Will Airbnb Inc. hosts balk at New York State’s attorney general Eric Schneiderman combing through their records?

The room-renting start-up reached an agreement with the state Wednesday to deliver anonymized records of all its New York hosts, and to identify hosts Mr. Schneiderman decides to further investigate. Mr. Schneiderman maintains that the startup contributes to New York’s housing shortage and drains revenue from hotel taxes. Landlord’s use the service to illegally rent out apartments for short stays, he alleges, cutting down on available housing and boosting prices. Recent reports of prostitutes using the service for liaisons with clients, hasn’t helped matters. And the probe could well dampen enthusiasm for informal room-renting, harming the startup. Customers are more sensitive than ever to data privacy, and willing to punish companies over the issue. For example, spurned customers helped push Target Corp. earnings down 16% percent.Discomfort with authorities scrutinizing customer transactions for illegal activity could do prove an even stronger deterrent. “Before people saw this as some supplemental income,” said David Klein, a technology attorney at Klein, Moynihan & Turco LLP.  “But now they are opening up their house [to regulators] it’s going to be less comfortable.”

But Airbnb has already gained significant momentum and the cache of a cultural movement, making a single regulator’s action unlikely to discourage the majority of hosts, said Gerald Ferguson, a data privacy attorney at the law firm Baker & Hostetler LLP. But if other regulators follow Mr. Schneiderman’s example, that could change. “If this ends up being the first of many waves of law enforcement there could be a chilling effect,” Mr. Ferguson said.

Source: WSJ