The New Kid on the Block: CFPB Fines Dwolla Over its Data Security Practices

The Consumer Financial Protection Bureau is the latest agency to take administration action against a private company over its data protection practices.

On March 2, 2016, the CFPB announced in a press release that it has taken administrative action against Dwolla, an online payment company, for deceiving its customers about its data security practices. The Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the CFPB to take against institutions that engage in unfair, deceptive, or abusive acts. The CFPB determined that Dwolla’s claims constituted deceptive acts in violation of Sections 1031(a) and 1036(a)(1) of 12 U.S.C. §§ 5531(a), 5536(a)(1).

The CFPB found Dwolla, from December 2010 to 2014, caused or represented, expressly or by implication, to consumers that it employs reasonable and appropriate measures to protect data obtained from consumers from unauthorized access when it:

  1. Claimed its data security practices “exceed” or “surpass” industry standard practices when in fact it did not employ reasonable and appropriate measures to protect consumer data;
  2. Falsely claimed that its “information is securely encrypted and stored when in fact it did not encrypt some sensitive consumer information, and actually released application to the public before testing whether the applications were secure.

The Order requires Dwolla to:

  1. Pay a $100,000 fine;
  2. Adopt and implement reasonable and appropriate data security measures to protect consumers’ personal information on its computer networks and applications;
  3. Retain an independent third-party to conduct annual audits of its data security practices;
  4. Submit plans, reports, programs, policies, and procedures to the CFPB.

The Order specifically outlines measures Dwolla is required to implement to improve the safety and security of its operations and the consumer information stored therein, or transmitted through, including:

  1. Establish, implement, and maintain a written, comprehensive data security plan reasonably designed to protect confidentiality, integrity, and availability of sensitive consumer data;
  2. Adopt and implement reasonable and appropriate data security policies and procedures;
  3. Designate a qualified person to coordinate and be accountable for the data security program;
  4. Conduct data security risk assessments twice annually to identify internal and external risks to the security of its networks;
  5. Evaluate and adjust the data security program in light of the results of the risk assessments;
  6. Conduct regular, mandatory employee training;
  7. Develop, implement, and update security patches to fix any security vulnerabilities identified;
  8. Develop, implement, and maintain an appropriate method of customer identity authentication at the registration phase as well as before funds transfers;
  9. Develop, implement, and maintain reasonable procedures for the selection and retention of service providers capable of maintaining security practices consistent with the requirements of the Order.

With one successful adjudication under its belt, the CFPB will likely continue to pursue administrative actions for data protection practices in the future. The CFPB is the newest member of  the not-so-exclusive group of regulatory agencies that are currently adjudicating data protection cases, which includes the FTC, SEC, and FCC. With more and more agencies trying to get in on the action, is it time to centralize data protection enforcement?


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Professor William Snyder

Professor William C. Snyderis a member of the faculty of the Institute for National Security and Counter-terrorism at Syracuse University after fifteen years with the United States Department of Justice.

Ryan D. White

Ryan D. WhiteRyan is currently a third year law student at Syracuse University College of Law, and is also pursuing a Master of Public Administration degree from Syracuse’s Maxwell School of Citizenship and Public Affairs. Ryan spent time with Homeland Security Investigations while pursuing his undergraduate degree at Wesleyan University, and spent his first summer of law school as clerk for the U.S. Attorney’s Office in the Western District of New York. He is a member of Syracuse Law Review, the Journal on Terrorism and Security Analysis, and participates in the Veteran’s Legal Clinic. Full biography

Shelby E. Mann

Ryan D. WhiteShelby is a second year law student at the Syracuse University College of Law. She is the 2018-9 Editor in Chief of the Syracuse Law Review, as well as a member of the Journal on Terrorism and Security Analysis, and the senior editor for the Syrian Accountability Project. During her final year at the University of Missouri, she served as a full-time news producer for ABC 17 News. Shelby spent her first summer of law school at the Shelby County District Attorney General's Office in Memphis, Tenn., in the Public Corruption and Economic Crimes Unit. Full biography

Christopher w. FolkChristopher W. Folk

is a 2017 graduate of SU College of Law. A non-traditional student, Christopher returned to academia after spending nearly twenty years in the high tech industry. Christopher served in the Marine Corps, graduated from Cornell University with a B.S. In Applied Economics and Business Management, attended Northeastern University’s High-Tech MBA Program and received a M.S. In Computer Information Systems. Christopher previously worked in Software Engineering. Christopher is currently serving his second term as Town Justice for the Town of Waterloo. Christopher externed with a Cybersecurity firm in the Washington, D.C. area between his first and second year at SU College of Law. Full biography

Anna Maria Castillo

Anna Maria Castillois 2016 graduate of Syracuse College of Law. She also holds a Master of Arts in International Relations from Syracuse University's Maxwell School of Citizenship and Public Affairs. She has interned at a London-based think-tank that specializes in transnational terrorism and global security and at the legal department of a defense contractor. She served as an executive editor in the Syracuse Law Review. Full biography

Jennifer A. CamilloJennifer A. Camillo

is a 2015 graduate of Syracuse College of Law and is a prosecutor. She has served as a law clerk in the United States Attorney’s Office for the Northern District of New York and the Cayuga County District Attorney’s Office and as an extern in the Oneida County District Attorney’s Office. She was a member of the Syracuse National Trial Team and was awarded the Tiffany Cup by the New York Bar Association for her trial advocacy achievements.

Tara J. PistoreseTara J. Pistorese

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Benjamin Zaiser

is both a scholar and a Federal Agent of the Federal Criminal Police Office of Germany. (Opinions expressed here are his own and not any part of official duty.) Full biography


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