A lender sends borrower files to a document preparation vendor and gives no opt-out to the 1,400 borrowers involved. Assuming the applicable initial privacy notice is given, what contract-based condition can support a service-provider exception to opt-out?
Correct Answer
C) A qualifying contract restricts the vendor's use and disclosure to carrying out the purposes for which the information was shared
C. A qualifying purpose-limiting contract supports the service-provider opt-out exception. The vendor must perform services for the institution or functions on its behalf. The initial privacy notice and the contractual restrictions are separate conditions of this exception. Scope and exceptions: The permitted scope includes specified ordinary-course uses under sections 1016.14 or 1016.15 to carry out those purposes. This is not unrestricted permission to sell or reuse borrower data for unrelated purposes; other applicable duties remain. Source: Section 1016.13(a)(1) — https://www.consumerfinance.gov/rules-policy/regulations/1016/13/
Why This Is the Correct Answer
C. A qualifying purpose-limiting contract supports the service-provider opt-out exception. The vendor must perform services for the institution or functions on its behalf. The initial privacy notice and the contractual restrictions are separate conditions of this exception. Scope and exceptions: The permitted scope includes specified ordinary-course uses under sections 1016.14 or 1016.15 to carry out those purposes. This is not unrestricted permission to sell or reuse borrower data for unrelated purposes; other applicable duties remain.
Why the Other Options Are Wrong
Option A: Prohibited: any disclosure outside the institution requires an opt-out
The regulation expressly provides exceptions for certain external disclosures.
Option B: Permitted only after each of the 1,400 borrowers signs a waiver
Individual waivers are not the required mechanism under this exception.
Option D: Permitted for 90 days, after which an opt-out notice must be sent
There is no automatic 90-day service-provider window.
Exam Tip
Check the actual contractual restrictions, not merely the vendor label.
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