Show of Good Faith

It's more important than ever to show customers you'll keep their information private.
Magazine Contributor
3 min read

This story appears in the December 2003 issue of Entrepreneur. Subscribe »

It's getting hard for consumers to hide, as "spyware" programs invade personal computers and large retailers such as Wal-Mart move toward Radio Frequency Identification (RFID) technology, a wireless "bar code" that lets retailers track inventory even after it's left the store. Even paying in cash may not guarantee customers anonymity much longer: The European Union is adding RFID to the Euro. If successful, RFID could be added to U.S. currency within a few years, making it possible to track money from the ATM to the cash register.

Not surprisingly, consumers are wary. In a February 2003 Harris Interactive survey of 1,010 adults, 54 percent felt that most businesses don't handle customer information "in a proper and confidential way," and some 53 percent said that existing laws and business practices don't provide enough privacy protection.

Laws are strict concerning the privacy of consumers' medical and financial information, but other-wise, the rules are blurry. "The legal pro-tections provided to consumers are still fairly thin," says Chris-topher Wolf, a partner in the Washington, DC, office of Proskauer Rose LLP and chair of the law firm's privacy group. "Unless a company chooses to provide protections, there's no legal requirement that there be protection."

Companies can re- write privacy policies on the down-low, and consumers won't know unless they read the fine print. Then there are the semantics of the privacy game: A company may promise never to sell consumer information, but may rent it to third parties. Even worse, it takes a law degree to understand many privacy policies. "There are some pretty stealthy policies out there," says Deborah Pierce, executive director of Privacy Activism, a nonprofit group in San Francisco and Seattle that advocates for consumer privacy.

At press time, there were at least 50 privacy bills navigating Congress, but technology moves faster than the law. To stay on customers' good sides, follow the FTC's fair information guidelines. This means making your privacy policy easy to read, telling customers what information you're collecting and what you're doing with it, offering access to this information at their request, letting customers "opt out" of data gathering, and taking security measures to protect customer information.

Small companies have a chance to distinguish themselves by incorporating privacy into their value proposition instead of viewing it as a necessary evil, says Mozelle W. Thompson, a commissioner with the FTC in Washington, DC, which has gone after companies including Microsoft and Guess? Inc. for their privacy practices. A 2002 survey from The Progress & Freedom Foundation found that 93 percent of popular Web sites were letting customers choose whether their personal information is shared. Does this mean that more companies are heeding the concern over privacy? "Yes," says Thompson. "But they're by no means perfect, or we would not still be bringing cases."

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