By Jim Butler and the Global Hospitality Group® Hotel Lawyers | Authors of www.HotelLawBlog.com
My partner Robert Braun advises hotel owners in a wide range of operational issues, including information management. Because of the ubiquitous use of credit cards by hotel guests during a stay, as well as the growing demand for WiFi availability, hotels have been increasingly targeted by identity thieves. In his article below, Bob explains how hotels' liability for this new type of guest security has grown and what hotels can do to protect their guests' identities.
By Robert E. Braun and the Global Hospitality Group®Hotel Lawyers | Authors of www.HotelLawBlog.com
Not too long ago, keeping guest information safe was a fairly straightforward process – perhaps the most innovative development was providing an in-room safe for valuables. This approach made sense at the time, when guest security was a matter of securing people and their physical possessions.
The industry now recognizes that hotel guests have valuables to protect that go far beyond watches and wallets, or even laptops and iPads – – perhaps the most valuable information a hotel guest has is his or her identity, and unless a hotel actively safeguards it, those valuables are at risk. The ubiquity of credit card, wireless internet and other options, while essential to hotel operations, is also a source of insecurity.
Hotels are Targets
Hotels are obvious targets for identity and financial theft for many reasons. Hotels transact business through credit cards, and those credit cards are kept on file and can be accessed multiple times during a guest's stay. The possibility that a credit card charge will be recorded occurs with each night's room charge, room service, bar or restaurant bill, spa charge, and so on. Every charge is another opportunity for an identity thief to access the information using sophisticated computer hacks and other malicious software, generally without the hotel's knowledge.
The need to respond to guest demands is another source of insecurity. The Identity Theft Resource Center noted, "The ability to connect to the Internet is an integral part of many individuals daily life. This has led to the increased demand for public WiFi." As a result, hotels find themselves compelled to offer wireless internet, and that service is almost always unsecured. But an unsecured wireless network is "just as dangerous as leaving files of your most important personal documents on a street curb for all to see. Hackers can easily get into an unsecured wireless network and get financial information, business records or sensitive e-mails." (PC World, ) "Got Wireless Security". At the same time, hotels have little say in the matter. Guests demand wireless internet service.
Finally, hotels have employees — lots of employees — and many of them have access to the credit card and other personal information of guests. No matter how well trained and supervised, more personnel correlates to greater risk. The fact that low-level employees typically have access to key guest information, and that there is, historically, a high turnover in hotel employees, exacerbates the problem.
Some security researchers have described a wave of attacks against the hospitality industry. In 2010, the cybersecurity consultant Trustwave found that in 38% of its investigations, hotels and resorts were the victims of successful cyber intrusions, despite those firms only representing 3% of its customers. Hotels represent a disproportionate number of security breaches.
The Wyndham Case
In June 2012, the Federal Trade Commission filed a lawsuit against Wyndham hotels, claiming Wyndham misrepresented its security measures to prevent intrusions by computer hackers. In its press release, the FTC claimed Wyndham had subjected consumers' data to an "unfair and deceptive" lack of protection that led to a series of breaches of Wyndham hotels and those of three subsidiaries. The lawsuit describes three attacks on the hotel chain and its franchisees beginning in 2008 that first compromised 500,000 credit card numbers stored by the firm, followed by attacks that breached another 50,000 and 69,000 accounts at other locations.
Key to the FTC complaint is its claim Wyndham failed to take common and well-known security measures. The FTC noted that Wyndham failed to require complex passwords, implemented a network setup that did not separate corporate and hotel systems, and used "improper software configurations" that led to sensitive payment card information being stored without encryption. The FTC complaint compared those failures to Wyndham's privacy policy, which said that Wyndham strove to "recognize the importance of protecting the privacy of individual-specific (personally identifiable) information collected about guests, callers to our central reservation centers, visitors to our Web sites, and members participating in our Loyalty Programs," and promised the use of strong encryption and firewalls.
While Wyndham plans to fight the FTC's suit, a highly-publicized claim like this puts a hotel firm at a competitive disadvantage. If a hotel chain were known to have faulty locks or in-room safes, guests would think twice before making a reservation. A hotel chain that cannot safeguard the financial and personal information of guests is just as vulnerable.
Beyond Guest Information
While the security of guest information is a key concern, and its breach garners adverse and unwanted publicity, hotel owners and operators should be aware that there is other, valuable information that needs protection. The hospitality industry is a highly competitive environment, and hotel owners and operators need to take steps to protect their own business information and trade secrets. This information can include pricing strategies and revenue management policies; marketing plans; menus and other food and beverage operations; and perhaps most sensitive of all, employee information. The inadvertent disclosure of this information can cause irreparable harm to a hotel or operator, and steps need to be taken to safeguard competitive and confidential matters.
Another area of potential liability, often overlooked by hotel operators, is the impact of social media. Postings on Facebook, Twitter, Tripadvisor and other social media sites are often treated as less serious than "formal" communications. However, hotels can be held responsible for postings, both those that a firm makes intentionally – for example, in response to a customer review – and those made without clear authorization, like postings by a hotel employee.
What do I do now?
Securing guest and corporate information is a key task, and the steps necessary to implement a secure environment are unique to each organization. However, there are some general considerations that all firms should be aware of that are essential to securing information:
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Hotels operators should inventory potentially sensitive information and document on which computers, servers and laptops it's stored.
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Operators and owners should keep sensitive information on the fewest number of computers or servers, and be sure to segregate it — the fewer copies of data you have, the easier it is to protect.
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Utilize encryption for storing, and secure connections for receiving or transmitting, credit card information and other sensitive data.
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One of the key claims in the FTC's case against Wyndham was that Wyndham claimed to have effective privacy measures; in response, firms should design, institute and follow an effective privacy policy, including policies for using social media, and should be careful not to overstate the effectiveness of their measures. Remember – no system is completely safe.
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When implementing a wireless system, use a good firewall and a secure wireless connection.
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For internal communications and information, protect sensitive data with strong passwords and change passwords on a regular basis.
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Since much, if not most, of computer systems and services are handled by vendors, check their security practices.
Most of all, hotel companies need to make a commitment to secure the sensitive information of their companies and their guests, and to seek out informed consultants and advisors. Information security is a relatively new and rapidly changing area, and requires specialized knowledge; the investment today can protect a hotel from being front page news – for the wrong reasons – later.
Robert E. Braun is a senior member of the Global Hospitality Group® at JMBM. Mr. Braun advises hospitality clients with respect to management agreements, franchise agreements and spa agreements. He also advises on business formation, financing, mergers and acquisitions, venture capital financing and joint ventures, telecommunications, software, Internet, e-commerce, data processing and outsourcing agreements for the hospitality industry. Contact him at (310) 785-5331 or rbraun@jmbm.com.
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who's your hotel lawyer?
Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or +1 (310) 201-3526.
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