The Office of Fair Trading (OFT) has called on the Internet Advertising Bureau (IAB), the trade association for online advertising, to address privacy concerns about online behavioural advertising.

The OFT has published a report on online targeted advertising and pricing in which it says more could be done to provide consumers with better information about how personal information is collected and used.

The report was particularly concerned about the collection of personal information where this could lead customers to alter their shopping behaviour, such as whether or not to visit a web site, and the practice of harvesting information on a user's purchases, sites visited and geographic location in order to determine the price at which products are pitched to them.

The OFT said research suggests that consumer opposition to practices such as offering different prices for the same product to different users based on harvested Internet browsing information would be very strong. "This has led the OFT to conclude that consumers who knew that targeted prices were being applied would change their behaviour, meaning that failure to inform consumers about the practice could breach the CPRs [Consumer Protection Regulations] and in such an event the OFT would consider enforcement action," the report said.

Behavioural advertising revenues are between £64m and £95m, according to the OFT, and represent a tiny proportion of the £3.35bn total for online advertising in the UK, but the OFT is keen to set some ground rules while behavioural advertising is still at a formative stage.

"The OFT is keen to engage with industry players and consumer groups while behavioural advertising is in its relative infancy, and before targeted pricing takes hold, so that the market develops in a way that protects consumers from bad practice," said Heather Clayton, OFT Senior Director in the Consumer Market Group.

"Discussions now about the potential for both benefits and harm, and how consumer protection legislation applies, will stand us in good stead in the event that industry action proves ineffective or targeted pricing becomes a reality," she added.

Advertisers typically use small files, known as "cookies", stored on a user's computer to harvest information about a user's browsing habits.

Under laws enforced by the Information Commissioner's Office (ICO), it is a legal requirement for firms to clearly inform consumers about the purposes of storing a cookie or other tracking system on the user's computer and to provide people with an opportunity to opt out.

The OFT's own research showed that Internet users are largely ambivalent about the concept of targeted advertising, with 40% neutral on the issue and 24% in favour of it.

"Concerns decreased when consumers were able to opt-out of behavioural advertising, and the associated tracking, if they wished. Around 40% of consumers said they would take some actions to prevent behavioural advertising (such as deleting cookies), although only a very small minority would reduce their internet usage to avoid it. Around 60% would not alter their behaviour at all," the OFT report said.

The OFT's key recommendations for a self-regulated solution to its concerns were:

- Increase transparency to consumers by developing 'clear ad' notices alongside behavioural adverts including information about opting out

- IAB to give further consideration and provide clearer guidelines around sensitive information and the use of that data for behavioural advertising.

- Increase awareness of the Good Practice Principles amongst publishers and advertisers seeking to engage in behavioural advertising

- Consider extending coverage of first party behavioural advertisers and whether retargeting companies and social networking sites should be included

- Consider whether the Good Practice Principles should include a commitment to maximum length of data storage for the purpose of behavioural advertising

- Include non-industry, independent stakeholders on the board which deals with complaints

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