Will New York Be the Next State to Adopt Robust Data Privacy and Security Laws?

In June 2018, the California Consumer Privacy Act (CCPA) was signed into law, imposing significant new privacy obligations on businesses that have personal information about California residents. (California Civil Code §1798.100, et seq.) The CCPA, which goes into effect Jan. 1, 2020, among other things requires businesses to respond to consumers' requests for disclosure or deletion of their personal information, as well as honor requests not to sell a consumer's information to a third party.

The enactment of CCPA set off a burst of privacy legislation across the U.S. Legislators in dozens of other states have introduced similar privacy bills. Various privacy bills have also been introduced in Congress, and others are still in the works – a key issue being whether and to what extent a federal bill would preempt state privacy laws.

But despite all of this activity over the past year, no such privacy law has yet to be enacted in any state or in Congress. The many proposed bills either remain under review in legislative committees, or have failed to proceed fast enough to be passed into law during 2019 legislative sessions. The only exception appears to be a relatively narrow Nevada law passed on May 30, 2019, that prohibits a business from selling personal information for monetary consideration following a verified consumer request not to do so. (Nevada SB220, NRS Ch. 603A, effective Oct. 1, 2019.)

With this background, New York has seen two noteworthy legislative developments on privacy protections in the past few months.

The SHIELD Act

In June 2019, the Stop Hacks and Improve Electronic Data Security Act (SHIELD Act) was passed by both the New York Senate and Assembly, and it is now due to be delivered to Gov. Andrew Cuomo for his signature. (See S5575B; A5635. The SHIELD Act was previously pursued in the 2017-2018 legislative session as S6933). In addition to expanding breach notification obligations, the law introduces broad new cybersecurity requirements.

A. Expanding Breach Notification Obligations

This bill amends General Business Law Section 899-aa with respect to breach notification in a number of key respects, including:

• expanding the definition of personal information to include 1) financial account numbers that can be used to identify an individual's financial account without additional identifying information, security code, access code or password; 2) biometrics information; and 3) a user name or email address in combination with a password or security question and answer that would permit access to an online account
• revising the meaning of what constitutes "unauthorized access" to personal information
• exempting notice for an "inadvertent disclosure" where it is reasonably determined that the exposure "will not likely result in misuse of such information, or financial harm"
• increasing the fines the State Attorney General can seek for violations of the statute, as well as the increasing the statute of limitations

B. New Cybersecurity Obligations

The SHIELD Act goes further than just breach notification, introducing a series of new security requirements in Section 899-bb that are similar in some respects to those previously enacted in Massachusetts (M.G.L. Ch. 93H and 201 CMR 17.00).

Specifically, businesses that maintain private information of New York residents must "develop, implement and maintain reasonable safeguards to protect the security, confidentiality and integrity of the private information including, but not limited to, disposal of data." This requirement can be fulfilled either by:

1. complying with regulations such as Title V of the Gramm-Leach-Bliley Act (GLBA), the Health Insurance Portability and Accountability Act (HIPAA) or the New York State Department of Financial Services Cybersecurity Requirements (23 NYCRR 500), or
2. implementing a data security program that includes:

a. reasonable administrative safeguards such as:

i. designating one or more employees to coordinate the security program

ii. identifying reasonably foreseeable internal and external risks

iii. assessing the sufficiency of safeguards in place to control the identified risks

iv. training and managing employees in the security program practices and procedures

v. selecting service providers capable of maintaining appropriate safeguards, requiring those safeguards by contract, and

vi. adjusting the security program in light of business changes or new circumstances

b. reasonable technical safeguards such as:

i. assessing risks in network and software design

ii. assessing risks in information processing, transmission and storage

iii. detecting, preventing and responding to attacks or system failures, and

iv. regularly testing and monitoring the effectiveness of key controls, systems and procedures

c. reasonable physical safeguards such as:

i. assessing risks of information storage and disposal

ii. detecting, preventing and responding to intrusions

iii. protecting against unauthorized access to or use of private information during or after the collection, transportation and destruction or disposal of the information, and

iv. disposing of private information within a reasonable amount of time after it is no longer needed for business purposes by erasing electronic media so that the information cannot be read or reconstructed

These new data security requirements appear to go beyond the Massachusetts regulations in some respects (such as disposal of personal information) and appear to expand New York consumer-related obligations for security much like CCPA has done for privacy.

There are some mitigating factors. First, the law includes some flexibility within its language and is subject to risk-based decisions. Second, the law recognizes that a small business can comply where its security program is appropriate for its size and complexity, such as in view of the nature and scope of its activities and the sensitivity of personal information it maintains. Third, the Attorney General can pursue civil penalties for violations, but there is no private right of action.

The New York Privacy Act

The New York Privacy Act (NYPA), introduced on May 9, 2019, referred to the Senate's Consumer Protection Committee. (See S5642.) The Act goes much further than the CCPA, incorporating many additional concepts from the European Union's General Data Protection Regulation (GDPR) such as data controllers and processors, as well as adopting a "data fiduciary" standard. The law excludes personal data that is subject to GLBA or HIPAA, or maintained for employment records.

A. Fiduciary Duties

The NYPA's key fiduciary requirements (Section 1102) include the following.

• Personal data of consumers may not be used, processed or transferred to a third party without a consumer's express and documented consent.
• Every controller and data broker must "exercise the duty of care, loyalty and confidentiality expected of a fiduciary with respect to securing the personal data of a consumer against a privacy risk; and shall act in the best interests of the consumer, without regard to the interests of the entity, controller or data broker, in a manner expected by a reasonable consumer under the circumstances."
• Personal data, or data derived from it, may not be used in a manner that "(i) will benefit the online service provider to the detriment of an end user; and (ii) (A) will result in reasonably foreseeable and material physical or financial harm to a consumer; or (B) would be unexpected and highly offensive to a reasonable consumer."
• Personal data cannot be disclosed, sold or shared with another party except where the recipient "enters into a contract that imposes the same duties of care, loyalty, and confidentially toward the consumer" and where the discloser "take[s] reasonable steps to ensure" the recipient complies with those obligations, "including by auditing, on a regular basis, the data security and data information practices" of the recipient.
• Privacy risks are broadly defined to include financial and economic harm, physical harm, psychological harm (e.g., anxiety, embarrassment), inconvenience or expenditure of time, adverse outcomes (e.g., employment, housing, education, healthcare), reputational harm, disruption or intrusion from unwanted commercial communications, price discrimination, and various effects reasonably foreseeable, contemplated by or expected by the assessor of privacy risk.
• The fiduciary duty shall "supersede any duty owed to owners or shareholders"

B. Consumer Rights

The Act also introduces six consumer rights (Section 1103).

1. Disclosure: Upon request, a controller must confirm whether a consumer's personal data is being processed and or sold to data brokers, and provide access to the personal data and the names of third-party recipients.
2. Correction: Upon request, correct inaccurate personal data.
3. Deletion: Upon request, delete personal data if no longer necessary for the purposes of collection, including where consent was withdrawn, but excluding certain legal or public interest retention needs.
4. Restrict processing: Upon request, cease processing where restricted by the consumer or accuracy of data is disputed by the consumer.
5. Portability: Personal data must be provided in a structured, commonly used and machine-readable format if 1) consent is required, processing is necessary for performance of a pending or existing contract and 2) processing is by automated means.
6. Profiling: Profile-based decisions with legal or other similarly significant effects – such as denial of consequential services or support (e.g., financial and lending services, housing, insurance, education enrollment, criminal justice, employment opportunities and healthcare services) – may not be made except where otherwise permitted by law and measures are taken to safeguard consumers' rights and interests.

The Act provides 30 days to respond to such requests, subject to a 60-day extension when necessary. Information must generally be provided free of charge.

C. Transparency

The Act also includes new requirements for the public privacy notice (Section 1104), which are similar to the CCPA in many respects but also include some key differences, such as:

• disclosure of "the names and categories of third parties, if any, with whom the controller shares personal data" (emphasis added)
• those who "engage in profiling" must provide in advance "meaningful information about the logic involved and the significance and envisaged consequences of the profiling," and
• disclosure on how to object to the sale or processing of personal data for direct marketing purposes

D. Liability

The Act includes a tough liability provision, deeming a violation as "an unfair or deceptive act in trade or commerce and an unfair method of competition," granting enforcement authority to the Attorney General where civil penalties shall be assessed based on "the number of affected individuals, the severity of the violation, and the size and revenues of the covered entity" where each affected individual counts as a separate violation, as does each provision that is violated. (Sections 1109(3) and (4)).

The Act also includes a private right of action, providing that "any person who has been injured by reason of a violation of this article may bring an action [] to enjoin such unlawful act, or to recover his or her actual damages, or both []. The court may award reasonable attorney's fees to a prevailing plaintiff." (Section 1109(3)).

Conclusion and Considerations

Although the NYPA had a single sponsor and is just beginning review in a Senate committee, it presents a broader range of potential legal frameworks that legislators may pursue in New York or other states.

As the CCPA and proposed NYPA highlight in regard to data privacy, as Massachusetts Regulation 201 CMR 17.00 and the SHIELD Act highlight in regard to data security – and as 50 different state laws highlight in regard to breach notification – businesses of all shapes and sizes face increasing regulatory compliance costs and risk exposure with the expansion of fragmented, state-based privacy regimes in the absence of a comprehensive federal framework.  

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.