Affiliate Mktg Rule SS '07 FIN

Supporting Statement for the Affiliate Marketing Rule
16 C.F.R. Part 680
(OMB Control No. 3084-0131)
(1) & (2)

Necessity for and Use of the Information Collection

The Fair and Accurate Credit Transactions Act (“FACT Act” or the “Act”), Pub. L.
No.108-159 (December 4, 2003), amended the Fair Credit Reporting Act (“FCRA”), in part, for
the purpose of allowing consumers to limit the use of eligibility information received from an
affiliate to make solicitations to the consumer. Section 214 of the FACT Act added a new
section 624 under the FCRA. This new provision gives consumers the right to restrict a covered
entity from using certain information about a consumer obtained from an affiliate to make
marketing solicitations to that consumer. The proposed rule generally provides that, if a
company communicates certain information about a consumer (“eligibility information”) to an
affiliate, the affiliate may not use that information to make or send solicitations to the consumer
unless the consumer is given notice and a reasonable opportunity to opt out of such use of the
information and the consumer does not opt out. There are a number of exceptions to this
requirement. Where the company has chosen to set a limited time period for the opt-out (no less
than 5 years), the company must provide prior to the expiration of the opt-out, a notice that the
consumer has a right to extend the opt-out for an additional period of time of at least 5 years
(“extension notice”).
Section 214 requires the Commission, in consultation and coordination with various
federal agencies charged with regulating affiliated companies, to issue “consistent and
comparable” regulations to implement these provisions as to those entities over which it has
enforcement jurisdiction. FACT Act § 214(b). The Commission has issued a proposed rule
(“Rule”) to implement these consumer disclosure requirements as mandated by the FACT Act.
These requirements are subject to the provisions of the Paperwork Reduction Act, 44
U.S.C. Chapter 35 (“PRA”). The required disclosures are: (1) notice of the institution’s
affiliate’s use of “eligibility information” for marketing solicitations to a consumer; (2) notice of
a consumer’s right to opt out of the use of such information for some marketing solicitations; and
(3) an “extension notice” and an additional opt-out opportunity where the duration of the opt-out
is limited. The Rule provides model disclosures that covered entities may use. The Rule does
not include record keeping requirements.
(3)

Information Technology

The Rule gives explicit examples of electronic options that covered entities may use to
transmit the affiliate marketing notice and opt-out notice (i.e., collections of information) that are
required by the Rule. These electronic options help minimize the burden and cost of the Rule's
information collection requirements for entities subject to the Rule. Likewise, the Rule is
consistent with the Government Paperwork Elimination Act, which, in relevant part, requires that
OMB ensure that Executive agencies, by October 23, 2003, provide for the option of electronic
maintenance, submission, or disclosure of information, when practicable, as a substitute for

paper. See Pub. L. 105-277, t. XVII, § 1704, 112 Stat. 2681, 2681-750, reprinted in 44 U.S.C. §
3504 note.
(4)

Efforts to Identify Duplication

The Rule provides, as required under section 214(b)(3)(C) of the FACT Act, FCRA
§ 624(b), that the affiliate marketing notice and opt-out may be coordinated and consolidated
with any other required notice, for example, the privacy notice mandated by the Gramm-LeachBliley Act, 15 U.S.C. § 6801-6809, for financial institutions, thereby eliminating or reducing
duplicate disclosures to consumers. Furthermore, the Rule provides that affiliated companies
may send a joint disclosure to consumers, thereby eliminating the need for each affiliate to send a
separate disclosure.
(5)

Efforts to Minimize Small Organization Burden

The Commission has drafted the Rule to minimize the compliance burden as much as
possible. As noted above, the notice requirements are expressly mandated by the FACT Act.
The Commission’s Rule implements these requirements by providing model disclosures while
affording small businesses (and all other regulated businesses) some flexibility in choosing the
specific content of such disclosures. Staff believes that the model disclosures will help eliminate
much of the administrative and legal costs that might be incurred by businesses seeking to
comply with the Rule. In addition, the Rule provides some flexibility in choosing the means to
deliver the disclosures. For example, the required disclosure may, depending upon the
circumstances, be disclosed by hand-delivery, conventional, or electronic mail.
(6)

Consequences of Conducting the Collection Less Frequently

A less frequent collection of information would violate both the express statutory
language and intent of the FACT Act. See Section 214(a) of the FACT Act.
(7)

Circumstances Requiring Collection Inconsistent With Guidelines

The collection of information in the Rule is consistent with all applicable guidelines
contained in 5 C.F.R. § 1320.5(d)(2).
(8)

Public Comments/Consultation Outside the Agency

The Commission has sought public comment on the various aspects of the Rule,
including its PRA implications, in its notice of proposed rulemaking. Moreover, as required by
the FACT Act, staff consulted with the other affected federal agencies on drafting the proposed
Rule, seeking to achieve clarity, consistency, and comparability among their respective rules
implementing Section 214 of the FACT Act. In the instant context, on February 28, 2007, the
FTC sought public comments on its proposal to extend its current OMB clearance for the
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proposed Rule’s information collection requirements. No comments were received. The FTC is
seeking comment again contemporaneous with this submission.
(9)

Payments or Gifts to Respondents
Not applicable.

(10) & (11)

Assurances of Confidentiality/Matters of a Sensitive Nature

The requirements for which the Commission seeks OMB clearance do not involve
disclosure of confidential respondent or customer information but, rather, the disclosure of
covered entities’ practices regarding the use of certain “eligibility information” by affiliates for
marketing solicitations to consumers.
(12)

Estimated Annual Hours Burden

Except where otherwise specifically noted, staff’s estimates of burden are based on its
knowledge of the consumer credit industries and knowledge of the entities over which the
Commission has jurisdiction. This said, estimating PRA burden of the proposed Rule’s
disclosure requirements is difficult given the highly diverse group of affected entities that may
use certain eligibility information shared by their affiliates to send marketing notices to
consumers.
The estimates provided in this burden statement may well overstate actual burden. First,
an uncertain but possibly significant number of entities subject to the FTC’s jurisdiction do not
have affiliates and would thus not be covered by section 214 of the FACT Act or the proposed
Rule. Second, Commission staff does not know how many companies subject to the FTC’s
jurisdiction under the proposed rule actually share eligibility information among affiliates and, of
those, how many affiliates use such information to make marketing solicitations to consumers.
Third, staff considered the wide variations in covered entities and the fact that, in some instances,
covered entities may make the required disclosures in the ordinary course of business, apart from
the FACT Act Rule, voluntarily as a service to their customers. Finally, still other entities may
choose to rely on the exceptions to the proposed Rule’s notice and opt-out requirements.1
Staff’s estimates assume a higher burden will be incurred during the first year of the
OMB clearance period with a lesser burden for each of the subsequent two years, since the optout notice to consumers is required to be given only once. Institutions may provide for an
indefinite period for the opt-out or they may time limit it, but for no less than five years. Given
this minimum time period, Commission staff did not estimate burden for preparing and

1

Exceptions include, for example, having a preexisting business relationship with a consumer, using
information in response to a communication initiated by the consumer or to solicitations authorized or
requested by the consumer.

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distributing extension notices by entities that limit the duration of the opt-out time period. The
relevant PRA time frame for burden calculation is three years from renewed OMB clearance, and
the five-year notice period will not begin until this proposed Rule becomes final.
Staff’s labor cost estimates take into account: managerial and professional time for
reviewing internal policies and determining compliance obligations; technical time for creating
the notice and opt-out, in either paper or electronic form; and clerical time for disseminating the
notice and opt-out.2 In addition, staff’s cost estimates presume that the availability of model
disclosures and opt-out notices will simplify the compliance review and implementation
processes, thereby significantly reducing the cost of compliance. Moreover, the proposed Rule
gives entities considerable flexibility to determine the scope and duration of the opt-out. Indeed,
this flexibility permits entities to send a single joint notice on behalf of all of its affiliates.
Estimated total annual hours burden: 1,105,000 hours, rounded
Staff estimates that approximately 1.17 million (rounded) non-GLBA entities under the
jurisdiction of the FTC have affiliates and would be affected by the proposed Rule.3 Staff further
estimates that there are an average of 5 businesses per family or affiliated relationship, and that
the affiliated entities will choose to send a joint notice, as permitted by the proposed Rule. Thus
an estimated 233,400 (rounded) non-GLBA entities may send the new affiliate marketing notice.
Staff also estimates that non-GLBA entities under the jurisdiction of the FTC would each incur
14 hours of burden during the three-year clearance period, comprised of a projected 7 hours of
managerial time, 2 hours of technical time, and 5 hours of clerical assistance.
Based on the above, total burden for non-GLBA entities during the prospective three-year
clearance period would be approximately 3,268,000 hours and associated labor cost
approximately $92,247,000, rounded.4 These estimates include the start-up burden and attendant

2

No clerical time was included in staff’s burden analysis for GLBA entities as the notice would likely
be combined with existing GLBA notices.
3

This estimate is derived from an analysis of a database of U.S. businesses based on SIC codes for
businesses that market goods or services to consumers, which included the following industries: transportation
services; communication; electric, gas, and sanitary services; retail trade; finance, insurance, and real estate;
and services (excluding business services and engineering, management services). This estimate excludes
businesses not subject to the FTC’s jurisdiction as well as businesses that do not use data or information
subject to the rule.
4

The hourly rates are based on average annual Bureau of Labor Statistics National Compensation
Survey data, June 2005 (with 2005 as the most recent whole year information available at the BLS website).
http://www.bls.gov/ncs/ocs/sp/ncbl0832.pdf (Table 1.1), and further adjusted by a multiplier of 1.06426, a
compounding for approximate wage inflation for 2005 and 2006, based on the BLS Employment Cost Index.
The dollar total above is derived from the estimated 7 hours of managerial labor at $34.21 per hour; 2 hours of
technical labor at $29.80 per hour; and 5 hours of clerical labor at $14.44 per hour – a combined $371.27 –
multiplied by 1.06426 (a combined $395.13) – for the estimated 233,400+ non-GLBA business families

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costs, such as determining compliance obligations. However, non-GLBA entities will give
notice only once during the clearance period ahead. Thus, averaged over that three-year period,
the estimated annual burden for non-GLBA entities is 1,089,000 hours and $30,749,000 in labor
costs, rounded.5
Entities that are subject to the Commission’s GLBA privacy notice regulation already
provide privacy notices to their customers.6 Because the FACT Act and the proposed Rule
contemplate that the new affiliate marketing notice can be included in the GLBA notices, the
burden on GLBA regulated entities would be greatly reduced. Accordingly, the GLBA entities
would incur 6 hours of burden during the first year of the clearance period, comprised of a
projected 5 hours of managerial time and 1 hour of technical time to execute the notice, given
that the proposed Rule provides a model.7 Staff also estimates that 3,350 GLBA entities under
the FTC’s jurisdiction would be affected, so that the total burden for GLBA entities during the
first year of the clearance period would approximate 20,000 hours and $716,000 in associated
labor costs.8 Allowing for increased familiarity with procedure, the paperwork burden in ensuing
years would decline, with GLBA entities each incurring an estimated 4 hours of annual burden (3
hours of managerial time and 1 hour of technical time) during the remaining two years of the
clearance, amounting to 13,400 hours and $472,000 in labor costs in each of the ensuing two
years. Thus, averaged over the three-year clearance period, the estimated annual burden for
GLBA entities is 15,600 hours and $553,000 in labor costs.
Cumulatively for both GLBA and non-GLBA entities, the average annual burden over the
prospective three-year clearance period, rounded, is approximately 1,105,000 burden hours and
$31,302,000 in labor costs, rounded. GLBA entities are already providing notices to their
customers so there are no new capital or non-labor costs, as this notice may be consolidated into
their current notices. For non-GLBA entities, the rule provides for simple and concise model
forms that institutions may use to comply. Thus, any capital or non-labor costs associated with
compliance for these entities are negligible.

subject to the proposed Rule.
5

3,268,000 hours ÷3 = 1,089,000; $92,247,000 ÷3 = $30,749,000.

6

Financial institutions must provide a privacy notice at the time the customer relationship is
established and then annually so long as the relationship continues. Staff’s estimates assume that the affiliate
marketing opt-out will be incorporated in the institution’s initial and annual notices.
7

As stated above, no clerical time is included in the estimate because the notice likely would be
combined with existing GLBA notices.
8

3,350 GLBA entities x [($34.20 x 5 hours) + ($29.80 x 1 hour)] x 1.06426 wage multiplier (see note

6).

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(13)

Estimated Capital/Other Non-Labor Costs Burden
Estimated annual non-labor cost burden: $0 or minimal

As described above, the FTC staff estimates that the capital or other non-labor costs are
minimal since many entities already provide disclosures, including those covered by GLBA and
other companies that voluntarily provide consumers the opportunity to opt out of marketing
solicitations. In addition, entities that already have on-line capabilities will offer consumers the
choice to receive notices via electronic format (e.g., computer equipment and software), and
covered entities are already equipped to provide disclosures (e.g., computers with word
processing programs, copying machines, mailing capabilities).
(14)

Estimate of Cost to Federal Government

Staff estimates that the fiscal year cost to the FTC Bureau of Consumer Protection of
enforcing the proposed Rule’s disclosure requirements will be approximately $160,000 per year.
This estimate is based on the assumption that 1.5 full attorney work years will be expended to
enforce the proposed Rule’s requirements relating to disclosure. Clerical and other support
services are also included in this estimate.
(15)

Program Changes or Adjustments

There are no program changes. Staff has adjusted its previously stated estimate of burden
hours and the number of non-GLBA entities that may send the proposed affiliate marketing
notice based on: (1) a refined estimate of non-GLBA entities with affiliates under the FTC’s
jurisdiction and thus subject to the proposed Rule; and (2) a correction to the annualized burden
to reflect the fact that an entity need only give a notice once during the three year clearance
period.
(16)

Statistical Use of Information

Not applicable. There are no plans to publish for statistical use any information required
by the Rule.
(17)

Display of Expiration Date for OMB Approval
Not applicable.

(18)

Exceptions to Certification
Not applicable.

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