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FTC to recommend stronger privacy legislation to Congress

Opening a political can of worms, the Federal Trade Commission says it will embark on a major policy shift, asking Congress to enact stronger legislation to oversee online privacy.

Opening a political can of worms, the Federal Trade Commission today said it would embark on a major policy shift, asking Congress to enact stronger legislation to oversee online privacy.

On Friday, the commission voted 3-2 to release a report concluding that "legislation is necessary" to ensure Internet privacy protections and that "industry alone have not been sufficient." That position is in marked contrast to the agency's prior stance, endorsed by the Clinton administration, of allowing corporate self-regulation on privacy.

Although privacy legislation is unlikely to come this year, the commission's change in focus could put new pressure on policy-makers and might even play a role in the upcoming presidential contest between Vice President Al Gore and Texas Gov. George W. Bush, experts said.

Sonia Arrison, director of the liberal Center for Freedom and Technology at the San Francisco-based Pacific Research Institute, said she sees a party split on the issue of Net privacy that could create headaches for Democrat Gore, who is beholden to both consumer and high-tech interest groups.

Jim Dempsey
Senior Staff Counsel
Center for Democracy and Technology
Discussing the need for Congress to establish a single nationwide privacy standard.
"Gore is pro-privacy, pro-consumer protection," Arrison said. "At the same time, he's also trying to get the support of the tech industry in California."

Arrison said that early this month, Democrats talked about how they wanted to make Internet privacy a big campaign issue for Gore. She added that if Gore gets into the White House, he may have an agenda up his sleeve that differs from Clinton's self-regulatory approach to the Internet.

By contrast, Arrison predicts that if Republican Bush goes to the White House, he'll support further efforts for self-regulation.

Others say there is no strong bipartisan slant on behalf of the parties regarding self-regulation--although that, too, can be confusing for politicians trying to make their way in an election year.

"The pressure is certainly on for Congress and the administration to do something," said Adam Thierer, a fellow at The Heritage Foundation, a Washington, D.C.-based conservative public-policy think tank. "People are saying that doing nothing is not an option."

On Friday, the FTC voted to release a report on its findings regarding a survey assessing Web sites' compliance with fair information practices. Most importantly, the FTC voted today to release the details of its legislative proposals to Congress for this Thursday's hearing.

Based on the survey, the commission found that 97 of 100 Web sites in a random sample collected personal information about consumers.

The survey also found that voluntary programs guaranteeing sites are in compliance with their stated privacy policies have yet to make significant inroads. In a random sample, the study found that approximately 8 percent of sites display a privacy seal. Among the most popular sites on the Web, that number increased to 45 percent.

Drawing on the survey, the commission recommends that Congress enact legislation based on basic standards of practice for the collection of information online and create an agency that would have more authority to address privacy protection.

Four of the five FTC commissioners support some legislative action to protect online privacy, FTC spokesman Eric London said. Commissioners Robert Pitofsky, Mozelle Thompson and Sheila Anthony support the report in its entirety.

"If self-regulation and privacy principles are actually viewed as Swiss cheese, then legislation is really there to get at the holes in the cheese," Thompson said. "Legislation that incorporates industry self-regulation and safe harbors and a directed rule-making that provides some flexibility is going to be something that is helpful to address this important problem."

Commissioner Thomas Leary concurs in part and dissents in part. London said that Leary wants to narrow the scope of the protections that the FTC recommended.

Commissioner Orson Swindle is against any legislation, a position he has held for the past two years. He said in a statement today that industry self-regulation is working and that legislation could "limit consumer choices and provide a disincentive for the development of further technological solutions."

Swindle added that if the commission radically changes its course and calls for broad legislation, it would be premature and counterproductive.

"Government regulation may actually give consumers fewer choices, and as technology changes, less privacy," Swindle said. "Legislation should be reserved for problems that the market cannot fix on its own."

Already this year the commission has made significant initiatives to address online privacy.

Last Monday, the FTC released its final report on online access and security, in which it considered various issues involved in giving consumers the right to review data collected about them online.

In addition, the FTC recently released new rules governing financial Web sites and children's privacy online.

The Children's Online Privacy Protection Act took effect last month, barring companies from collecting data on children under the age of 13 without a parent's written consent.

The FTC's financial rule applies to companies that engage in financial activity, including those that lend and transfer money. The rule says companies must notify customers annually of privacy polices and practices and give them the opportunity to "opt out" of disclosing their nonpublic personal information to nonaffiliated third parties.

Although the rule goes into effect Nov. 13, the FTC is giving companies time to establish their policies and procedures by extending the deadline for full compliance until July 1, 2001.

On May 9, consumer groups sent a letter to government financial regulators condemning the delay in the enforcement of the privacy provisions.

"It's outrageous," said Ed Mierzwinski, consumer advocate for the U.S. Public Interest Research Group. "What's so hard about telling people their rights?"

Whether or not online privacy emerges as a major presidential campaign issue, privacy regulation will likely shape up as a major policy issue for the coming administration.

The Heritage Foundation's Thierer said the key issue beyond the election will come with the appointment of the next head of the FTC.

"I don't think (the president) is going to have the final call," Thierer said. "It's the people below that are going to make the call."