Opt Out Right

What is an Opt Out Right

An opt out right generally describes a party’s ability to exclude themselves from specific elements of or changes to a legal agreement. In finance, this right applies most often to sharing of private information among financial institutions.

BREAKING DOWN Opt Out Right

An opt out right gives a party to an agreement discretion over certain practices that, while legal, require firms to seek permission before acting. When the right exists, parties may give notice that they do not wish to abide by the terms covered by the right, and the counterparty must honor those terms. For example, U.S. federal law requires various financial entities, including credit card companies, brokers and dealers, to allow customers to opt out of any policy that involves sharing non-public customer information with third parties.

The creation of opt out rights for credit card customers and investors serves as a consumer protection measure. The nature of their business requires financial institutions to gather information on customers that would not otherwise exist in the public domain. Many financial institutions routinely provide customer information to affiliates for marketing purposes, since the otherwise non-public information they possess makes it easier to target potential new customers. Rules governing opt out rights typically require that card issuers provide customers with adequate disclosures describing their information-sharing practices and offer customers the opportunity to prohibit institutions from using their information in this fashion.

Opt Out Rights under the Fair Credit Reporting Act and Gramm-Leach Bliley Act

The Fair and Accurate Credit Transactions Act (FACTA) of 2003 amended the Fair Credit Reporting Act (FCRA) to include an opt out right for consumers targeted to receive marketing material based upon eligibility information provided by a firm’s affiliate. The legislation requires firms to provide consumers adequate disclosure of marketing agreements that involve sharing customer information. Firms must also give consumers a reasonable opportunity to opt out of participation in those programs. The legislation provides examples of reasonable opportunities, including opt-out notices that accompany mailings, electronic notices, or notices given at the time of transactions or alongside a periodically issued privacy policy.