The Federal Trade Commission (FTC) made waves when it announced earlier this week that it reached a proposed settlement with Wyndham Worldwide Corporation (Wyndham).
The agency’s enforcement action against Wyndham alleged that the company’s lax data security practices resulted in three separate consumer data breaches.
In defending the suit,Wyndham unsuccessfully challenged the FTC’s authority to police corporate cybersecurity practices under the Federal Trade Commission Act (FTC Act). Under the terms of the settlement, Wyndham must obtain an independent auditor to verify that it has established a comprehensive data security program to protect cardholder data and conduct annual information security audits every year for the next 20 years.
FTC’s Authority under the FTC Act
In recent years, the FTC has been increasingly bringing administrative actions against businesses that suffered data breaches due to allegedly deficient cybersecurity. When pursuing a data breach investigation, the FTC relies on Section 5(a) of FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” The statute broadly defines unfair practices as those that “cause or [are] likely to cause substantial injury to consumers…not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.”
The Wyndham Lawsuit
During 2008 and 2009, hackers breached Wyndham’s computer network on three separate occasions. In total, they stole personal and financial information for hundreds of thousands of consumers, which resulted in more than $10.6 million dollars in fraudulent charges.
The FTC filed suit under the FTC Act, alleging that Wyndham’s conduct was an unfair practice and that its privacy policy was deceptive. The FTC specifically maintained that contrary to Wyndham’s stated data privacy and security policy, the hotelier failed to employ encryption, firewalls, and other commercially reasonable methods for protecting consumer data. In defense of the suit, Wyndham argued that the FTC lacked the authority to regulate cybersecurity under the FTC Act.
In a precedential decision, the Third Circuit Court of Appeals affirmed the cybersecurity authority of the FTC to impose liability for data breaches under Section 5 of the FTC Act. “A company does not act equitably when it publishes a privacy policy to attract customers who are concerned about data privacy, fails to make good on that promise by investing inadequate resources in cybersecurity, exposes its unsuspecting customers to substantial financial injury, and retains the profits of their business,” the panel wrote. The appeals court further held that Wyndham was on notice of the potential liability under the FTC Act, citing that the agency filed complaints and entered into consent decrees in administrative cases raising unfairness claims based on inadequate corporate cybersecurity prior to the company’s data breach.
The Proposed Wyndham Data Breach Settlement
Under the terms of the consent order, Wyndham must establish a comprehensive information security program to protect cardholder data and specifically address the risks arising from network connections between Wyndham-branded hotels and the corporate data center. In addition, the company must conduct related annual information security audits every year for the next 20 years.
Wyndham must also obtain an annual independent assessment under the Payment Card Industry Data Security Standard or PCI DSS. The independent third-party auditor must also certify that: Wyndham safeguards the connections with its franchisee hotels; Wyndham engages in a comprehensive risk assessment as laid out in the PCI-DSS risk assessment guidelines; and the auditor is truly independent from Wyndham.
“This settlement marks the end of a significant case in the FTC’s efforts to protect consumers from the harm caused by unreasonable data security,” FTC Chairwoman Edith Ramirez said in a statement. “The court rulings in the case have affirmed the vital role the FTC plays in this important area.”
The Message for Businesses
Prior to the Wyndham lawsuit, challenges to FTC authority concerning privacy were very rare. Most companies acquiesced when the FTC came knocking. However, Wyndham decided to challenge the FTC’s authority instead. After the Third Circuit confirmed the FTC’s authority to bring the suit, it appears that the company has since reassessed its strategy and decided to settle. This development is certainly remarkable and is likely to embolden the FTC in its quest to be the top federal privacy watchdog on consumer privacy issues within a federal statutory scheme that lacks a central regulatory body to handle such issues.
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
The Wyndham Data Breach Settlement Shakes Up Privacy Law
Author: Scarinci Hollenbeck, LLC
The Federal Trade Commission (FTC) made waves when it announced earlier this week that it reached a proposed settlement with Wyndham Worldwide Corporation (Wyndham).
The agency’s enforcement action against Wyndham alleged that the company’s lax data security practices resulted in three separate consumer data breaches.
In defending the suit,Wyndham unsuccessfully challenged the FTC’s authority to police corporate cybersecurity practices under the Federal Trade Commission Act (FTC Act). Under the terms of the settlement, Wyndham must obtain an independent auditor to verify that it has established a comprehensive data security program to protect cardholder data and conduct annual information security audits every year for the next 20 years.
FTC’s Authority under the FTC Act
In recent years, the FTC has been increasingly bringing administrative actions against businesses that suffered data breaches due to allegedly deficient cybersecurity. When pursuing a data breach investigation, the FTC relies on Section 5(a) of FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” The statute broadly defines unfair practices as those that “cause or [are] likely to cause substantial injury to consumers…not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.”
The Wyndham Lawsuit
During 2008 and 2009, hackers breached Wyndham’s computer network on three separate occasions. In total, they stole personal and financial information for hundreds of thousands of consumers, which resulted in more than $10.6 million dollars in fraudulent charges.
The FTC filed suit under the FTC Act, alleging that Wyndham’s conduct was an unfair practice and that its privacy policy was deceptive. The FTC specifically maintained that contrary to Wyndham’s stated data privacy and security policy, the hotelier failed to employ encryption, firewalls, and other commercially reasonable methods for protecting consumer data. In defense of the suit, Wyndham argued that the FTC lacked the authority to regulate cybersecurity under the FTC Act.
In a precedential decision, the Third Circuit Court of Appeals affirmed the cybersecurity authority of the FTC to impose liability for data breaches under Section 5 of the FTC Act. “A company does not act equitably when it publishes a privacy policy to attract customers who are concerned about data privacy, fails to make good on that promise by investing inadequate resources in cybersecurity, exposes its unsuspecting customers to substantial financial injury, and retains the profits of their business,” the panel wrote. The appeals court further held that Wyndham was on notice of the potential liability under the FTC Act, citing that the agency filed complaints and entered into consent decrees in administrative cases raising unfairness claims based on inadequate corporate cybersecurity prior to the company’s data breach.
The Proposed Wyndham Data Breach Settlement
Under the terms of the consent order, Wyndham must establish a comprehensive information security program to protect cardholder data and specifically address the risks arising from network connections between Wyndham-branded hotels and the corporate data center. In addition, the company must conduct related annual information security audits every year for the next 20 years.
Wyndham must also obtain an annual independent assessment under the Payment Card Industry Data Security Standard or PCI DSS. The independent third-party auditor must also certify that: Wyndham safeguards the connections with its franchisee hotels; Wyndham engages in a comprehensive risk assessment as laid out in the PCI-DSS risk assessment guidelines; and the auditor is truly independent from Wyndham.
“This settlement marks the end of a significant case in the FTC’s efforts to protect consumers from the harm caused by unreasonable data security,” FTC Chairwoman Edith Ramirez said in a statement. “The court rulings in the case have affirmed the vital role the FTC plays in this important area.”
The Message for Businesses
Prior to the Wyndham lawsuit, challenges to FTC authority concerning privacy were very rare. Most companies acquiesced when the FTC came knocking. However, Wyndham decided to challenge the FTC’s authority instead. After the Third Circuit confirmed the FTC’s authority to bring the suit, it appears that the company has since reassessed its strategy and decided to settle. This development is certainly remarkable and is likely to embolden the FTC in its quest to be the top federal privacy watchdog on consumer privacy issues within a federal statutory scheme that lacks a central regulatory body to handle such issues.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
