Data Privacy Litigation: What Small and Midsize Businesses in Financial Services Should Know

In an age when digital interactions dominate how businesses engage with clients, data privacy risks have moved to the forefront. Recent litigation trends show that insurers and financial services companies are now squarely in the cross-hairs of plaintiffs’ firms. The article “Data Privacy Litigation Trends Against Insurers and Financial Services Companies” highlights how organizations that share customer information via website analytics, apps, chat widgets or other tracking technologies are facing new legal exposures. 

For small to midsize businesses operating in or adjacent to the financial services sector, this is not just a big-board issue. The same underlying legal theories may apply to your business. Understanding those theories, mapping your exposures and implementing controls will be key to navigating what could become a more litigious environment.

Why Data Privacy Litigation Is Accelerating in Financial Services

Here are several key reasons why this area is trending upward:

• Plaintiffs’ firms are repurposing older statutes, such as federal and state wiretapping laws, to cover modern data-tracking tools like pixels, cookies, SDKs in apps, and session-replay software.
• Financial services firms that exchange or expose customer information to third-party analytics or marketing vendors are being treated like technology firms from a legal risk perspective.
• The financial and reputational stakes are high: defense costs, class-action risk, regulatory pressure, and brand damage all combine to raise the bar for companies that neglect this area.

Because the cost of data breach or data-misuse litigation has never been higher, implementing proactive strategies is essential, especially for organizations without deep in-house compliance teams.

Key Legal Theories Driving Lawsuits Against Businesses

Plaintiffs are using a variety of legal causes of action to target companies in the financial sector. Some of the main ones include:

Wiretapping / electronic communications interception (federal & state)

1. Under the federal Electronic Communications Privacy Act of 1986 (ECPA), it is unlawful to intercept electronic communications unless one of the parties consents. 
2. Plaintiffs attempt to use the “crime-tort” exception to bypass one-party consent rules by alleging that the defendant intentionally allowed third-party tracking for the purpose of committing a separate tort or violation of laws like the Gramm‑Leach‑Bliley Act (GLBA) or the Health Insurance Portability and Accountability Act (HIPAA). 

State statutory causes of action

1. For example, the California Invasion of Privacy Act (CIPA) has been used to argue that third-party cookies or pixels that facilitate tracking are “instruments” used in unauthorized interception of communications.
   
2. Other claims include the Video Privacy Protection Act (VPPA) and various state consumer-protection statutes.

Traditional tort/contract theories

1. Plaintiffs commonly include claims for breach of implied contract, negligence, invasion of privacy, breach of fiduciary duty, unjust enrichment, and the like.
   
2. The “kitchen‐sink” strategy is prevalent; plaintiffs add many alternative theories to improve the chance of surviving early dismissal.

Each of these theories may apply to smaller financial services firms or businesses that partner with financial institutions. The risk is not limited to big banks. Any company that handles personal data, uses third-party tracking technologies, or shares data externally should take note.

What These Litigation Trends Mean for Small and Midsize Businesses

Below are four practical insights tailored for businesses of your size and scope:

1. Audit your tracking and data-sharing ecosystem

• Map out how your website and apps use analytics tools, pixels, SDKs, chat-widgets, session-replay software or other third-party tracking elements.
  
• Identify which third parties get access to customer or consumer data and what they do with it.
  
• Determine whether your consent mechanisms, disclosures and contracts align with data-sharing practices.

2. Assess your integration with financial services workflows

• Even if you are not a bank or insurer, if you serve financial services clients or partner with them, their regulatory risks may ripple to you.
  
• Do you use or process data governed by GLBA, HIPAA or other privacy laws because of your client relationships or service model?

3. Evaluate your interstate or global exposure

• Many lawsuits originate in jurisdictions with aggressive privacy laws (for example, California). If you serve customers or process data in those states, you increase your exposure.
  
• If you collect or process data internationally, consider the General Data Protection Regulation (GDPR), UK-GDPR and other regimes.

4. Strengthen governance contracts and disclosure

• Make sure your privacy policy, cookie banner, vendor contracts, internal data-sharing agreements and vendor oversight are up to date.
  
• Implement vendor due diligence on third-party tracking vendors and analytics providers.
  
• Involve your legal counsel early to tailor policies and disclosures specific to your risk profile, not just generic boilerplate.

How Strong Data Governance Can Become a Competitive Advantage

While the risk side is compelling, there is also strategic upside for firms that treat data privacy compliance as a differentiator. Businesses that invest in privacy and data governance can benefit by:

• Enhancing trust with clients, partners and regulators
• Avoiding costly lawsuits, settlements and business interruptions
• Positioning themselves for future growth, acquisitions or partnerships
• Leveraging strong data governance as a marketing or brand asset

Especially for midsize businesses vying for larger engagements or institutional clients, demonstrating a mature privacy and data-risk program can be a competitive edge.

Actionable Next Steps for Strengthening Compliance and Reducing Liability

Start by making privacy and data governance a board or leadership-level item rather than a back-office afterthought. Consider the following steps:

• Conduct a comprehensive privacy and data sharing audit across all digital platforms and vendor relationships

• Identify and classify data flows that may intersect with regulated categories such as financial data, health data, and personal identifiers

• Map your exposure to federal and state statutes used in recent litigation, including ECPA, CIPA, VPPA, GLBA, and HIPAA

• Update your contracts with third parties to clearly define roles, data sharing practices, vendor obligations, and liabilities

• Enhance transparency with customers through clear disclosures, cookie consent tools, opt-out mechanisms, and privacy by design principles

• Implement vendor oversight and conduct periodic reviews of third-party tracking technologies, analytics SDKs, and chat widgets

• Train internal staff and leadership on privacy risk indicators, data sharing best practices, and incident detection

• Engage legal counsel with experience in financial services, privacy, data tracking, litigation, and regulatory enforcement

• Monitor legal and regulatory developments in privacy law as these trends evolve rapidly and often unexpectedly

Contact Jimerson Birr for Strategic Data Privacy Guidance

The landscape of data privacy litigation is shifting quickly. What once may have been the exclusive domain of technology companies now touches financial services and adjacent businesses in new ways. For small and midsize enterprises operating in the financial services sector or managing customer data, the legal theories being deployed against larger institutions should serve as a warning and a catalyst.

By focusing now on your digital tracking architecture, vendor relationships disclosure frameworks, and contracts, you can turn potential liability into operational strength. The businesses that proactively invest in privacy governance and data-sharing transparency will not only reduce risk but also build trust and strategic advantage.For guidance tailored to your business, especially if you handle customer data, share data with third parties or serve the financial services market, contact Jimerson Birr.