Elements of Effective Self-Regulation for Protection of Privacy - Discussion Draft

January 27, 1998

NTIA and the Department of Commerce have released a Discussion Draft, "Elements of Effective Self-Regulation for Protection of Privacy." The document outlines preliminary views on self-regulation and the actions that the private sector can take in order to meet an acceptable level of privacy protection.

Discussion Draft
January 1998
Elements of Effective Self-Regulation for Protection of Privacy

As set forth in A Framework for Global Electronic Commerce, the Clinton Administration supports private sector efforts to implement meaningful, consumer-friendly, self-regulatory regimes to protect privacy. To be meaningful, self-regulation must do more than articulate broad policies or guidelines. Effective self-regulation involves substantive rules, as well as the means to ensure that consumers know the rules, that companies comply with them, and that consumers have appropriate recourse when injuries result from noncompliance. This paper discusses the elements of effective self-regulatory regimes -- elements that incorporate principles of fair information practices with enforcement mechanisms that assure compliance with those practices.

A. Principles of Fair Information Practices

Fair information practices were originally identified by an advisory committee of the U.S. Department of Health Education and Welfare in 1973 and form the basis for the Privacy Act of 1974, the legislation that protects personal information collected and maintained by the United States government. These principles were later adopted by the international community in the Organization for Economic Cooperation and Development's Guidelines for the Protection of Personal Data and Transborder Data Flows. Principles of fair information practices include consumer awareness, choice, appropriate levels of security, and consumer access to their personally identifiable data. While the discussion that follows suggests ways in which these principles can be implemented, the private sector is encouraged to develop its own ways of accomplishing this goal.

1. Awareness. At a minimum, consumers need to know the identity of the collector of their personal information, the intended uses of the information, and the means by which they may limit its disclosure. Companies collecting and using data are responsible for raising consumer awareness and can do so through the following avenues:

Notification. A company's privacy policy should be made known to consumers. Notification should be written in language that is clear and easily understood, should be displayed prominently, and should be made available before consumers are asked to relinquish information to the company.

Consumer education. Companies should teach consumers to ask for relevant knowledge about why information is being collected, what the information will be used for, how it will be protected, the consequences of providing or withholding information, and any recourse they may have. Consumer education enables consumers to make informed decisions about how they allow their personal data to be used as they participate in the information economy. Consumer education may be carried out by individual companies, trade associations, or industry public service campaigns.

    • Privacy policies. Privacy policies articulate the manner in which a company collects, uses, and protects data, and the choices they offer consumers to exercise rights in their personal information is used. On the basis of this policy, consumers can determine whether and to what extent they wish to make information available to companies.

2. Choice. Consumers should be given the opportunity to exercise choice with respect to whether and how their personal information is used, either by businesses with whom they have direct contact or by third parties. Consumers should be provided with simple, readily visible, available, and affordable mechanisms -- whether through technological means or otherwise -- to exercise this option. For certain kinds of information, e.g., medical information or information related to children, affirmative choice by consumers may be appropriate. In these cases, companies should not use personal information unless its use is explicitly consented to by the individual or, in the case of children, his or her parent or guardian.

3. Data Security. Companies creating, maintaining, using or disseminating records of identifiable personal information should take reasonable measures to assure its reliability for its intended use and should take reasonable precautions to protect it from loss, misuse, alteration or destruction. Companies should also strive to assure that the level of protection extended by third parties to whom they transfer personal information is at a level comparable to its own.

4. Consumer Access. Consumers should have the opportunity for reasonable, appropriate access to information about them that a company holds, and be able to correct or amend that information when necessary. The extent of access may vary from industry to industry. Providing access to consumer information can be costly to companies, and thus decisions about the level of appropriate access should take into account the nature of the information collected, the number of locations in which it is stored, the nature of the enterprise, and the ways in which the information is to be used.

B. Enforcement.

To be effective, a self-regulatory privacy regime should include mechanisms to assure compliance with the rules and appropriate recourse to an injured party when rules are not followed. Such mechanisms are essential tools to enable consumers to exercise their privacy rights, and should, therefore, be readily available and affordable to consumers. They may take several forms, as proposed below, and businesses may need to use more than one depending upon the nature of the enterprise and the kind of information the company collects and uses. The discussion of enforcement tools below is in no way intended to be limiting. The private sector may design the means to provide enforcement that best suit its needs and the needs of consumers.

1. Consumer recourse. Companies that collect and use personally identifiable information should offer consumers mechanisms by which their complaints can be resolved. Such mechanisms should be readily available and affordable.

2. Verification. Verification provides attestation that the assertions businesses make about their privacy practices are true and that privacy practices have been implemented as represented. The nature and the extent of verification depends upon the kind of information with which a company deals -- companies using highly sensitive information may be held to a higher standard of verification. Because verification may be costly for business, work needs to be done to arrive at appropriate, cost-effective ways to provide companies with the means to provide verification.

3. Consequences. For self-regulation to be effective, failure to comply with fair information practices should have consequences. Among these may be cancellation of the right to use a certifying seal or logo, posting the name of the non-complier on a publicly available "bad-actor" list, or disqualification from membership in an industry trade association. Non-compliers could be required to pay the costs of determining their non-compliance. Ultimately, sanctions should be stiff enough to be meaningful and swift enough to assure consumers that their concerns are addressed in a timely fashion. When companies make assertions that they are abiding by certain privacy practices and then fail to do so, they may be liable for fraud and subject to action by the Federal Trade Commission.


For further information, please contact Paula Bruening, pbruening@ntia.doc.gov