The cost of starting an online business is less than most brick and mortar efforts. Still, the bills can rack up quickly, which often leads sites to cut corners to save money. One area where this happens is compliance with various laws. Some business owners are under the mistaken impression they do not need to comply with acts like COPPA because they are startups.
COPPA is an abbreviation for the Children’s Online Privacy Protection Act of 1998. As the name suggests, the goal of lawmakers was to create a law governing the collection of information about children by online companies.
Are you sometimes asked to verify you are 13 or older when signing up for sites? COPPA applies to the collection of personally identifying information for kids 12 and younger. By asking this question, sites are trying to prevent young children from gaining access to the site and triggering the need to comply with COPPA.
Compliance with COPPA is a pain in the rear. Even worse, the FTC is expected to announce a new rule in the summer of 2012 that will crank up the pain to levels only Quentin Tarantino could love.
The problem with complying with COPPA is parental consent. You must obtain it and keep records of doing so before you can let kids under 13 sign up for your site.
How do you obtain the consent? Well, therein lies the problem. As of 2012, verification can be processed via email communication. You, I and the FTC all know, however, that it is easy for kids to open a Gmail or Yahoo account and pretend to be their parents. As a result, the anticipated new FTC rule on COPPA due in 2013 is expected to terminate this option. Instead, a site will be required to do phone, credit card or perhaps fax verifications.
What does this have to do with startups? Unfortunately, there is no language in COPPA that excludes startup companies from the compliance requirements of the law. The result is the startup must allocate part of its capital to setting up and running a COPPA compliance program or risk an expensive enforcement action.
And you thought the web was the last bastion of freedom!
The FTC files lawsuits in federal court to enforce COPPA. Damage claims in those suits start at $40,000 per child under 13 on the site.
Do startups have to be COPPA compliant? Absolutely. Is such a requirement fair? That is up for debate, but there is no question it represents a tremendous burden for new companies.
Richard A. Chapo, Esq.