New Clarifications from the Consumer Finance Protection Bureau
The Consumer Finance Protection Bureau (CFPB) has issued new clarification regarding liability for cyber hacks. Financial institutions and service providers can now be held liable for maintaining insufficient data protection or information security.
If your company experiences a hack resulting in the theft of customer information, you could be held responsible for not maintaining sufficient data protection. The subjective nature of “sufficient protection” implies that the mere fact of data theft indicates insufficient security measures.
Importance of Coverage
Cyber liability insurance can mitigate the financial burden of such incidents. However, not all policies cover expenses like fines and penalties. It’s crucial to ensure your policy includes comprehensive coverage tailored to your needs.
A cyber liability policy typically includes requirements to maintain certain standards of network security and best practices. Adhering to these requirements can reduce the likelihood of security breaches.
Official CFPB Statement
The CFPB’s statement, issued on August 11th, expands on the definition of unfair acts to encompass insufficient data protection. This clarification underscores the seriousness of data security in financial practices.
Reasonable efforts to avoid breaches can provide some defense against penalties. Implementing best practices in authentication, password management, and software updates is essential.
Consumer Trust and Fair Practices
Consumers trust companies to safeguard their sensitive information. Failure to do so not only violates regulations but also constitutes unfair business practices by gaining an advantage over competitors.
Defining a Substantial Injury
Substantial injury isn’t solely measured by the volume of affected customers but also by the extent of harm inflicted. Even minor inconveniences to a large customer base can constitute substantial injury.
Risk of Harm
The risk of harm to customers, rather than actual injury, can also trigger penalties. If a company’s practices increase the likelihood of harm, regulatory action may ensue.
Legal and regulatory enforcement
CFPB circulars enforce federal consumer financial laws, making compliance crucial for businesses. Ignorance or negligence regarding cybersecurity standards is not an excuse.
Protecting your business
To safeguard against potential liabilities, seek legal advice and partner with reputable cyber liability insurance providers. Regularly update security measures to align with evolving best practices.
Given the evolving nature of cybersecurity threats and regulations, maintaining adequate protection for customer data is paramount. By proactively addressing security measures and obtaining comprehensive insurance coverage, businesses can mitigate the financial and reputational risks associated with data breaches.