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FTC FINDS E-COMMERCE SITES FAIL TO GUARD CONSUMER PRIVACY

Posted on May 11, 2000

      A survey of major e-commerce Web sites by the Federal Trade Commission found that only about 20 percent met US Federal Trade Commission (FTC) standards for protecting consumer privacy, agency officials said.

      But the Agency found significant improvements in performance on some indicators, including a nearly 90 percent compliance rate by Internet companies for posting their privacy policies. The survey covered hundreds of e-commerce sites, an official said. Based on its findings, the FTC's staff is recommending the commission ask Congress for authority to issue rules regulating Internet privacy.

      That would be a dramatic move for the commission, which has supported an industry self-regulation approach. Officials emphasized that no decisions have been made. "This is just a preliminary report, a staff recommendation," said agency spokesman Eric London. "There is no policy until the commission takes up the issue and votes on it."

      Most of the agency's five commissioners have been supporters of self-regulation, including Chairman Robert Pitofsky. But Mr. Pitofsky also has indicated that based on the study's findings he may change course. Agency officials said there is currently no clear majority in favor of the staff recommendation.

      The survey's findings are open to interpretation and are likely to be vigorously debated at the commission and on Capitol Hill. While overall the industry showed little improvement in meeting the FTC's privacy principles, people familiar with the study said, much of that is based upon the failure of sites to give consumers access to information that is collected about them.

      That is one of the few recommended privacy practices that haven't gained acceptance by major e-commerce companies, in part because it is difficult to implement.

      The other factors on which sites are graded are the posting of privacy policies, the freedom of consumers to limit use of their personal data, and the secure handling of such information. In addition, the survey this year for the first time judged sites on "qualitative" factors, such as the ease with which a consumer can locate a privacy policy. Those results are considerably more subjective.

      The survey is eagerly awaited on Capitol Hill, where privacy has become one of the year's biggest political issues. Rep. Billy Tauzin (R., La.), the influential chairman of a House subcommittee on telecommunications and consumer protection, wrote to Mr. Pitofsky this week seeking a briefing on the results prior to a meeting of House Republicans on the issue.

      Mr. Tauzin said he doesn't rule out supporting new regulations but wants the commission to consider the issue carefully. "I have asked them to go too slow, not to rush to judgment and roll out all kinds of new initiatives until we understand the issue better," he said.

      His own view is that "the larger players are getting the message and generally moving toward informing their customers about their privacy policies and implementing their policies in a way that probably is going to meet with a favorable impression on the Hill." In that case, he said, regulators should explore how to write new rules to take care of problems with smaller companies "in the least intrusive way."

      Mr. Pitofsky has earned praise on Capitol Hill for his measured handling of the privacy issue, which threatens to hamper the growth of electronic commerce. Now, said Legg Mason analyst Bill Whyman, "The FTC has a real tough call."

      While widespread industry deficiencies are increasingly difficult to ignore, many struggling e-commerce sites could find it difficult to comply with tough new rules. "Investors are looking for clear and quicker moves toward profitability, and data-privacy rules potentially limit the ability of companies to drive revenue via either personalized services or higher ad rates," he said.

Major FTC 'Fair Information' Principles:

• Notice/Awareness: Does the site post a privacy policy?

• Choice/Consent: Can consumers control how their information is used?

• Access/Participation: Can consumers view and correct information collected about them?

• Security/Integrity: Is the information safe from theft or "hacking?"

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