------------------------------------------
    \4\16 CFR Part 314, implementing 15 U.S.C. section 6801(b).
    \5\16 CFR Part 682, implementing 15 U.S.C. section 1681w.
    \6\15 U.S.C. section 45(a).
---------------------------------------------------------------------------
    Also, there is no federal law that requires companies that 
experience a data breach to provide notice to those consumers 
whose personal information was compromised. Consumers need to 
know when their sensitive information has been compromised in 
order to detect and prevent identity theft, fraud, or other 
unlawful conduct. Timely notice allows consumers to take 
concrete steps to prevent identity theft such as cancelling 
accounts or requesting new account numbers, monitoring accounts 
for unusual activity, and placing alerts on credit reports. 
Victims of identity theft can spend countless hours attempting 
to fix the myriad problems that can result from the misuse of 
personal information. Notice, as well as the provision of 
services to help consumers monitor their accounts for 
suspicious activity, would aid consumers with the arduous task 
of preventing and/or recovering from identity theft.
    H.R. 2221 is a comprehensive information security regime 
that will require all companies subject to FTC jurisdiction to 
implement an information security program to safeguard personal 
information. This program is applicable to personal information 
stored electronically and in paper records and would require 
companies to engage in an ongoing process of evaluating risks 
and taking reasonable measures to address those risks.
    H.R. 2221 also requires companies that experience a data 
breach to provide consumers with timely notice of the breach so 
that consumers can take steps to prevent harm. The bill creates 
uniform, nationwide standards for breach notification for all 
entities subject to FTC jurisdiction. The bill further requires 
companies to provide individuals with free monitoring services 
to detect the misuse of their personal information following a 
breach.
    In addition to the information security and breach 
notification requirements that apply to all entities subject to 
FTC jurisdiction, H.R. 2221 includes additional requirements 
for information brokers, those companies that are in the 
business of collecting personal information for the purpose of 
selling it to third parties.

                          LEGISLATIVE HISTORY

    The Data Accountability and Trust Act originally was 
introduced as H.R. 4127 in the 109th Congress on October 25, 
2005, by Rep. Stearns, who was then Chairman of the 
Subcommittee on Commerce, Trade, and Consumer Protection. In 
the 109th Congress, the Subcommittee on Commerce, Trade, and 
Consumer Protection held two oversight hearings on data 
breaches, data security, and information brokers, as well as a 
legislative hearing on a discussion draft of H.R. 4127. The 
Subcommittee considered H.R. 4127 in markup session and 
forwarded the bill, amended, to the full Committee on November 
3, 2005. On March 29, 2006, the Committee on Energy and 
Commerce met in open markup session and ordered H.R. 4127 
reported to the House, as amended, by a recorded vote of 41 
yeas and 0 nays.
    In the 110th Congress, H.R. 958 was introduced by Rep. 
Bobby L. Rush, Chairman of the Subcommittee on Commerce, Trade, 
and Consumer Protection, with the same language of the bill 
that passed out of the Committee in the previous Congress.

                        COMMITTEE CONSIDERATION

    In the 111th Congress, Subcommittee Chairman Rush, on 
behalf of himself, Reps. Stearns, Barton, Radanovich, and 
Schakowsky, reintroduced the bill as H.R. 2221 on April 30, 
2009. The bill was referred to the Subcommittee on Commerce, 
Trade, and Consumer Protection on May 1, 2009. The Subcommittee 
held a legislative hearing on H.R. 2221 on May 5, 2009. 
Testimony was heard from witnesses representing the Bureau of 
Consumer Protection of the Federal Trade Commission; the Center 
for Democracy and Technology; the Business Software Alliance; 
the Distributed Computing Data Industry Association; the 
Electronic Privacy Information Center; Tiversa, Inc.; and the 
Center for the Study of Digital Property of the Progress & 
Freedom Foundation.
    On June 3, 2009, the Subcommittee met in open markup 
session to consider H.R. 2221. The Subcommittee subsequently 
forwarded H.R. 2221, amended, to the full Committee by a voice 
vote.
    The Committee on Energy and Commerce met in open markup 
session on September 30, 2009, and considered H.R. 2221 as 
forwarded by the Subcommittee on June 3, 2009. The Committee 
adopted a manager's amendment to the bill by a voice vote. The 
full Committee then ordered H.R. 2221 favorably reported to the 
House, amended, by a voice vote.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the recorded 
votes on the motion to report legislation and amendments 
thereto. A motion by Mr. Waxman to order H.R. 2221 favorably 
reported to the House, amended, was agreed to by a voice vote. 
There were no recorded votes taken during consideration and 
passage of H.R. 2221.

     STATEMENT OF COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

    In compliance with clause 3(c)(1) of rule XIII and clause 
(2)(b)(1) of rule X of the Rules of the House of 
Representatives, the oversight findings and recommendations of 
the Committee are reflected in the descriptive portions of this 
report.

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee adopts as its own the 
estimate of budget authority and revenues regarding H.R. 2221 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1974. The Committee finds that H.R. 2221 would result in no new 
or increased entitlement authority, or tax expenditures or 
revenues.

         STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

    In accordance with clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the performance goals and 
objectives of the Committee are reflected in the descriptive 
portions of this report.

                   CONSTITUTIONAL AUTHORITY STATEMENT

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee must include a 
statement citing the specific powers granted to Congress to 
enact the law proposed by H.R. 2221. Article I, section 8, 
clauses 3 and 18 of the Constitution of the United States 
grants the Congress the power to enact this law.

                  EARMARKS AND TAX AND TARIFF BENEFITS

    H.R. 2221 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI of the Rules of the House of 
Representatives.

                  FEDERAL ADVISORY COMMITTEE STATEMENT

    The Committee finds that the legislation does not establish 
or authorize the establishment of an advisory committee within 
the definition of 5 U.S.C. App., section 5(b) of the Federal 
Advisory Committee Act.

             APPLICABILITY OF LAW TO THE LEGISLATIVE BRANCH

    Section 102(b)(3) of Public Law 104-1 requires a 
description of the application of this bill to the legislative 
branch where the bill relates to terms and conditions of 
employment or access to public services and accommodations.
    H.R. 2221 requires commercial entities subject to Federal 
Trade Commission jurisdiction that own or posses personal 
information to adopt reasonable and appropriate security 
measures to protect such data and, in the event such 
information is breached, that same entity must notify affected 
consumers of the breach of security. This bill does not relate 
to employment or access to public services and accommodations 
in the legislative branch.

                       FEDERAL MANDATES STATEMENT

    Section 423 of the Congressional Budget and Impoundment 
Control Act of 1974 (as amended by section 101(a)(2) of the 
Unfunded Mandates Reform Act, P.L. 104-4) requires a statement 
on whether the provisions of the report include unfunded 
mandates. In compliance with this requirement the Committee 
adopts as its own the estimates of federal mandates prepared by 
the Director of the Congressional Budget Office.

                        COMMITTEE COST ESTIMATE

    Pursuant to clause 3(d)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee adopts as its own the 
cost estimate of H.R. 2221 prepared by the Director of the 
Congressional Budget Office pursuant to section 402 of the 
Congressional Budget Act of 1974.

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

    With respect to the requirements of clause 3(c)(2) of rule 
XIII of the Rules of the House of Representatives and section 
308(a) of the Congressional Budget Act of 1974 and with respect 
to requirements of clause (3)(c)(3) of rule XIII of the Rules 
of the House of Representatives and section 402 of the 
Congressional Budget Act of 1974, the Committee has received 
the following cost estimate for H.R. 2221 from the Director of 
Congressional Budget Office:

                                                  December 7, 2009.
Hon. Henry A. Waxman,
Chairman, Committee on Energy and Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman:  The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2221, the Data 
Accountability and Trust Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 2221--Data Accountability and Trust Act

    Summary: H.R. 2221 would establish new requirements to 
protect the personal information of individuals that is 
collected and maintained by commercial entities. The bill would 
require companies to adopt procedures to protect personal 
information from improper access, anticipate and mitigate 
potential vulnerabilities in security systems intended to 
prevent improper access, and specify methods for disposing of 
data that is held in electronic and nonelectronic form. H.R. 
2221 would require data brokers (entities that collect and 
maintain personal information for sale to others) to submit 
their data security policies to the Federal Trade Commission 
(FTC) and to establish procedures that consumers may follow to 
review and, if necessary, dispute the accuracy of their 
personal data. Finally, the bill would require entities covered 
by the bill to notify individuals when their personal 
information has been improperly accessed as the result of a 
breach of security. H.R. 2221 would require the FTC to develop 
regulations to implement and enforce the new requirements.
    Assuming appropriation of the authorized amounts, CBO 
estimates that implementing H.R. 2221 would cost $5 million 
over the 2010-2014 period to develop and enforce the new 
regulations. Enacting H.R. 2221 could increase federal revenues 
from additional civil penalties assessed for violations of laws 
related to information security. CBO estimates that any 
additional revenues would not be significant because of the 
relatively small number of cases expected to be involved. 
Enacting H.R. 2221 would not affect direct spending.
    H.R. 2221 contains intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that 
those mandates would impose no costs on state, local, or tribal 
governments.
    H.R. 2221 would impose several private-sector mandates as 
defined in UMRA by requiring certain entities engaged in 
interstate commerce to establish policies and procedures to 
keep personal information secure and to notify affected 
individuals in the event of a security breach. The bill also 
would impose new requirements on information brokers related to 
data collection and accuracy.
    Much of the industry already complies in large part with 
the many of the bill's requirements. However, some of the 
requirements in the bill would impose new security standards 
and notification procedures on millions of entities in the 
private sector. Based on this information, CBO estimates that 
the aggregate direct cost of the mandates in the bill would 
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 H.R. 2221 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

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

Authorization Level..........................................       1       1       1       1       1         5
Estimated Outlays............................................       1       1       1       1       1         5
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted early in calendar year 2010 and that the 
$1 million authorized to be appropriated for each of fiscal 
years 2010 through 2015 will be provided for each year. CBO 
estimates that implementing H.R. 2221 would cost $5 million 
over the 2010-2014 period for the FTC to issue regulations and 
enforce the bill's provisions. Enacting the legislation would 
not have a significant effect on revenues and would not affect 
direct spending.
    Estimated impact on state, local, and tribal governments: 
H.R. 2221 contains intergovernmental mandates as defined in 
UMRA. It would preempt state and local laws that require 
entities that experience security breaches to notify persons 
whose information is comprised. The bill also would preempt 
state and local laws that require entities to implement 
security practices for handling personal information. CBO 
estimates that because the preemptions would only limit the 
application of state law, the mandate would impose no costs on 
state, local, or tribal governments.
    Estimated impact on the private sector: H.R. 2221 would 
impose several private-sector mandates as defined in UMRA. It 
would require entities engaged in interstate commerce that own 
or possess personal information to implement policies and 
procedures to keep personal information secure, and to notify 
individuals when their personal information has been 
compromised as a result of a security breach. The bill also 
would require information brokers to establish procedures to 
verify the accuracy of the data they maintain on individuals 
and allow those individuals to review and correct their files.
    Much of the industry already complies in large part with 
the many of the bill's requirements. However, this legislation 
would impose new information security requirements and 
notification procedures and practices on millions of private-
sector entities. It also would broaden the definition of 
``personal information'' and expand the circumstances under 
which businesses must notify individuals of a breach of their 
information as compared to current law. Based on information 
from the FTC and industry sources, CBO estimates that the 
aggregate cost of the mandates in the bill would 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 that the 
mandates are in effect.

Requirements for information security

    Section 2 of the bill would require certain entities that 
own or possess personal information, that are engaged in 
interstate commerce, or that contract a third party to maintain 
such data, to establish and implement information security 
policies and procedures in compliance with regulations to be 
set by the FTC. Personal information, as defined in the bill, 
is an individual's first name or initial and last name, or 
address, or phone number, in combination with any one or more 
of the following: the individual's social security number, 
driver's license number, passport number or similar 
identification number issued on a government document, or a 
financial account number or credit card number and any security 
or access code needed to access the account.
    Covered entities would have to implement a security policy 
with respect to the use, sale, dissemination, and maintenance 
of data and conduct periodic vulnerability testing on their 
security programs. Additionally, those entities would have to 
identify an officer responsible for the oversight of the 
information security. Entities also would have to implement a 
process for disposing of obsolete electronic and non-electronic 
data containing personal information. Some businesses could be 
determined by the FTC to be in compliance with the requirements 
of section 2 if they are currently in compliance similar 
federal regulations to maintain standards and safeguards for 
information security.
    The cost of compliance for the data privacy and security 
requirements would depend on the rules to be established by the 
FTC, the size of the entity, and the amount of personal 
information maintained by the entity. Most businesses are 
already subject to state or other federal laws regulating 
security policies, and it is the current practice of many 
businesses to use security measures to protect sensitive data. 
However, state laws generally use a more narrow definition of 
personal information than would apply under the bill. The 
bill's requirements would apply to varying degrees to millions 
businesses who own, use, or maintain personal information. Even 
though the incremental cost per entity of implementing the 
information security requirements in the bill could be small, 
the aggregate cost of compliance could be substantial.

Notification of information security breach

    Section 3 would require a covered entity that owns or 
possesses data in electronic form containing personal 
information to notify individuals and the FTC following a 
security breach in which such individuals' personal information 
was accessed or acquired by an unauthorized person. The bill 
also includes special notification requirements for third party 
agents and internet service providers.
    Notification would have to be written or, in some 
circumstances, could be sent via email. The bill allows for 
substitute notification, through postings on the entity's Web 
site and in print and broadcast media, when the person 
experiencing the breach owns or possesses the data of fewer 
than 1,000 individuals, or when direct notification is not 
feasible due to excessive cost or if the contact information 
for the individuals is unavailable. Both forms of notification 
would have to include a description of the information accessed 
or acquired, certain relevant telephone contact numbers, and 
notice of the right to receive free credit monitoring services 
or quarterly credit reports for two years following the breach. 
Entities would have to provide credit reports or credit 
monitoring services to individuals affected by a breach at no 
cost to the individual, if requested.
    If the breached personal information consists of an 
individual's name, address, or phone number in combination with 
a credit or debit card number and the required security code, 
under the legislation, breach notification would not be 
required. The bill also would allow an entity to be exempt from 
notification requirements, if it determines that there is no 
reasonable risk of identity theft, fraud, or other unlawful 
conduct. An allowable presumption that no risk of identity 
theft or fraud exists includes encryption or similar 
modification of data so that it is rendered unreadable.
    Should entities choose to reduce the likelihood of a data 
breach by encrypting personal information, the total cost could 
be substantial. Data encryption software can cost between $150 
and $600 or more depending on the type of system used and the 
amount of data. If even a small portion of the millions of 
entities affected by this bill were to purchase this software, 
those costs could exceed the annual threshold.
    In 2006, more than 17 million people's social security 
numbers were stolen or accessed in security breaches, none of 
which was encrypted. Since 2006, the number of individuals who 
have had their information accessed illegally has risen. This 
legislation would elevate other personally identifying 
information (such as driver's license numbers and passport IDs) 
to the level of a social security number for the purposes of 
data breach notification. Therefore, the number of individuals 
who would have to be notified about a breach could increase 
under the bill.
    The majority of states already have data breach security 
laws in place; however those laws do not include provisions for 
mandatory credit monitoring services. The cost of bulk 
purchases of the credit monitoring services is approximately 
$60 per person, per year, according to credit industry 
professionals. Historically, there has been an acceptance rate 
of such services of about 6 percent to 8 percent. If the large 
number of security breaches continues, in spite of the 
requirements for information security programs and encryption, 
the cost of the notification requirements could be significant.

Special requirements for information brokers

    Security Systems Audit. Information Brokers (companies 
whose business is to collect, assemble, maintain and sell 
information about individuals who are not their customers) 
would be required to submit their information-security policies 
to the FTC for review upon request or accompanying notification 
of breach of security. As a part of their information security 
requirements, following a breach in security, information 
brokers would be required to allow the FTC to conduct a post-
breach audit of their security systems, or to have an 
independent auditor brought in to review the system.
    According to industry experts, the cost of a security audit 
can range from $10,000 to more than $100,000 depending on the 
thoroughness of the audit and the type of systems being tested. 
Only 26 audits were required by the FTC between 2001 and 2009. 
However, the scope of what constitutes a breach could be 
broadened under the bill, so the number of audits may increase 
upon enactment of this legislation.
    Maintaining the Accuracy of Information. Information 
brokers would also be required to establish accuracy standards 
for the personal information they broker. The bill would 
require information brokers annually to provide individuals 
with their personal information at no cost. The individual 
would then have to be given the right to dispute any 
information held by the broker. If that information is found to 
be incorrect, information brokers who do not use their data for 
marketing purposes would be obliged to correct the inaccuracy 
and, in certain cases, to provide the individual with the 
source of the data. Information brokers who do use data for 
marketing purposes would be required to allow individuals to 
decide how their information should be used.
    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. According to information from industry sources 
some information brokers already correct information based on 
requests from individuals. Industry experts also indicate that 
the average cost to large information brokers that currently 
provide this service is about $8.50 each time a record is 
disclosed and information is disputed by an individual. 
However, the cost per record may be higher for information 
brokers who do not currently have systems in place to handle 
such disputes. Some evidence exists that many individuals' 
personal information housed at data brokerage firms is in part 
incorrect.
    There were 12 million disputes that lead to investigations 
in 2006 and providing the means to access and dispute personal 
information annually could reasonably lead to an increase in 
the number of requests. The cost would be the incremental cost 
incurred by brokers as a consequence of an increase in dispute 
requests. According to industry leaders, there were around 30 
data aggregators and 600 to 700 information brokers nationwide 
in 2006. Those information brokers that do not currently have 
the capability to resolve disputes would incur a significant 
cost for establishing the means to comply with this provision.
    The bill would also require information brokers to maintain 
an audit log of internal and external access to, or 
transmission of, any data in electronic form containing 
personal information. 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 personal information 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.
    Previous CBO estimate: On December 2, 2009, CBO transmitted 
a cost estimate for S. 1490, the Personal Data Privacy and 
security Act of 2009, as ordered reported by the Senate 
Committee on the Judiciary on November 5, 2009. H.R. 2221 and 
S. 1490 are concerned with the security of sensitive personal 
information and notification requirements in the event such 
information is disclosed to unauthorized entities. CBO 
estimates that implementing the provisions of S. 1490 that 
would require agencies to assess the security of sensitive 
personal information held by the government and to report to 
the Congress on those assessments would cost $25 million over 
the 2010-2014 period.
    CBO determined that both H.R. 2221 and S. 1490 contain 
intergovernmental mandates, that would not exceed the threshold 
established in UMRA ($69 million in 2009, adjusted for 
inflation). In addition, CBO determined that both bills contain 
private-sector mandates that would exceed the annual threshold 
established in UMRA for private-sector mandates ($139 million 
in 2009, adjusted annually for inflation).
    Estimate prepared by: Federal Costs: Susan Willie; 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.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    Section 1 provides that the short title of H.R. 2221 is the 
``Data Accountability and Trust Act''.

Section 2. Requirements for information security

    Section 2(a)(1) directs the Federal Trade Commission to 
promulgate rules requiring persons that own or possess 
``personal information'' to implement security policies and 
procedures to safeguard that information. This requirement 
applies to both electronic data and paper records containing 
personal information. In implementing the regulations under 
this section, H.R. 2221 directs the FTC to take into 
consideration: (1) the size of, and the nature, scope, and 
complexity of the activities engaged in by such persons; (2) 
the current state of the art in administrative, technical, and 
physical safeguards for protecting personal information; and 
(3) the cost of implementing such safeguards. The Committee 
intends that the consideration of these factors by the FTC 
result in reasonable procedures that are flexible, that may be 
implemented by different business models, and that can 
accommodate changes in technology and evolving best practices.
    Section 2(a)(2) sets forth specific requirements for the 
information security policies that are to be determined by the 
FTC. For example, the regulations shall require each person to 
develop a security policy that addresses, at a minimum, the 
collection, use, sale, other dissemination, and maintenance of 
paper and electronic personal information. FTC regulations 
shall require each person to evaluate risks associated with 
different methods and points of collection for personal 
information, including the use of terminals or devices to swipe 
credit and debit cards to purchase goods at unattended 
locations such as vending machines and fuel pumps.
    Section 2(a)(3) requires the FTC to conduct a rulemaking to 
determine which other federal information security statutes or 
rules provide protections substantially similar to, or greater 
than, those required under section 2(a). Any person who is in 
compliance with such a similar law shall be deemed to be in 
compliance with section 2(a) and the FTC's implementing 
regulations. The FTC should consider, for example, whether the 
information security standards promulgated pursuant to the 
Gramm-Leach-Bliley Act and the Health Insurance Portability and 
Accountability Act meet this threshold. Although all persons 
subject to H.R. 2221 must adequately protect personal 
information, the Committee also seeks to avoid imposing 
duplicative, inconsistent, or overlapping data security 
regulations on a person subject to section 2(a) of H.R. 2221.
    Section 2(b) imposes special requirements on information 
brokers. Information brokers, who may collect vast amounts of 
personal information, provide a wide array of beneficial 
services to businesses and government entities. Many of the 
data collection activities of information brokers, however, are 
largely unregulated.\7\ The high-profile data breaches at 
information brokers in 2005, which sparked the initial call for 
this legislation, revealed the problems with the significant 
gaps in regulation.\8\
---------------------------------------------------------------------------
    \7\See Congressional Research Service, Data Brokers: Background and 
Industry Overview, at 1 (May 2007) (CRS-RS22137).
    \8\House Committee on Energy and Commerce, Data Accountability and 
Trust Act (DATA), 109th Cong., at 10 (2006) (H. Rept. 109-453, Part 1).
---------------------------------------------------------------------------
    The distinction between information brokers and most other 
commercial entities is the amount of information collected, 
analyzed, mined, and sold, as well as the lack of transparency 
to consumers. Data brokers collect information from various 
public and private sources and use it for a wide variety of 
purposes. This includes the creation of marketing databases 
that, for the largest brokers, can be used to analyze hundreds 
of data elements about nearly every American. In addition, 
unlike retailers or banks that have direct relationships with 
the consumers about whom they collect information, consumers 
have no relationship with information brokers and may not be 
aware that their profiles are compiled and sold. For those 
consumers who are concerned about their privacy and personal 
information, it is difficult, if not impossible, to discover 
who has what information about them.
    Section 2(b)(1) directs the FTC to promulgate regulations 
that require information brokers to submit their information 
security policies to the FTC any time they are required to 
notify FTC of a breach of security under section 3. The FTC 
also may request that an information broker submit such 
policies to the FTC at any time. Section 2(b)(2) provides the 
FTC with the ability to conduct audits of the information 
security practices of an information broker that provides 
notice pursuant to section 3, or requires such information 
broker to conduct independent audits of its security practices.
    Section 2(b)(3) imposes specific requirements concerning 
accuracy, access, and dispute resolution procedures for 
information brokers. Section 2(b)(3)(A) requires that an 
information broker establish reasonable procedures to assure 
the maximum possible accuracy of the personal information it 
collects, assembles, or maintains, and any other information it 
collects, assembles or maintains that specifically identifies 
an individual. This provision is not limited to personal 
information as defined in section 5, but expressly covers ``any 
other information it collects, assembles or maintains that 
specifically identifies an individual.'' Information, however, 
which merely identifies an individual's name or address is 
excluded. This exclusion could include a marketing or mailing 
list. In addition, section 2(b)(3)(A), which requires 
``reasonable procedures'' to assure information accuracy, does 
not require that accuracy be absolutely proven or, for example, 
that an information broker verify the accuracy of information 
obtained from public records. Moreover, clause (ii) provides a 
limited exception from the accuracy requirements for fraud 
databases.
    Section 2(b)(3)(B)(i) requires information brokers to 
provide consumers with the ability to access information and 
dispute the accuracy of that information. As with the accuracy 
requirements in section 2(b)(3)(A), this provision is not 
limited to personal information, but includes any other 
information maintained by the information broker that 
specifically identifies an individual, other than information 
that merely identifies an individual's name or address. The 
information broker is required to offer access to the 
information once a year at no cost to the individual.
    Section 2(b)(3)(B)(ii) sets forth the procedures that 
permit an individual to dispute the accuracy of information 
maintained by an information broker and the actions an 
information broker must take in response to such a dispute. 
Upon receiving a consumer request under clause (ii), an 
information broker must verify the identity of the requesting 
individual to prevent both fraudulent access to information and 
the fraudulent alteration of information, which could 
compromise the integrity of the data and result in harm
    Section 2(b)(3)(B)(iii) sets forth alternate procedures the 
information brokers may use regarding certain marketing 
information. Specifically, clause (iii) provides that in 
accordance with regulations issued by the FTC, if information 
is used, shared, or sold for marketing purposes, the 
information broker may, in lieu of complying with the access 
and dispute requirements of clause (ii), provide all 
individuals whose information it maintains with a reasonable 
means of expressing a preference not to have his or her 
information used for marketing. If the individual expresses 
that preference, the information broker may not use, share, or 
sell the individual's information for marketing purposes.
    Section 2(b)(3)(B)(iv) provides limitations to the access 
rights under clause (ii) and website notice requirements under 
clause (i). Although an information broker must provide 
conspicuous notice on its website, website notice does not 
apply to those specific circumstances in which an information 
broker may limit access to information. Databases that are used 
to verify an individual's identity for antifraud purposes 
provide significant benefits to law enforcement, business, and 
consumers, and access to such databases could undermine the 
usefulness of the data as a tool against fraud. Pursuant to 
clause (v), the FTC may implement rules on the scope of the 
limitations in clause (iv) and add additional circumstances in 
which an information broker may limit access to information.
    Section 2(b)(3)(C) provides that if an information broker 
is in compliance with the relevant provisions of the Fair 
Credit Reporting Act (FCRA) for FCRA-covered information, the 
information broker shall be deemed to be in compliance with 
paragraph (3) with respect to that information. Thus, the 
information broker will not need to comply with the accuracy, 
access, and dispute resolution provisions of this Act. This 
subparagraph reflects the Committee's intent to avoid the 
imposition of duplicative, inconsistent, or overlapping 
regulations on an information broker subject to section 2(b) of 
H.R. 2221.
    Section 2(b)(4) requires the FTC to promulgate regulations 
requiring information brokers to establish measures that will 
allow information brokers to keep track of who obtains access 
to personal information, such as the maintenance of 
chronological records or logs. Section 2(b)(5) prohibits 
information brokers from obtaining personal information or any 
other information relating to a person by pretexting--making 
false statements to any person for the purpose of obtaining 
information. It also prohibits an information broker from 
soliciting another to pretext for information.
    Section 2(c) provides a limited exception for certain 
activities by service providers as that term is defined in 
section 5(10). Specifically, section 2(c) provides that nothing 
in section 2 applies to a service provider that is merely 
serving as the conduit for the transmission (routing or 
transient storage) of information. In this situation, the 
entity transmitting the information, the service provider, is 
neither the sender nor the intended recipient, did not modify 
the data in any way, and does not treat personal information 
being transmitted any differently from any other data sent over 
its pipes. It is the intent of the Committee that this limited 
exemption only applies to these specific activities where the 
service provider is merely serving as the conduit for the 
transmission of information. To the extent a service provider 
stores electronic personal information outside the provision of 
transmission or routing services, initiates or is party to a 
transmission of personal information, maintains paper records, 
or otherwise owns or possesses personal information, a service 
provider must comply with the requirements of section 2, unless 
otherwise exempt from the requirements of this bill.

Section 3. Notification of information security breach

    Section 3(a) requires any person engaged in interstate 
commerce that owns or possesses data in electronic form to 
notify, following the discovery of a breach of security, the 
FTC and each individual whose personal information was acquired 
or accessed as a result of the breach. Unlike section 2, 
section 3 only applies to data in electronic form.
    Section 3(b)(1) limits the breach notification obligations 
of a third party agent who, pursuant to a contractual 
relationship, is storing or processing personal information on 
behalf of another person who owns or possesses such data. In 
the event of a breach of security, the third party agent must 
provide notice of the breach to the person who owns or 
possesses the data. The third party agent must provide notice 
as soon as reasonably possible and without delay. Upon 
receiving such notice, the person who contracted with the third 
party agent and owns or possesses the data must then provide 
notice to consumers and the FTC pursuant to section 3(a). 
Section 3(b)(1) should not inhibit or supersede the parties' 
ability to contract for responsibility in the event of a data 
breach, therefore, a third party agent's duty is to notify only 
the owner of the data in the event of a breach, and not the 
owner's customers or consumers. Notice of a breach from both a 
third party agent and the owner of the data would be 
duplicative and may cause confusion for a consumer who neither 
recognizes nor has a direct relationship with the third party 
agent.
    Section 3(b)(2) is a limited exception for service 
providers when acting solely as a conduit of personal 
information that is owned or possessed by another person. 
Section 3(b)(2) provides that if a service provider becomes 
aware of a breach of security of personal information that is 
owned or possessed by another person who uses the service 
provider's system or network for the purpose of transmitting, 
routing, or providing intermediate or transient storage of such 
data, the service provider only is required to notify the 
person who initiated the connection or transmission. Notice is 
required only in those cases where such person reasonably can 
be identified. Upon receiving notification from a service 
provider, such person must provide the notice required under 
subsection (a). Thus, section 3(b)(2) recognizes that in many 
cases a breach of security, during the course of transmission 
of information, may not always be discovered and that even when 
a breach is discovered, a service provider may not always be 
able to identify the nature of the data being transmitted or 
the identity of the sender of the information. To the extent a 
service provider otherwise experiences a breach of security, 
such service provider must comply with all the requirements of 
section 3.
    Section 3(c) provides that, subject to paragraph (2), 
notice must be provided not later than 60 days following the 
discovery of the breach unless it can be shown that providing 
notice within 60 days is not feasible due to extraordinary 
circumstances necessary to prevent further breach or 
unauthorized disclosures and reasonably restore the integrity 
of the data system. In those circumstances, notice shall be 
provided as promptly as possible and the person providing 
notice shall have the burden of proving that the extraordinary 
circumstances warranted the delay. Paragraph (2) provides for a 
delay of notification for law enforcement or national security 
purposes upon receipt of a written request from a law 
enforcement or national security agency.
    Section 3(d)(1) provides for the method and content of 
notification. Section 3(d)(2) sets forth the circumstances 
under which a person may provide substitute notification in 
lieu of direct notification required under section 3(d)(1). 
This provision recognizes that small businesses may not have 
the resources or the ability to comply with the direct 
notification requirements.
    Section 3(d)(3) requires the FTC to issue regulations 
concerning substitute notification. As part of the regulations, 
the FTC may identify other circumstances where substitute 
notification would be appropriate for any person, regardless of 
size or the amount of personal information held by that person, 
including circumstances under which the cost of providing 
notification exceeds the benefits to consumers.
    Section 3(e) requires a person that provides notice to 
individuals under subsection (a) to provide or arrange for the 
provision of consumer credit reports, a credit monitoring 
service, or other service that enables consumers to detect the 
misuse of their personal information. An individual shall 
receive these services upon request, at no cost to the 
individual, and the services must begin not later than 60 days 
following the request and continue for a period of 2 years 
thereafter. This provision recognizes that there are a variety 
of products and services available that may help consumers 
following a breach of security and provide effective protection 
for consumers from the risks of identity theft, fraud, or other 
unlawful conduct. The requirement is limited to providing 
affected individuals one service, not multiple services. The 
Committee recognizes, however, that some services available in 
the marketplace may provide only minimal, if any, benefit to 
consumers, or may provide benefits in limited circumstances. To 
address the concern that a person providing notice would 
provide the least expensive service regardless of its efficacy 
or benefit to consumers, section 3(e)(3) directs the FTC to 
determine, through rulemaking, the circumstances under which a 
person must provide consumer credit reports, credit monitoring, 
or other service.
    Section 3(f) provides an exemption from the requirements of 
section 3 under limited circumstances. Pursuant to paragraph 
(1), a person will not be required to provide notice if 
following a breach of security a person determines that there 
is no reasonable risk of identity theft, fraud, or other 
unlawful conduct. The Committee expects that these 
determinations will require a fact-specific analysis of a 
particular incident that will take into account the types of 
information that have been compromised, the cause of the 
breach, the identity of the party who may have accessed or 
acquired the information (if known), the usability of the 
compromised information, and other factors.
    Section 3(f)(2)(A) establishes a presumption that there is 
no reasonable risk of identity theft, fraud, or other unlawful 
conduct in a particular breach of security if the personal 
information that was the subject of the breach is unusable, 
unreadable, or indecipherable to an unauthorized third party. 
The method of rendering information unusable, unreadable, or 
indecipherable must be generally accepted by experts in the 
information security field. As of the date of this report, 
December 2009, encryption is one such method. However, while 
the statute recognizes encryption as a generally accepted 
method, it should not be interpreted as to require the use of 
``end to end'' encryption. The presumption, of no reasonable 
risk of identity theft, fraud, or other unlawful conduct, may 
be rebutted by facts demonstrating that in a particular case 
the security technologies or methodologies have been, or are 
reasonably likely to be compromised.
    Section 3(f)(2)(B) requires the FTC to issue rules or 
guidance identifying security methodologies or technologies 
which render data unusable, unreadable, or indecipherable for 
the purpose of establishing the rebuttable presumption. FTC 
rules or guidance must be issued one year after the enactment 
of H.R. 2221 and biannually thereafter. This biannual 
requirement will ensure that FTC guidance remains relevant, up-
to-date, and reflects changes in technology and methodologies 
over time. Because certain technologies and methodologies will 
likely become outdated or no longer considered to be an 
effective information security tool by experts in the 
information security field, the FTC will update its guidance or 
regulations to reflect that fact. The FTC could, at any time 
through this rulemaking process, determine that encryption or 
any other technology or methodology previously identified in 
FTC guidance no longer receives a presumption. Importantly, in 
issuing these rules or guidance, the FTC is required to consult 
with relevant industries, consumer organizations, data security 
experts, identity theft prevention experts, and established 
standard setting bodies.
    By establishing this rebuttable presumption, the Committee 
does not intend to deem any technology as the only, preferred 
or most effective method or technology for securing personal 
information. To the contrary, the provision expressly 
recognizes that there may be many technologies and 
methodologies that render data unusable, unreadable, or 
indecipherable for the purpose of establishing the rebuttable 
presumption. The Committee expects that during the rulemaking 
or guidance process mandated by this paragraph, those 
stakeholders that the FTC is required to consult with will 
identify, and the FTC will consider, a broad range of 
technologies and methodologies including, but not limited to, 
access controls, data association, data masking, encryption, 
non-persistent storage on devices, physical anti-tamper 
devices, redaction, and remotely triggered kill-pill 
technologies. This ongoing process is intended to encourage 
innovation and foster the development and adoption of new, 
information security technologies and methodologies.
    Section 3(g) provides the FTC with the discretion to place 
a notice of a breach of security it has received pursuant to 
section 3(a)(2) on its website if the FTC finds that such 
notice would be in the public interest or for the protection of 
consumers. In making a determination, the FTC should consider 
not only the benefits to consumers and the public interest, but 
also any possible harm that could result from such publication, 
including the possible facilitation of phishing attacks or the 
causing of undue consumer concern and confusion.
    Section 3(h) requires the FTC to conduct a study on the 
practicality and cost effectiveness of requiring notice to be 
provided in a language in addition to English to individuals 
known to speak only a language other than English.
    Section 3(i) provides the FTC with discretionary rulemaking 
authority to issue rules necessary for the FTC to effectively 
enforce section 3.
    Section 3(j) provides that the FTC shall determine through 
rulemaking which other federal laws that require persons 
subject to H.R. 2221 to provide notice to individuals following 
a breach of security provide protections substantially similar 
to, or greater than, those required under section 3. Any 
person, who is in compliance with the identified federal law, 
shall be deemed to be in compliance with section 3 and the 
implementing regulations of the FTC. It is the intent of the 
Committee to avoid the imposition of duplicative, inconsistent, 
or overlapping regulations while ensuring that consumers 
receive notification of information security breaches.

Section 4. Application and enforcement

    Section 4(a) provides that sections 2 and 3 only apply to 
those persons, partnerships, or corporations over which the FTC 
has authority pursuant to section 5(a)(2) of the FTC Act.
    Section 4(b) provides for enforcement by the FTC and 
establishes that a violation of section 2 or 3 shall be treated 
as an unfair or deceptive act or practice in violation of a 
regulation under section 18 of the FTC Act. Section 4(b)(3) 
explicitly prohibits the FTC, when promulgating rules under 
this Act, from requiring the deployment or use of any specific 
products or technologies, including any specific hardware or 
software.
    Section 4(c)(1) provides for enforcement by the attorney 
general of a state, or an official or agency of a state, for 
violations of section 2 and 3. Section 4(c)(2) sets out the 
specific methods for calculating civil penalties in actions 
brought by the attorney general of a state, or an official or 
agency of a state. Section 4(c)(2)(C) limits the maximum total 
liability for civil penalties. Section 4(c)(3) imposes specific 
obligations and limitations on state actions.
    Section 4(d)(1) establishes an affirmative defense to an 
enforcement action brought under subsection 4(b), or a civil 
action brought under subsection 4(c), based on a violation of 
section 3, that all of the personal information compromised in 
a particular breach of security is public record information 
acquired from such public records. Section 4(d)(2) provides 
that the affirmative defense does not exempt any person from 
the requirement to notify the FTC of a breach of security as 
required under section 3(a).

Section 5. Definitions

    Section 5 contains the definitions that apply to the Act.
    Paragraph (1) defines ``breach of security'' to mean the 
unauthorized access to or acquisition of data in electronic 
form containing personal information.
    Paragraph (2) defines the term ``Commission'' to mean the 
Federal Trade Commission.
    Paragraph (3) defines the term ``data in electronic form'' 
to mean any data stored electronically or digitally on any 
computer system or other database and includes recordable tapes 
and other mass storage devices. The definition includes data 
stored on removable media and portable storage devices.
    Paragraph (4) defines the term ``encryption'' to mean the 
protection of data in electronic form in storage or in transit 
using an encryption technology that has been adopted by an 
established standards setting body that renders data 
indecipherable in the absence of the cryptographic keys needed 
to decrypt the data. Such encryption must include the 
appropriate management and protection of the keys.
    Paragraph (5) defines the term ``identity theft'' to mean 
the unauthorized use of another person's personal information 
for the purpose of engaging in commercial transactions under 
the name of that other person. While identity theft has 
predominantly involved account fraud, including the misuse of 
existing accounts and new account fraud, the term captures 
other equally harmful actions that occur in commerce that do 
not constitute account fraud.
    Paragraph (6)(A) defines the term ``information broker'' to 
mean a commercial entity whose business is to collect, 
assemble, or maintain personal information concerning 
individuals who are not current or former customers of such 
entity in order to sell that information or provide access to 
that information to any non-affiliated third party. This term 
includes entities who meet this definition as to any part of 
their overall business. Some entities may have other business 
lines under which they conduct transactions directly with 
individual customers. Any entity will be considered an 
information broker if any part of its business meets the 
definition.
    Paragraph (6)(B) excludes from the definition of 
information broker a commercial entity to the extent that it 
processes information collected by and received from a 
nonaffiliated third party concerning individuals who are 
current or former customers or employees of that third party to 
enable that third party to (1) provide benefits for its 
employees or (2) directly transact business with its customers. 
This subparagraph clarifies that ``information broker'' does 
not include an entity where the collection or processing of 
information is incidental to its provision of other services, 
such as the provision of employee benefits. The phrase 
``collected by and received from a nonaffiliated third party'' 
includes information collected on behalf of such nonaffiliated 
third party, received directly from the individual about whom 
the information relates. During the course of administration of 
an employee benefit plan, for example, an entity may, on behalf 
of the plan, directly collect and receive data (e.g. phone 
numbers, address updates, bank deposit/EFT instructions) from 
individual employees.
    Paragraph (7) provides that the term ``personal 
information'' means an individual's first name or initial and 
last name, or address, or phone number, in combination with any 
one or more of the following data elements for that individual: 
Social Security number; driver's license number, passport 
number, military identification number, or other similar number 
issued on a government document used to verify identity; 
financial account number, or credit or debit card number, and 
any required security code, access code, or password that is 
necessary to permit access to an individual's financial 
account. An individual's first name or initial and last name, 
or address, or phone number, in combination with a financial 
account number, or credit or debit card number alone, 
constitutes ``personal information'' for the purposes of this 
Act where such information, without a security code, access 
code, or password, could be used to commit identity theft, 
fraud, or other unlawful conduct. For example, information 
contained in the magnetic field on the back of a credit card 
contains only the card holder's name and the card number, along 
with associated security data. For most credit cards, theft of 
this information, without a PIN or password, is adequate to 
duplicate the card and steal goods. Therefore, the definition 
of personal information includes the name and card number 
information contained in the magnetic fields of a credit card.
    Pursuant to paragraph 7(B), the FTC may modify the 
definition of ``personal information'' through rulemaking, but 
only to the extent that modification will not unreasonably 
impede interstate commerce and will accomplish the purposes of 
this Act. In addition, for the purpose of section 3, the FTC 
must further find that modification is necessary to accommodate 
changes in technology or practices.
    Paragraph (8) defines the term ``public record 
information'' to mean information about an individual that has 
been obtained originally from records of a federal, state, or 
local government entity that are available for public 
inspection.
    Paragraph (9) defines the term ``non-public information'' 
to mean information about an individual that is of a private 
nature and neither available to the general public nor obtained 
from a public record.
    Paragraph (10) defines the term ``service provider'' to 
mean an entity that provides to a user transmission, routing, 
intermediate and transient storage, or connections to its 
system or network, for electronic communications, between or 
among points specified by such user of material of the user's 
choosing, without modification to the content of the material 
as sent or received. Any such entity shall be treated as a 
service provider under this Act only to the extent that it is 
engaged in the provision of such transmission, routing, 
intermediate and transient storage, or connections. In this 
context, intermediate or transient storage is to be interpreted 
narrowly to only cover temporary storage in the course of 
transmission or routing. Furthermore, the term service provider 
only applies to those entities that serve as a conduit of 
information and only to the specific activities of providing 
transmission, routing, intermediate and transient storage or 
connections. The service provider does not treat personal 
information it is transmitting or routing any differently from 
any other data sent over its pipes. An entity that processes 
information, or serves as an intermediary for the transmission 
or processing of specific categories of information, such as a 
credit card processor receiving and forwarding credit card 
information, does not meet this definition.

Section 6. Effect on other laws

    Section 6 provides that this Act preempts any provision of 
a state law to the extent a state law expressly requires 
information security practices and treatment of data containing 
personal information similar to any of those required under 
section 2; and requires notification to individuals of a breach 
of security resulting in unauthorized access to or acquisition 
of data in electronic form containing personal information. 
Section 6 further provides that no person other than a person 
specified in section 4(c) may bring a civil action under the 
laws of any state if such action is premised in whole or in 
part upon the defendant violating any provisions of this Act, 
but makes clear that this provision shall not be construed to 
limit the enforcement of any state consumer protection law by 
an attorney general of a state.

Section 7. Effective date

    Section 7 establishes the effective date as 1 year after 
enactment of this Act.

Section 8. Authorization of appropriations

    Section 8 authorizes appropriations of $1 million for each 
fiscal year from 2010 to 2015 to carry out the provisions of 
this Act.

                       EXPLANATION OF AMENDMENTS

    During the full Committee markup of H.R. 2221, Chairman 
Waxman offered an amendment in the nature of a substitute as a 
manager's amendment. The bipartisan amendment not only 
incorporated the changes made in Subcommittee, but also 
included several additional changes to the bill.
    In section 2, the manager's amendment streamlined the 
ability of the FTC to conduct rulemaking concerning the 
destruction of paper documents. The manager's amendment also 
clarified that persons subject to security requirements under 
other relevant federal statutes will be deemed to be in 
compliance with the bill's security requirements provided that 
those safeguards are ``substantially similar to or greater 
than'' the requirements of this bill. In addition, the 
amendment clarified the telecommunications exemption in section 
2 to ensure that certain service providers are exempt from the 
security requirements only to the extent they are serving as 
the conduit for the transmission of information.
    With respect to the information broker provisions in 
section 2(b), the amendment: (1) clarified the exemption for 
fraud databases from the accuracy requirements under certain 
circumstances; (2) established a new procedure that permits 
information brokers to offer consumers the ability to prohibit 
the use of their information for marketing purposes in lieu of 
complying with the bill's access and correction provisions for 
marketing databases; and (3) further clarified that compliance 
with the Fair Credit Reporting Act constitutes compliance with 
the accuracy, access, and correction requirements of this Act.
    The amendment deleted the provision in section 3 of the 
bill concerning breaches of health information; added a 
requirement that consumers be provided with notice not later 
than 60 days after the discovery of the breach; provided that 
in lieu of free credit reports for individuals who have 
experienced a breach, a breached entity may provide affected 
individuals with credit monitoring or other services that 
assist in the detection or prevention of the misuse of their 
personal information; and revised provisions concerning the 
presumption that there is no reasonable risk of identity theft 
so that the presumption is more technology neutral and remains 
current and relevant as technology evolves. In addition, as 
with section 2, the amendment clarified the scope and 
application of the limited telecommunications exemption in 
section 3 to ensure that such exception only applies to service 
providers when serving as the conduit for the transmission of 
information.
    Further, the amendment clarified that the Act only applies 
to commercial entities subject to FTC jurisdiction and that the 
civil penalty cap that applies to enforcement by the states may 
not exceed $5 million for each violation. Finally, the 
amendment added language to clarify the definition of 
information broker.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    There are no changes in existing federal law made by the 
bill, as reported.

                                  
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