Privacy Policy Bill Introduced in Wake of Toysmart.com Bankruptcy Filing

Sens. Leahy (D-Vt.), Torricelli (D-N.J.) and Kohl (D-Wis.) introduced the "Privacy Policy Enforcement in Bankruptcy Act of 2000" on July 12. The bill would prohibit the sale of personally identifiable information held by a failed business if the sale or disclosure of the information would violate the privacy policy of the debtor in effect when the information was collected. Such information includes a customer's name, address, Social Security number, credit card number, date of birth and any other identifier that permits a customer to be contacted.

The bill arises from the July 9 chapter 11 filing of Toysmart.com, an Internet retailer that put its customer lists up for sale as part of the liquidation of the firm's assets, even though the company had a policy against disclosure to third parties. The FTC filed suit against Toysmart.com for this violation.

Other failed web businesses have reportedly sought buyers for personal data. Often, this is one of few valuable assets of a "dot-com" firm seeking to reorganize or maximize returns to creditors. The legislation would resolve the conflict between bankruptcy law and privacy policy in favor of consumer privacy.

"It is wrong to use our nation's bankruptcy laws as an excuse to violate a customer's personal privacy. Customers have a right to expect an online firm to adhere to its privacy policies whether it is making a profit or has filed for bankruptcy," said Sen. Leahy upon introduction of the bill.

Bill sponsors hope to attach the bill to the pending, but stalled, Bankruptcy Reform Act of 2000.