Borders has long collected personal information from customers and promised that such information would not be disclosed without consent. In light of that and Borders' current bankruptcy proceedings, the FTC has sent a letter to the consumer privacy ombudsman overseeing the Borders bankruptcy that seeks the protection of customer personal information.

The FTC's letter appears prompted by its understanding that customer personal information held by Borders is scheduled to be auctioned and thereafter there will be a sale hearing. The FTC points out that in its business, Borders sold books, DVDs, CDs and other items in stores and online. As part of this process, Borders collected vast quantities of personal information, such as credit card numbers, email addresses and purchase histories, for more than 20 million customers.

The FTC then walks through Borders' privacy policies, which explained to customers that their personal information belonged to them and would not be disclosed to others absent their express consent. The FTC notes that customers who purchased goods from Borders with these privacy promises in place now would be very concerned to know that their personal information might be transferred to unknown purchasers for unknown uses.

While the FTC explains its understanding that Borders' customer information is a valuable asset, any sale or transfer of customer personal information would contravene Borders' privacy policies and could amount to a deceptive or unfair practice. Accordingly, the FTC states its belief that Borders should obtain express consent from customers before it transfer of personal data, and for those customers who would not consent, their personal data would need to be purged.

The FTC does recognize in its letter that a bankruptcy is a special circumstance, as there is an interest in allowing a company to get back on its feet or to marshal assets for creditors.

The FTC suggests that to the extent the bankruptcy court declines to require consent to the transfer of Borders' customer personal information, the conditions adhered to in the Toysmart bankruptcy might be appropriate. This required the buyer of the personal information to protect it in accordance with the privacy policies that were in effect when the information was obtained. And the buyer would have to seek affirmative consent before making any changes to those policies.

Long story short, the FTC has served notice that it is carefully watching the Borders bankruptcy proceeding and is intent on ensuring that customer personal information is protected.