Guest Privacy - It's Your Business

Traditional Obligation of Hotels to Provide a Secure Environment

By Robert E. Braun Partner, Jeffer Mangels Butler & Mitchell, LLP | December 02, 2018

On a basic level, the hospitality business is simple – as is often said, it amounts to putting heads in beds. But finding the heads to put in the beds is a complex process and requires hotel companies to find out a great deal of information about their guests. Gathering and processing that information provides not only opportunities, but creates obligations, one of the most basic of which is ensuring the security of guests' personal information.

That obligation has become increasingly complex due both to the vulnerability of hotel companies to breach, and the enactment of laws and regulations, worldwide, that impose additional burdens on hotels – the EU's General Data Protection Regulation, California's Consumer Privacy Act, as well as industry developments have further heightened the concerns with guest privacy and security

This focus must be seen in the context of two key issues: first, that hotels collect large amounts of data from their guests, both directly and through third parties; and second, that the hospitality industry has a checkered track record in protecting personal information. Both these demand that the hospitality industry take a renewed focus on data security

Data Collection

Hotels and hotel companies collect tremendous amounts of information, directly and through others, including vendors, credit card companies, websites, use of wifi and other systems. The fact that hotels are increasing reliant on technology – and responsive to guest demands for increased connectivity – increases both the amount of information and the risk involved in collecting and processing information.

The increasing incorporation of technology into hotel operations can lead to more breaches. Hotels are seemingly in a race to become more innovative – consider the trend to allow guests to bypass the need to go to the front desk by using their mobile devices to select a room, check-in, receive texts when their room is ready, and even unlock the door to their room. Guests are encouraged to use mobile devices to customize their stay by requesting items, ordering room service, planning activities, or purchasing upgrades. Not only does this trend increase the likelihood of a breach by adding new access points to the system; these programs collect even more data, making a hotel breach more valuable.

Hotels are also pressured to expand Wi-Fi networks, share data with OTAs, and proliferate other interconnected systems, making the hospitality industry more vulnerable to a data breach. Each of these factors increases the number of parties that have access – authorized or otherwise – to hotel data, and increase the number of threats to the industry.

Breach Vulnerability

Trustwave's 2018 Global Security Report reported that nearly 12% of the incidences investigated by Trustwave originated at hotels – the third largest share of data breaches, preceded only by retail and the food and beverage industries, which share many of the same vulnerabilities. The hospitality industry possesses a number of factors that make them attractive to hackers: large volumes of valuable information, multiple vectors for accessing information, large workforces and dependence on vendors, to name a few. There are, however, a number of trends that make hotels more vulnerable. However, there are other reasons that contribute the frequency of cyberattacks on hotels.

One of the key issues facing the industry is the prevalence of outside vendors who provide key hotel functions. Almost every breach involving hotels that have been reported over the past several years generated not with core hotel functions – check-in and check-out, reservations, etc. -- but from companies engaged by hotels to provide services to the hotel. Virtually every major hotel chain has suffered a data breach through point of sale merchants – each of Hyatt, Marriott (and before its acquisition by Marriott, Starwood), InterContinental, Hard Rock, Four Seasons, Trump and Loews has reported at least one breach in the past two years, and many have reported multiple breaches.

Third parties are a common source of breaches for many industries, but the hotel industry is particularly reliant on third parties for many functions. In addition to credit card processing, hotels look to third parties for reservation services, payroll, human resources, asset management, maintenance and improvements – many hotels have determined that third parties are better qualified to provide specialized services, and thus have access to hotel systems. Many hotel companies have not fully recognized the need to monitor vendors and require them to implement adequate secure standards.

It is not surprising that hotel brands are particularly vulnerable. Brands often select vendors for multiple properties and often for an entire flag. Individual hotels may have little, if any say, in the vendor, the terms of engagement, and the impact of a breach. Moreover, even when a weakness is discovered, the cost of remediation may be untenable – a security breach involving key-operated door locks required the replacement of almost every door lock in the United States! At the same time, under the typical hotel management or franchise agreement, the hotel owner is required to bear the cost of a breach, whether in terms of direct costs (including notifying potential victims and the increased cost of cyber liability insurance) and the indirect cost of diminished trust in the hotel.

The widespread dependence on third party vendors is a greater problem because hotel systems are widely interconnected. To follow up on the point of sale example, these vendors must tap into basic hotel systems in order to allow for room charges and financial reporting. Hotel operators want and need single point access to hotel operations, meaning that information from separate systems must be accessible and shared by a variety of systems. Even where direct access is limited, varying systems may share a single hotel network, and often a wireless network; the network itself has the potential of breach, which can impact all systems. Ultimately, hotels face the dilemma that the system as a whole is only as strong as its weakest link, and a single vulnerability may expose the entire system.

A variety of other factors exacerbate the vulnerability of hotels:

Multiple Systems. Hotels use a variety of different systems for operations, ranging from off-the-shelf, commercial programs to specialty programs. Each of these programs presents the potential for breach and, as noted above, a single weakness can create a weak system. Moreover, the transfer of information from one system to another is, in itself, a source of weakness.

Legacy Systems. Along with the existence of multiple systems, many hotel systems are legacy systems that were never designed with security as a key element. Legacy systems are a particular weakness.

Unclear Lines of Responsibility. As the hospitality industry has developed, there is rarely a unity of ownership and management; instead, most hotel properties are owned by one party, which has entered into a franchise agreement to operate under a particular brand, and managed by yet another company. While each of these entities shares responsibility for data security, it is often unclear who is ultimately responsible – it is the manager, who operates the hotel, the franchisor, who selects or approves systems, or the owner, who has financial responsibility for the venture? The lack of precise responsibility can lead to a vacuum in leadership.

The Human Factor. Hotels rely on large numbers of employees, many of whom have access to hotel information systems. Most data breaches can be traced to individuals, whether acting maliciously, negligently or with complete innocence, and training hotel personnel is time-consuming and expensive. Added to this, many hotels have high turnover rates and uneven training in privacy and security, further complicating creating a culture that promotes security.

What Should Hotel Companies Do?

While creating a secure environment is a daunting task, hotel owners and operators can and should begin the process, and the most important thing owners can do is to take responsibility for the security of the properties they own. Rather than leaving the issue to franchisors and managers, all involved should take actions that will start the process of creating a data secure environment.

Take Control. Cybersecurity cannot be relegated to a single party; owners, operators and brands all need to take an active role in reducing cyber risks. Even where one party might contractually assume responsibility for security, all parties must conduct their operations so as to promote security. If a franchisor establishes effective security guidelines, it does no good if the manager ignores those guidelines. Taking control means conducting a detailed risk analysis of your enterprise, and determine what risks must be avoided, what risks can be assumed, and what risks must be shifted to other, including insurers. With that analysis in hand, a company can make realistic business decisions that reduce cyber risk.

Prepare for the Inevitable. It is often, and accurately, said that a data breach is a matter of "when," not "if." With that in mind, all parties should be prepared to react to a breach by having a well-constructed and tested incident response plan in place – reacting in the midst of an emergency is ineffective and counterproductive. Similarly, in light of the prevalence of ransomware, wiperware and other threats, firms need to have robust and effective backup programs that allow them to recover and protect their guests, employees and properties. Finally, preparing for the inevitable means identifying means of mitigating damages, which must include obtaining effective cyber insurance that addresses and covers the actual damages hotels face.

Respond to Breaches. Much of the criticism of hotel companies has been not just to the perceived insecurity of their systems, but to delays in responding to breaches. The Hyatt and Hilton incidents noted above, as well as the FTC's action against Wyndham, are all based on failure to take the existence of breaches seriously. Hotels, like all companies, need to have in place and have tested effective incident response teams and plans, including identifying all internal and external sources (attorneys, security consultants and public relations, among others) who will respond to a breach.

Create a Culture of Security. Probably the hardest task, but arguably the most important, is to create a top-to-bottom culture of cybersecurity. Every individual in the organization, and every affiliate and third-party vendor, must take the task of cybersecurity seriously, and take on the responsibility of creating a cyber secure environment.

A New Legal Landscape

While the hospitality industry continues to grapple with data breaches and the vulnerability of existing systems, recent legal developments in Europe and in the United States will have require hotel companies to re-evaluate how they collect information, how they process it, and how to comply with varying and conflicting requirements.

GDPR

The European Union adopted the General Data Protection Regulation (GDPR), which became effective on May 25, 2018. The GDPR is a watershed event that will impact every business that collects personal information, wherever located, and it is likely that no industry will be more impacted that the hospitality industry. Other companies can choose not to do business with EU citizens; some companies have determined that it is impossible to comply and have actually closed. That is not an option for hotels. Hotel companies need to understand the goals and requirements of the GDPR. The nature of hotels and the various data holding sources such as OTA bookings and PMS systems escalate the regulation for travel and hospitality industries.

The consequences for non-compliance can be extreme: The maximum fine that can be imposed for serious infringements of GDPR is the greater of €20 million or four percent of an undertaking's worldwide turnover for the preceding financial year. There is only limited experience in enforcement actions under GDPR, and those experiences have been inconsistent. No one knows yet how European regulators will apply GDPR it to firms based outside the EU, but there are already public interest groups that are targeting multinational companies, and it seems likely that there will be some fallout.

GDPR is based on general principles, which allow leeway – and confusion – for companies. The rules of the road are likely to become clearer as the regulation is implemented, but for now, each company must make hard decisions. GDPR requires that an organization both comply with its principles and document compliance. It is more than just adopting a new privacy policy; it requires concrete actions, and recording those actions.

And GDPR is not the end of the story. The EU is actively pursuing the adoption of an "ePrivacy Regulation." The e-Privacy Regulation will, in many respects, go beyond GDPR and create additional challenges for companies that have contacts in the European Union.

CaCPA

The California Consumer Privacy Act of 2018 (CaCPA) addresses many of the concerns and requirements of GDPR. Companies that take prompt action to comply with the California Act and the GDPR will likely gain a substantial advantage over competitors who wait. While CaCPA has already been amended, and while there are a variety of attacks CaCPA that create uncertainty, businesses need to consider immediate steps to avoid the significant penalties for non-compliance. Businesses must be in full compliance on the effective date of January 1, 2020. It will not be adequate to start compliance efforts on that date.

Addressing both the GDPR and CaCPA requires new policies and procedures. Hotel companies need to take initial steps to ensure compliance by creating a standardized approach for handling consumer requests for personal information; develop procedures for responding to consumer requests and data collection and processing tracking procedures to understand what data is collected, where it resides, how it is maintained, and who is responsible for it. Importantly, hotels will need to analyze the legal basis for collecting and processing personal information – businesses will need to explain their legal rationale for exemptions to the consumer's right to have their information deleted.

Finally, each hotel company must review its public-facing website disclosures, including adding a description of consumers' rights under the Act, listing the categories of data collected and a conspicuous link titled "Do Not Sell My Personal Information."

The hospitality industry is facing both continuing challenges protecting the personal data of guests, as well as grappling with a new legal landscape. Companies need to recognize that while the trials are great, success will create trust in the industry's most important commodity – its guests. A comprehensive approach can give companies the chance not only to confront these issues, but create brand value in doing so.

Mr. Braun Robert Braun co-chairs JMBM's Privacy and Data Security Group and is a senior member of the Firm's Global Hospitality Group. Mr. Braun specializes in transactions with an emphasis on data security, privacy and information technology. Mr. Braun's practice includes establishment and development of strategies to implement computer software, cloud computing, computer hardware, communications and e-commerce solutions, designing and implementing privacy and security programs and protocols, as well as remediating security breaches. Mr.Braun has spent more than 20 years representing hotel owners and developers in their contracts, relationships and disputes with hotel managers, licensors, franchisors and brands, and has negotiated hundreds of hotel management and franchise agreements. His practice includes experience with virtually every significant hotel brand and manager. Mr. Braun can be contacted at 310-785-5331 or reb@jmbm.com Please visit http://www.jmbm.com for more information. Extended Biography

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