New Senate Bill Would Enforce Privacy Policies Of Firms In Bankruptcy Plugging 'The Toysmart Loophole'

July 12, 2000

WASHINGTON (July 12) -- Sen. Patrick Leahy (D-Vt.) and Sen. Robert Torricelli (D-N.J.) introduced legislation Wednesday to protect the personal privacy of consumers whose information is held by firms filing for bankruptcy protection.

The Privacy Policy Enforcement in Bankruptcy Act of 2000 would bar the sale of personally identifiable information held by a failed business if the sale or disclosure of the data would violate a privacy policy in effect when the information was collected.

In a "dear colleague" letter inviting senators to cosponsor the new bill, Leahy and Torricelli say their bill is needed "because the customer databases of failed Internet firms now can be put up for sale – even in violation of a firm's stated privacy policy. That is wrong."

They referred to the case of Toysmart.com, the online toy store, which recently filed for bankruptcy and offered its databases and customer lists for sale as part of the liquidation of the company's assets, despite its web site promise to visitors that "personal information voluntarily submitted by visitors to our site, such as name, address, billing information and shipping preferences, is never shared with a third party." The Federal Trade Commission this week filed suit against the firm to prevent the data sale.

Leahy and Torricelli – the two leading Democratic negotiators on bankruptcy reform legislation pending before Congress – also said they will push to include their bill in the final bankruptcy reform package if and when negotiations resume. Leahy is the Ranking Member of the Senate Judiciary Committee and Torricelli is the Ranking Member of the committee's Subcommittee on Administrative Oversight and the Courts.

"It is wrong to use our nation's bankruptcy laws as an excuse to violate a customer's personal privacy," the senators said in their letter to colleagues. "Customers have a right to expect a firm to adhere to its privacy policies whether it is making a profit or has filed for bankruptcy. Our bill will close this loophole in the Bankruptcy Code and ensure that online and offline firms keep their promises to protect personal privacy."