SEC Adopts Affiliate Marketing Rule
- With little fanfare, and not even an open meeting, the Securities and Exchange Commission has adopted Regulation S-AM, its version of the affiliate marketing rule. Release Nos. 34-60423, IC-28842, IA-2911, 74 Fed. Reg. 40398 (Aug. 4, 2009). The low-key presentation may be due in part to a sense of institutional embarrassment: The Fair and Accurate Credit Transactions Act of 2003 required the SEC and other regulators to adopt affiliate marketing rules in final form within nine months (that is, by September 4, 2004). The Federal Trade Commission and the bank regulators missed the deadline too, but they did manage to finalize their rules by October 2007. Regulation S-AM has an effective date of September 10, 2009, and compliance will be mandatory as of January 1, 2010.
The affiliate marketing rule essentially requires that a company cannot use "eligibility information" received from an affiliate to make marketing solicitations to consumers, unless the consumer previously has received notice and an opt-out opportunity. The notice can be combined with other required notices, such as the Regulation S-P privacy notice. The SEC's Reg. S-AM applies to broker-dealers, investment companies, and SEC-registered investment advisers and transfer agents. Other entities, however, will be subject to the FTC or bank regulator versions of the rule.
The definition of "eligibility information" is crucial to the whole analysis. Oddly enough, although Reg. S-AM provides extremely detailed guidance in every other way, this complex definition simply refers to the statute. In general, eligibility information is consumer information which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for (i) credit or insurance to be used primarily for personal, family or household purposes, (ii) employment purposes, or (iii) other purposes authorized in the Fair Credit Reporting Act. Larger organizations with multiple affiliates will need to analyze their information collecting and sharing practices carefully. The SEC estimates that about 56% of the entities subject to its regulation have affiliates, and that about 10% will actually provide opt-out notices.
The SEC's adopting release is available online at
John M. Baker <JMB@...>
Stradley Ronon Stevens & Young, LLP http://www.stradley.com
1250 Connecticut Avenue, NW, Suite 500
Washington, DC 20036
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