FTC Issues Notice to Tax Preparation Companies about the Misuse of Confidential Information

The FTC recently issued a Notice of Penalty Offences (Notice) to certain tax preparation companies concerning the potential misuse of consumer data collected in confidential contexts in violation of the FTCA.  The FTC warns that these companies may face civil penalties of up to $50,120 per violation if they misuse personal data in ways that are unrelated to the original purpose for which this information was collected.

In the Notice, the FTC stated it was an unfair and deceptive trade practice to use information collected in a context wherein an individual reasonably expected that such information would remain confidential for any purpose that the individual has not previously provided affirmative, express consent for such use.  Examples include, but are not limited to, using such information to obtain a financial benefit that is separate from the tax preparation services, or using such information to advertise, sell, or promote products or services.  It also stated it was an unfair and deceptive trade practice to make false, misleading, or deceptive representations or omissions concerning the use or confidentiality of such information.

Relying on a 1976 administrative decision, the FTC added that these practices were unfair and deceptive whether the information was disclosed to a third party or used internally for unrelated purposes.  In that administrative action, the target company had used information furnished in connection with the offering of tax preparation services to market and sell unrelated loan products.  The company had argued that the misuse of tax information had been minimal because the information had remained internally.  The FTC had rejected that argument, finding that the confidential relationship between a company and consumer was breached whenever the consumer’s information was used for the financial gain of the company.