The FTC reached a settlement  with online tax preparation service TaxSlayer Online for allegedly violating the Gramm Leach Bliley Act’s (“GLBA”) Privacy Rule and Regulation P as well as the Safeguards Rule.

The Privacy Rule/Regulation P requires financial institutions to provide initial and annual notices to their customers informing them about what nonpublic personal information is shared with third parties. It also provides information about how consumers can opt out of certain information sharing.  Both the FTC and the Consumer Financial Protection Bureau enforce the Privacy Rule.

The Safeguards Rule requires financial institutions to use reasonable procedures to safeguard their customers’ nonpublic information. The FTC enforces the Safeguards Rule.

TaxSlayer is a financial institution as defined by GLBA because it provides tax planning and tax preparation services.   The consent agreement, which will become final after a public comment period, does not include monetary relief but requires TaxSlayer to comply with both rules and undergo biannual security assessments for 10 years.

According to the complaint, TaxSlayer became subject to a list validation attack that began in October 2015 but the company did not become aware of the attack until a TaxSlayer user called to report suspicious activity on her account.  List validation attacks occur when attackers use lists of stolen login credentials to attempt to access accounts across a number of websites, knowing that consumers often reuse their login credentials.  According to the complaint, in an unknown number of instances as a result, attackers engaged in tax identity theft by altering the bank routing and refund methods, e-filing fraudulent tax returns and diverting the fabricated refunds to themselves.  TaxSlayer did not notify customers of these account alterations and the complaint highlights that failure as an example of inadequate data security.

The complaint alleges that TaxSlayer violated both the Privacy Rule/Regulation P and the Safeguards Rule. First, the FTC’s complaint alleges that TaxSlayer violated the Privacy Rule/Regulation P[1] by failing to provide a clear and conspicuous initial and subsequent annual privacy notices to its customers. In addition, TaxSlayer violated the Safeguards Rule by failing to have a written information security plan until After November 2015, failed to conduct a risk assessment that would have identified reasonably foreseeable internal and external risks, and failed to implement information safeguards to control the risks to customer information.

The complaint highlights five specific practices that if implemented, could have protected consumers from the list validation attack, including the failure to inform online users when a material change was made to the mailing address, password, or security question associated with an account or material changes to bank account routing number of payment methods for refunds associated with accounts.

Two points warrant mention: first, unlike many FTC consent agreements that require biannual privacy/security audits for 20 years, the settlement with TaxSlayer includes only a 10 year biannual audit period. Second, the complaint allegations relating to the security failures in light of the list validation attack are very specific and in some ways resemble the Red Flags Rule which requires many businesses and organizations to implement programs designed to detect the “red flags” of identity theft in their day-to-day operations will can prevent crime and mitigate its damage.[2]

[1] The Privacy Rule, originally promulgated by the FTC in 2000.  With the enactment of the Dodd-Frank Act, the Consumer Financial Protection Agency promulgated the Privacy of Consumer Financial Information, Regulation P which became effective on October 28, 2014.  Accordingly, TaxSlayer’s conduct is covered by the Privacy Rule prior to October 28, 2014 and by Regulation P after that date.  Both the CFPB and FTC are authorized to enforce Reg. P.
[2] 16 C.F.R.  681.