FTC v. Wyndham: An online privacy showdown

by Gray Reed & McGraw

Usually, the first the outside world hears about a Federal Trade Commission privacy investigation is when the FTC announces a settlement.  The FTC normally notifies a company they are under investigation,everyone cooperates and there is a settlement.

The FTC’s Authority

This time, the FTC has filed suit.  The target is Wyndham Hotels.  You can read the claim here and the press release here.  Wyndham claims it is going to fight the case which means it should all be aired in public. 

The FTC’s authority to file suit about online privacy comes through Section 5 of the FTC Act (15 U.S.C. § 45) which prohibits ‘‘unfair or deceptive acts or practices in or affecting commerce.’’  This gives the FTC broad powers.

What did Wyndham do?

Like most companies, Wyndham has a privacy policy on its website.  It states: 

We safeguard our Customers’ personally identifiable information by using standard industry practices.  Although “guaranteed security” does not exist on or off the Internet, we take commercially reasonable efforts to create and maintain “fire walls” and other appropriate safeguards to ensure that to the extent we control the Information, the Information is used only as authorized by us and consistent with this Policy, and that Information is not properly altered or destroyed.

Despite the assurances in the privacy policy, Wyndham suffered three separate privacy breaches that allowed hackers to access customer credit card data.  Hackers used a “brute force attack” which means they guessed multiple user ID’s and passwords on a local hotel network that connected to the national database.  The second and third breach occurred when a service provider’s adminstrative access was hacked.   

The FTC claims Wyndham was deceptive and injured consumers because Wyndham:

-failed to use firewalls between various networks

-stored credit card info in clear readable text

-failed to implement adequate security policies

-failed to remedy known vulnerabilities

-used well-known default ID’s/passwords with access to entire network

-allowed for easy ID’s/passwords with access to entire network

-failed to inventory connections to manage devices

-failed to employ reasonable measures to detect and prevent

-failed to follow proper incident responses

-failed to restrict third-party access

The FTC is seeking an injunction and “such relief as the Court finds necessary to redress injury to consumers” which could mean millions.

What does this mean to you?

The primary lesson is to use reasonable security measures if you collect credit card info.  This means things like firewalls, reasonable password protections (don’t allow anyone to have a password of “password”), ecrypt information, monitor and inventory your network for intrusions and fix them if it does happen.   Had Wyndham been victimized just once, the FTC would probably not be interested.  Because it happened three times, the FTC stepped in.

Second, and applicable to everyone, don’t cut and paste you privacy policy.  The FTC’s authority to sue relates to deceptive acts.  If you promise not to share information or that you have certain safeguards in place, make sure you do.  Your privacy policy should be a combined effort from both legal and IT to make sure it is correct and legally sufficient.

Webinar on Cyber Insurance

You can learn more about this case and other cyber-security risks and insurance issues at the Monday, August 27 live Webcast from 11:00-1:00 CDT entitled: Cyber Insurance: What You Need to Know in 2012 LIVE Webcast.  You can use this link for free registration if there are limited free Looper Reed passes still left.

While I am in the shameless self-promotion mood, you can also vote for my SXSWinteractive panel on Crowdfunding with my Looper Reed colleague Mark Wigder.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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