Protecting customer data: Legal implications and compliance requirements
In 2023 when the global average cost of a data breach is more than $4.45 million based on the IBM Report, protecting customer data isn’t just good business — it’s a legal necessity.
In this article, we will discuss actionable insights into the legal landscape, methods for securing data, and compliance requirements. Let’s start!
The legal landscape of customer data security
As more products connect to the internet, people must decide about their privacy. Companies often collect lots of user information, sometimes without clear disclosure. They may share or even sell this data, creating risks. Despite these challenges, no singular, overarching federal Customer Data Protection Act dictates how companies must handle customer data.
But, in the U.S., different federal and state laws focus on specific kinds of data or groups of people. For example:
- HIPAA (Health Insurance Portability and Accountability Act) covers health information shared with doctors and hospitals.
- FCRA (Fair Credit Reporting Act) rules over credit report data.
- FERPA (Family Educational Rights and Privacy Act) handles student records.
- GLBA (Gramm-Leach-Bliley Act) targets consumer financial products.
- ECPA (Electronic Communications Privacy Act) deals with government wiretaps and electronic messages.
- COPPA (Children’s Online Privacy Protection Rule) focuses on online data collection from kids under 13.
- VPPA (Video Privacy Protection Act) relates to VHS rental records.
Only California, Virginia, and Colorado have broad privacy laws that give people some control over their data. These laws differ in details, like how long a company has to fix a mistake or which businesses must follow the laws.
The cost of not following data protection laws
Failing to protect customer data can result in hefty fines and even criminal charges. Here’s what you need to know.
Fines for non-compliance with data security
Fines for violations of user data protection differ at the federal level and in individual states of operation.
Government-imposed fines:
- Health data (HIPAA): If you mishandle health information, you could face fines from $100 to $50,000 per violation. The yearly cap ranges from $25,000 to $1.5 million.
- Children’s data (FTC Act or COPPA): Messing up children’s data can cost you up to $40,000 per violation. Each day you don’t fix it counts as a new mistake.
- Financial data (GLBA): Fines range from $5,000 to $1 million per day.
States fines:
- CCPA (California Consumer Privacy Act): Fines can be up to $2,500 per violation or $7,500 per intentional violation. There is no cap on the total amount of fines.
- VCDPA (Virginia Consumer Data Protection Act): Penalties can reach up to $7,500 for each violation, and it may also involve injunctive relief.
- CPA (Colorado Privacy Act): Penalties can be up to $20,000 per violation, coupled with injunctive relief.
To find out what kind of fines you may face, you need to know which residents’ data you collect. For example, if you are a European company but your customers are US citizens, you may be liable under state laws.
Extra consequences of data security breaches
In the worst-case scenario under HIPAA laws, if you mess up health data on purpose to make money, harm someone, or get some other benefit, you could end up with a fine as high as $250,000 and a jail term of up to 10 years.
Also, customers can sue you for up to $750 each if their data gets breached, according to California’s law (CCPA). In some cases, people may even consider suing for emotional distress if the breach causes severe psychological harm. On top of that, these kinds of lawsuits can cost you even more in extra fines. In the U.S., the average payout for emotional distress is around $10,000.
Remember, these are just summarized guidelines. Always consult a legal expert for advice tailored to your specific situation. The bottom line is, that failing to protect customer data can be both costly and damaging to your reputation.
How to protect customer privacy?
To protect user data, you need to determine the type of information and then the technical and practical steps to implement.
Types of customer information to secure
Different types of customer information need varying levels of protection. Let’s break down the kinds of data you should be especially careful with:
- Personally identifiable information (PII): This is the kind of data that can identify you, like your name or Social Security number. Companies must guard this information to prevent identity theft.
- Personal information (PI): This category includes details like your shopping preferences or age. While it doesn’t identify you, companies still need to protect it to maintain your trust.
- Sensitive personal information (SPI): This type of data might include your medical records or religious beliefs. It won’t say who you are, but if it gets out, it could harm you somehow. Extra security measures are essential for this type of information.
- Nonpublic personal information (NPI): They’ll have this kind of data if you’re dealing with financial services. It’s sensitive information like your bank account numbers or credit scores. Financial institutions must follow strict laws to keep this information secure.
Whether you’re a customer concerned about your information or a business looking to enhance your security measures, knowing what to protect is the first step.
Tech-savvy ways to uphold data privacy
When securing customer data, companies use a mix of technology and data privacy best practices. Let’s take a closer look at the tools and methods they often use:
- CRM tools: Companies use Customer Relationship Management (CRM) tools to keep all your data in one secure place.
- Two-factor authentication (2FA): This method uses a regular password along with a temporary one, making it harder for unauthorized users to get in.
- Encryption: This turns your data into a code that only a special key can unlock, keeping it safe from prying eyes.
- File-level encryption: This ensures that data stays secure even when it’s moving from one place to another.
- Advanced encryption standard-256: This is a recommended method of encryption that’s tough to crack.
- Portable mode encryption: This is for data stored on portable devices like USB drives, making sure it stays secure on the go.
- Integrated malware protection: This acts like a security guard, blocking harmful software from getting to your data.
- Financial tools: Startup business bank accounts offer enhanced security features like advanced fraud protection and real-time transaction alerts.
- Blockchain: This stores data across many places instead of one central location, making it harder for hackers to access.
Companies that use these methods are better at keeping your data safe. This not only builds trust but also helps them follow the law.
Steps to protect customer privacy
Customer privacy goes beyond data security. Implementing data privacy best practices such as data minimization and purpose limitation is essential. Encryption tools can also protect customer data during transmission and storage. Here are some smart practices to follow:
- Collect only essential data: Companies should only gather the data they need. The less they have, the less there is to protect.
- Limit data access: Not everyone in the company needs to see all data. Limiting who can access what makes it harder for data to leak.
- Enhance cybersecurity: Companies need to use strong security measures, like firewalls and antivirus software, to keep data safe.
- Strong data management strategies: This involves having a plan for how to store, use, and delete data.
- Adhere to security standards like ISO 27001: Following recognized security standards ensures that a company’s data protection is up to par.
By taking these steps, companies can do a better job of keeping your privacy intact, earning your trust, and staying on the right side of the law.
Crafting a customer data protection policy
A robust customer data protection policy outlines the types of data collected, how it’s used, and the security measures in place. Transparency is key, and the policy should be accessible to customers.
Here’s how to go about it:
1. Who’s involved?
Your IT team keeps the data safe, while legal experts make sure you’re following the law. Even outside partners and special staff roles need to know the rules.
2. What to cover in the plan?
- Promise to customers: Start by telling customers their data is safe.
- Data use: Be clear about what data you’re collecting and why.
- Sharing rules: Let customers know if you’ll share their data and with whom.
- Customer control: Make sure customers know they can opt in or out.
- Contact info: Always let customers know how to reach you with concerns.
3. Keeping it current
- Regular checks: Make sure you’re up-to-date with the latest laws.
- Quick updates: When you update the plan, tell everyone right away.
- Staff training: Make sure new hires know the rules and agree to follow them.
- Breaking the rules: Be clear about the consequences of not following the plan.
4. Tech tools
Use tools that help you manage company devices and keep them secure. Like you’d get a regular health check-up, your plan needs one too to make sure it’s still doing its job.
Regular audits, data impact assessments, and adherence to legal requirements are non-negotiable.
Conclusion
Protecting customer data is a must, both for legal reasons and to earn trust. Failing to follow laws can result in heavy fines and even criminal charges. To secure your data, first identify what needs protection, then invest in security tools like encryption, fraud protection of sole trader bank accounts, and two-factor authentication. Make sure to limit who can access this data, and keep your security measures up-to-date through regular audits.
In short, a proactive approach to data protection isn’t just good practice — it’s essential for any responsible business.
Frequently asked questions (FAQ)
What is customer data protection?
It’s the legal and technical safeguarding of customers’ personal and financial information. This involves encrypting data, using secure servers, and complying with laws that dictate how this information can be collected, stored, and shared. The goal is to prevent unauthorized access and data breaches, thereby maintaining customer trust and avoiding legal consequences.
How can small businesses follow data protection laws?
By implementing security measures like encryption and crafting a compliant customer data protection policy.
What are the 4 steps for data protection?
- Identification: Know what data you hold and where it resides.
- Protection: Install security measures.
- Detection: Use monitoring tools to identify any unauthorized access.
- Response: Have a plan in place for data breaches, including legal reporting requirements.
