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It’s Bigger. but is it Better?

They say that everything is bigger in Texas which includes big privacy protection.  After the Texas Senate approved HB 4 (the Texas Data Privacy and Security Act (“TDPSA”), on June 18, 2023, Texas became eleventh state to enact comprehensive privacy legislation.  

Like many of the state consumer data privacy laws enacted this year, TDPSA is largely modeled after the Virginia Consumer Data Protection Act.[1] consumer data privacy law. However, the law contains several unique differences and drew significant pieces from recently enacted consumer data privacy laws in Colorado and Connecticut, which generally include “stronger” provisions than the more “business-friendly” laws passed in states like Utah and Iowa. 

Some of the more notable provisions of the bill are described below:

More Scope Than You Can Shake a Stick At!

• The TDPSA applies much more broadly than any other pending or effective state consumer data privacy act, pulling in individuals as well as businesses regardless of their revenues or the number of individuals whose personal data is processed or sold.
• The TDPSA applies to any individual or business that meets all of the following criteria:
  • conduct business in Texas (or produce goods or services consumed in Texas) and,
  •  process or sell personal data:
    • The “processing or sale of personal data,” further expands the applicability of the TDPSA to include individuals and businesses that engage in any operations on personal data, such as the “collection, use, storage, disclosure, analysis, deletion, or modification of personal data.”
    • In short, collecting, storing or otherwise handling the personal data of any resident of Texas, or transferring that data for any consideration, will likely meet this standard. 
• Uniquely, the carveout for “small businesses” excludes those entities that meet the definition of “a small business as defined by the United States Small Business Administration.”[2]
• The law requires all businesses, including small businesses, to obtain opt-in consent before processing sensitive personal data
• Similar to other state comprehensive privacy laws, TDPSA excludes state agencies or political subdivisions of Texas, financial institutions subject to Title V of the Gramm-Leach-Bliley Act, covered entities and business associates governed by HIPAA, nonprofit organizations, and institutions of higher education. But, TDPSA uniquely excludes electric utilities, power generation companies, and retail electric providers, as defined under Section 31.002 of the Texas Utilities Code.
• Certain categories of information are also excluded, including health information protected by HIPAA or used in connection with human clinical trials, and information covered by the Fair Credit Reporting Act, the Driver’s Privacy Protection Act, the Family Educational Rights and Privacy Act of 1974, the Farm Credit Act of 1971, emergency contact information used for emergency contact purposes, and data necessary to administer benefits.

Don’t Mess with Texas Consumers

Texas’s longstanding libertarian roots is evidenced in the TDPSA’s strong individual consumer privacy rights, including the right to:

• Confirm whether a controller is processing the consumer’s personal data and access that data;
• Correct inaccuracies in the consumer’s personal data, considering the nature of the data and the purposes of the processing;
• Delete personal data provided by or obtained about the consumer;
• Obtain a copy of the consumer’s personal data that the consumer previously provided to a controller in a portable and readily usable format, if the data is available digitally and it is technically feasible; and
• Opt-out of the processing of personal data for purposes of targeted advertising, the sale of personal data, or profiling in furtherance of a decision that produces legal or similarly significant legal effects concerning the consumer.

Data controllers would be required to respond to consumer requests within 45 days, which may be extended by 45 days when reasonably necessary. The bill would also give consumers a right to appeal a controller’s refusal to respond to a request

Controller Hospitality

The Texas bill imposes a number of obligations on data controllers, most of which are similar to other recently enacted state consumer data privacy laws:

• Data Minimization – Controllers should limit data collection to what is “adequate, relevant, and reasonably necessary” to achieve the purposes of collection disclosed to a consumer. Consent is required before processing information in ways that are not reasonably necessary or not compatible with the purposes disclosed to a consumer.
• Nondiscrimination – Controllers may not discriminate against a consumer for exercising individual rights under the TDPSA  , including by denying goods or services, charging different rates, or providing different levels of quality.
• Sensitive Data – Consent is required before processing sensitive data, which includes personal data revealing racial or ethnic origin, religious beliefs, mental or physical health diagnosis, citizenship or immigration status, genetic or biometric data processed for purposes of uniquely identifying an individual; personal data collected from a child known to be under the age of 13, and precise geolocation data.
  • The Senate version of the bill excludes data revealing “sexual orientation” from the categories of sensitive information, which differs from all other state consumer data privacy laws.
• Privacy Notice – Controllers must post a privacy notice that includes (1) the categories of personal data processed by the controller (including any sensitive data), (2) the purposes for the processing, (3) how consumers may exercise their individual rights under the Act, including the right of appeal, (4) any categories of personal data that the controller shares with third parties and the categories of those third parties, and (5) a description of the methods available to consumers to exercise their rights.
• Targeted Advertising – A controller that sells personal data to third parties for purposes of targeted advertising must clearly and conspicuously disclose to consumers their right to opt out.

Assessing the Privacy of Texans

Unlike some of the “business-friendly” privacy laws in Utah and Iowa, the Texas bill requires controllers to conduct data protection assessments for certain types of processing that pose heightened risks to consumers. The assessments must identify and weigh the benefits of the processing to the controller, the consumer, other stakeholders, and the public, against the potential risks to the consumer as mitigated by any safeguards that could reduce those risks.  The categories that require assessments are identical to those required by Connecticut’s consumer data privacy privacy law and include:

• Processing personal data for targeted advertising;
• The sale of personal data;
• Processing personal data for profiling consumers, if such profiling presents a reasonably foreseeable risk to consumers of unfair or deceptive treatment, disparate impact, financial, physical or reputational injury, physical or other intrusion upon seclusion of private affairs, or “other substantial injury;”
• Processing of sensitive data; and
• Any processing activities involving personal data that present a “heightened risk of harm to consumers.”

Opting Out and About

The Senate version of the bill would require businesses to recognize a universal opt-out mechanism for consumers, similar to provisions required in Colorado, Connecticut, California and Montana, but it would also allow businesses more leeway to ignore those signals if it cannot verify the consumers’ identity or lacks the technical ability to receive it.

Show Me Some Swagger!

The bill gives the Attorney General the exclusive right to enforce the law, punishable by civil penalties of up to $7,500 per violation. Businesses have a 30-day right to cure violations upon written notice from the Attorney General. Unlike several other laws, the right to cure has no sunset provision and would remain a permanent part of the law. The law does not include a private right of action. 

Next Steps for TDPSA Compliance

For businesses that have already developed a state privacy compliance program, especially those modeled around Colorado and Connecticut, making room for TDPSA will be a streamlined exercise. However, businesses that are starting from ground zero, especially “small businesses” defined in the law, need to get a move on.

If TDPSA is your first rodeo in consumer privacy compliance, some first steps we recommend are:

1. Update your website privacy policy for facial compliance with the law.
2. Put in procedures in place to respond to consumer privacy requests and ask for consent before processing sensitive information.
3. Gather necessary information to complete data protection assessments.
4. Identify vendor contracts that should be updated with data protection terms.

If you have questions about this or any other privacy or cybersecurity matter, please contact any member of Michael Best’s Data Privacy and Cybersecurity team.