NEW YORK - Acquiring a pool of loans isn't what it used to be. Mounds of sensitive consumer information moves around the structured finance market at dizzying speeds these days. Last week, the American Securitization Forum asked market participants if they have taken the right steps to protect against information breeches, and if they were aware of the legal burdens tied to consumer information. These were asked at the ASF's sunset seminar on Securitization Ethics and Professional Responsibility held here.
"You don't have to be the party that generates or services the information, you just need to be the one who caused the security breech," to trigger a host of legal consequences, pointed out ASF's Executive Director George Miller, at a forum held last week on the subject. "Every process has legal, regulatory and ethical concerns."
Secondary market players were warned to listen up - a legitimate legal reason is necessary to sift through a loan pool down to personal consumer information. Birth dates and social security numbers are obvious, but in many cases loan ID numbers are considered hands-off. These are just a few of the personal data points carried in auto-, student loan-, credit card- and mortgage-backed securities.
But most compelling was talk over when or if consumers needed to be notified of an information breech. Due to a lack of federal guidelines, market participants are held to state notification laws, which vary widely, warned Leonard Bernstein, who chairs Reed Smith's financial service regulatory group.
"Plaintiff lawyers see these notices as an admission of fault, and say it creates a class," Berstein warned sternly. Causes to sue, stemming directly from information breech notices sent to consumers, have so far included charges of negligence and breech of contract. "It's a close cousin to product liability," Bernstein said, mentioning asbestos litigation.
Market participants are subject to the Gramm-Leach Bliley Act the Fair Credit Reporting Act, and Regulation AB, said Stephen F.J. Ornstein, partner, Thacher Proffitt & Wood. Furthermore, securities attorneys have disciplinary consequences via the New York State Bar Association, he said.
The ASF is developing guidelines to assist the structured finance market.
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