CCPA begins, NY SHIELD explained

As of January 1, 2020, the California Consumer Protection Act (CCPA) went into effect. I’m going to dig a little deeper into how that seems to be playing out later, but the purpose of this post is really just to mark the occasion. And also, to point out that the second installment of NY SHIELD is coming into effect in March 2020. For both of these acts, you don’t have to be located in California or New York for the law to apply to you. A lot of companies are starting realize this, and are scrambling. The good news is that if you are a larger company that is CCPA compliant, pre-incident, you are on the right track for New York too. Although the requirements for both are not equivalent. National companies (i.e., all internet-based businesses) will have to do separate compliance for both. But, if you are New York-centric, you are probably breathing a sigh of relief that the NY SHIELD ACT does not create a private cause of action against companies for data breach. (Unlike California). However, there are still pitfalls aplenty. Specifically, On October 23, 2019, the Stop Hacks and Improve Electronic Data Security Act (the SHIELD Act) imposed data breach notification requirements on any business that owns or licenses certain private information of New York residents, regardless of whether it conducts business in New York. In March 2020, the second part of the Act requires businesses to develop, implement and maintain a data security program to protect private information.

We haven’t focused on NY SHIELD as much (and I suspect that will change soon), so, just to re-cap, New York’s new data privacy law:

Expands When A “Breach” Is Triggered

Under the old rules, for a security incident to be called a “breach” and thus trigger the state’s breach notification requirements, there must be an “unauthorized acquisition or acquisition without valid authorization of computerized data that compromises the security, confidentiality, or integrity of personal information maintained by a business.” In English, that means that someone (or something) must “acquire” the data. Typically, that means they must access the data, AND come away with it. In other words, under the current law, a breach is not triggered by merely hacking into a server and seeing that there are a number of files containing personal information. The hacker would also have to take the files, or open them and record them somehow. The hacker would have to walk away with some ability to recall or review those files, whether it is by copying them, or some other means. That was then. This is now.

The NY SHIELD Act expands the definition of a breach by including ANY unauthorized access. That means if our hypothetical hacker gains access to your server, but never copies the personal information in the server, this would still count as a breach and would require breach notification.

Expands The Meaning of “Private Information”

The NY SHIELD ACT expands the definition of private information to include a combination of any personal identifier, and any account, credit, or debit card number, if it is possible to use that number to access an individual’s financial account without any additional identifying information OR a combination of any personal identifier and certain biometric information OR a username and password combination that would give access to an online account.

All of this creates interesting possibilities for what could be considered private information. For instance, your username and password to even the most useless online accounts could trigger a breach notification requirement. Further, under the biometric category, this could include your name and a picture of your face, since a picture of your face is, after all, “data generated by electronic measurements of an individual’s unique physical characteristics, such as a fingerprint, voice print, retina or iris image, or other unique physical representation or digital representation of biometric data which are used to authenticate an individual’s identity.” What feature is better at authenticating your identify than your face? Suddenly, unauthorized access to the school yearbook committee’s folder may become a notifiable incident. I’m going to stay out of the debate as to whether this is a good idea or a bad one, but most people can agree that it represents a significant expansion.

Creates New Obligations For Keeping Private Information Secure

The NY SHIELD ACT creates an obligation to maintain “reasonable” safeguards starting in March 2020. The word “reasonable” is a favorite among attorneys, especially attorneys who bill by the hour. Here, mid-size and large companies have specific milestones they must meet. For smaller companies, reasonability will be judged typically in terms of what precautions have been made. Basic stuff like multi-factor authentication should be a given. Implementing a company-wide security protocol, and identifying key players to run said program are also going to count towards “reasonable”-ness. I would argue anything that shows proactive steps, and preparedness will go a long way.

So, one question that the business community may have is what happens if they do not take reasonable safeguards? That can get complicated. True, the great state of New York may impose fines of up to $5,000 per violation. But, the consequences might be worse than that. For instance, would your insurance policy still cover you if you haven’t complied with the law? Suddenly that litigation or that business loss may be uninsured. That sting is going to exceed $5,000 very quickly.

As I alluded to, the Act takes size into account. For business with fewer than 50 employees, less than $3 million in gross revenues in each of the last three fiscal years, or less than $5 million in year-end total assets, those small businesses must maintain “reasonable administrative, technical and physical safeguards that are appropriate for the size and complexity of the small business, the nature and scope of the small business’s activities, and the sensitivity of the personal information the small business collects from or about consumers.” For businesses larger than that, they must implement a data security program containing the administrative, technical and physical safeguards enumerated in the law (see below). Thus, while CCPA has been getting all of the attention. The NY SHIELD ACT puts a number of requirements on companies that are too small for the CCPA to cover. The enumerated reasonableness requirements are as follows:

According to § 899-bb(2)(b)(ii)(A), organizations can Implement reasonable administrative safeguards by:

  • Designating one or more employees to coordinate the security program
  • Identifying reasonably foreseeable internal and external risks
  • Assessing the sufficiency of safeguards in place to control the identified risk
  • Training and managing employees in the security program practices and procedures
  • Verifying that the selection of service providers can maintain appropriate safeguards and requiring those safeguards by contract
  • Adjusting the security program in light of business changes or new circumstances

According to § 899-bb(2)(b)(ii)(B), organizations can establish reasonable technical safeguards by:

  • Assessing risks in network and software design
  • Assessing risks in information processing, transmission, and storage
  • Detecting, preventing, and responding to attacks or system failures
  • Regularly testing and monitoring the effectiveness of key controls, systems, and procedures

According to § 899-bb(2)(b)(ii)(C), organizations can create reasonable physical safeguards by:

  • Assessing risks of information storage and disposal
  • Detecting, preventing, and responding to intrusions
  • Protecting against unauthorized access to or use of private information during or after the collection, transportation, and destruction or disposal of the information
  • 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

Expands Breach Notification Requirements

When a New York resident’s personal information is accessed without authorization, under the NY SHIELD Act, the affected New York residents, the New York Attorney General, the New York Department of State, and the New York State Police must be notified of the breach. If the breach affects more than 500 New Yorkers, you will have 10 days from the date the breach if discovered to notify the attorney general, and the fines for noncompliance have increased as well. Further, if over 5,000 residents were affected by the breach, notification must also be made to consumer reporting agencies.

Take Aways

I think the take aways from where we sit right now is that the NY SHIELD Act is about to cause a scramble similar to the one we are seeing in California. New York companies are going to need to get compliant, or risk enforcement. Is the Attorney General likely to start prosecuting violations on March 1st? Doubtful. But the writing is on the wall. And unlike the CCPA, even the little guys are affected.

Are you a startup trying to figure out to get NY SHIELD compliant (hint: do you think your investors might ask about this?) Now is the time to get with the program. Reach out to me at jlong@mklaw.us.com if you want to schedule a free consultation on data privacy compliance.

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