Privacy Policy Basics

In today’s digital landscape, privacy policies have evolved from obscure legal documents into essential corporate governance tools. As data privacy regulations expand globally, organizations face increasing compliance challenges and potential liability. Understanding the fundamentals of privacy policies — their purpose, key components, and management — is crucial for modern businesses navigating complex regulatory environments.

The Evolution of Data Privacy Laws

The regulatory landscape has transformed dramatically in recent years. The European Union’s General Data Protection Regulation (GDPR), effective May 25, 2018, established the first comprehensive data privacy framework. For businesses located in the United States, the GDPR may apply if that business offers goods or services to individuals in the European Union (EU), the European Economic Area (EEA), or the United Kingdom (UK) or monitors the behavior of individuals within the EU, EEA, or UK, such as through tracking online activities. GDPR introduced key principles that now underpin most privacy regulations worldwide: lawfulness, fairness, transparency, purpose limitation, data minimization, accuracy, storage limitation, integrity, confidentiality, and accountability.

GDPR revolutionized privacy policies by requiring them to be clear, concise, and easily accessible. Organizations must include specific information about data controllers, processing purposes, and the legal basis of their policies, and they must inform users about their rights and how to exercise them.

In the United States, the California Consumer Privacy Act (CCPA), effective January 2020, became the first comprehensive consumer privacy law in the country. While similar to GDPR in many respects, CCPA has a narrower scope, applying to a subset of businesses but extending beyond California’s borders.

The regulatory momentum has accelerated, with 13 states now having enacted comprehensive consumer data privacy laws: California, Colorado, Connecticut, Delaware, Iowa, Montana, Nebraska, New Jersey, New Hampshire, Oregon, Texas, Utah, and Virginia. Six more (Minnesota, Maryland, Indiana, Kentucky, Rhode Island, and Tennessee) will take effect throughout 2025-2026. All require privacy policies disclosing a business’s personal information collection and use practices, and all grant consumers various rights over their personal information. Each of these laws has specific jurisdictional thresholds and exemptions.

Beyond these comprehensive laws, sector-specific regulations add complexity to privacy compliance:

• The Federal Trade Commission Act (FTC Act) regulates unfair and deceptive trade practices and specifically oversees promises embedded in a business’s privacy policy. All 50 states also have their own consumer protection statutes regulating unfair and deceptive trade practices.
• The Gramm-Leach-Bliley Act (GLBA) regulates the privacy and security practices of financial institutions.
• The Health Insurance Portability and Accountability Act (HIPAA) protects patient health information.
• The Children’s Online Privacy Protection Act (COPPA) and other state laws safeguard children’s online privacy.
• The Fair Credit Reporting Act (FCRA) regulates consumer reporting data.

Contractual obligations further complicate privacy policy requirements, as vendors must often adhere to another company’s privacy standards or implement compliant policies of their own. Even app store providers typically require privacy policies before allowing apps into their marketplaces.

Purpose and Benefits of Privacy Policies

A privacy policy is fundamentally a legal document disclosing an organization’s personal data practices. It outlines personal data collection, storage, usage, sharing, and protection practices while informing users of their rights. A privacy policy is distinct from other documents like data processing agreements (which are contracts regarding use of personal data) or cookie policies (which contain more specific disclosures required by applicable laws such as GDPR).

For businesses, privacy policies offer several strategic benefits:

• Serving as a communication tool between businesses and customers
• Establishing terms and conditions that may mitigate liability in potential disputes
• Educating customers about data collection practices and gaining consent where required
• Demonstrating organizational transparency regarding data privacy

Key Components of an Effective Privacy Policy

Depending on applicable legal requirements, a comprehensive privacy policy should include:

Identity and Contact Information: GDPR Article 13(1)(a) requires businesses to provide users with “the identity and the contact details of the controller and, where applicable, of the controller’s representative.” Other data privacy laws require contact information for consumers to exercise their personal data rights.

Data Collection Practices: List the types of personal data collected (name, email, phone number, financial information, device data, etc.) and how it’s gathered (website forms, directly from the user, cookies, third-party sources). Identify any sensitive personal data collected (such as race or ethnic origin, religious or union affiliation, and precise geolocation information).

Use of Personal Data: Explain how the business will use personal data. Common purposes include:

• Providing and improving services and products
• Marketing and analytics
• Customer communication
• Legal compliance
• Research and product development

Legal Basis: GDPR Article 13(1)(c) requires information on “the purposes of the processing for which the personal data are intended as well as the legal basis for the processing.” The most common legal bases are consent and legitimate interest, with contractual necessity also frequently used. Identification of a legal basis is not generally required under U.S. state data privacy laws, but affirmative consent is required for certain data practices in the U.S., such as the sale of sensitive personal data.

Data Sharing and Disclosure: Both U.S. and international data privacy laws require disclosures related to how a business discloses, shares, or sells personal data, such as with service providers, affiliates, or for marketing purposes. The business should also describe circumstances outside the ordinary course of business where data might be disclosed (such as due to legal requests, mergers, protecting rights/safety of third parties).

Data Security: Outline at a high level the security measures implemented to protect personal data, such as encryption, access controls, and regular security audits.

Data Retention: Both GDPR and certain U.S. state privacy laws require disclosures related to how long personal data will be stored or the criteria used to determine that period.

International Transfers: Disclose whether data is transferred internationally and, if required by applicable laws, the safeguards in place to protect user data privacy rights.

User Rights: Detail the specific statutory rights users have over their personal data, including access, correction, deletion, and portability. Provide clear instructions on exercising these rights.

Cookies and Tracking Technologies: Describe the organization’s use of cookies and similar technologies and explain how users can manage their preferences.

Automated Decision-Making: If applicable, disclose any automated decision-making processes and their potential consequences. Consider whether the business is using any artificial intelligence tools that may involve such automated decision-making and disclose it appropriately.

Children’s Information: State whether the business collects information from minors and what additional protections are provided for that information.

Updates to the Privacy Policy: Explain how users will be informed about changes and include the effective date.

Management and Enforcement

Privacy policies require active management and oversight. The CCPA specifically requires businesses to update their privacy policies at least once every 12 months, while other laws mandate updates upon material changes to privacy practices. Regular review is particularly important when launching new products or services, as an outdated or inaccurate privacy policy may draw regulatory attention as an unfair or deceptive trade practice.

Recent enforcement actions highlight the importance of compliant privacy policies:

• The FTC brought enforcement actions against data brokers for inadequate privacy disclosures regarding location data usage and targeted advertising, as well as for collection and sale of geolocation data by General Motors without proper notice and consent from users under the FTC Act.
• The California Attorney General initiated enforcement against DoorDash in 2024 for participating in a marketing cooperative that constituted a “sale” of personal information under CCPA without proper disclosures. DoorDash agreed to pay a $375,000 penalty and implement compliance measures.
• The California Privacy Protection Agency (which is the new enforcement agency for the CCPA) recently settled with American Honda Motor Co. regarding, among other practices, inadequate or burdensome mechanisms for users to exercise their data rights. Honda agreed to pay a $632,500 fine and update its CCPA compliance measures.
• Like the FTC, the Texas Attorney General sued General Motors for collecting and selling consumers’ geolocation data without appropriate notice and consent in violation of the Texas Deceptive Trade Practices Act.

As privacy regulations continue to expand and enforcement intensifies, organizations must treat privacy policies as essential governance documents rather than legal formalities. A well-crafted privacy policy not only ensures compliance but also builds trust with customers and partners while mitigating potential liability. For businesses operating across multiple jurisdictions or industries, professional legal guidance is increasingly valuable in navigating this complex landscape.

Questions about your company’s privacy policies? Reach out to Katie C. Nadro or another member of LP’s Corporate team.