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Difficulty: MediumGramm-Leach-Bliley Act (GLBA) and Consumer Privacy

Crestview Risk Solutions, an independent insurance brokerage, securely maintains Nonpublic Personal Information (NPI) on behalf of its applicants and policyholders. Under the Gramm-Leach-Bliley Act (GLBA) Financial Privacy Rule, consumers must generally be given the right to opt out of having their NPI shared with nonaffiliated third parties. However, there are strict exceptions to this rule.

In which of the following situations is the brokerage permitted to disclose a client's NPI to a nonaffiliated third party without providing an opportunity to opt out? (Select two that apply)

  1. Submitting an applicant's medical and financial data to a third-party underwriting facility to process a requested policy application.Answer
  2. B
    Selling a roster of active policyholders to an independent marketing firm that promotes extended automotive warranties.
  3. Providing a client's claim history and transaction data to a state insurance department to assist in an official fraud investigation.Answer
  4. D
    Sharing a client's credit score with a partnered mortgage lender so the lender can independently solicit the client for a home loan.

Answer

The brokerage may share NPI without an opt-out when processing a requested transaction (such as underwriting an application) or when cooperating with regulatory authorities for a fraud investigation.
The GLBA mandates that consumers be given an opportunity to opt out before their NPI is shared with nonaffiliated third parties. However, exceptions exist for essential business operations and public interest. An institution does not need to offer an opt-out when sharing NPI to service, administer, or process a transaction explicitly requested by the consumer (such as underwriting an insurance application), or when disclosing information to regulatory authorities to prevent fraud or comply with the law.

Step-by-Step Solution

1
Identify the general GLBA privacy rule regarding third-party disclosures.
The GLBA requires financial institutions to provide consumers an opportunity to opt out before sharing NPI with nonaffiliated third parties.
Establishing the baseline rule is necessary before identifying the legal exceptions.
2
Evaluate the underwriting facility scenario.
Sharing NPI to administer or service a transaction requested by the consumer is recognized as a valid exception to the opt-out rule.
Without this exception, standard insurance operations like underwriting and claims processing would be unreasonably hindered.
3
Evaluate the fraud investigation scenario.
Disclosing NPI to comply with legal requirements, regulatory inquiries, or to prevent fraud is another statutory exception.
Public policy prioritizes law enforcement and fraud prevention over the opt-out requirement.
4
Eliminate the scenarios involving third-party marketing and cross-solicitation.
Selling policyholder lists or sharing credit data for independent marketing by nonaffiliated entities always triggers the opt-out mandate.
Preventing unauthorized sharing of NPI for marketing purposes is the core intent of the GLBA Financial Privacy Rule.

Key Concept

GLBA Financial Privacy Rule: Exceptions to the Opt-Out Requirement
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Topics

Gramm-Leach-Bliley Act (GLBA) and Consumer Privacy

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