US Justice Department Flags Privacy Risk as Character.AI Chat Histories Could Be Sold in Bankruptcy

The US Department of Justice's Executive Office for U.S. Trustees wants privacy protections for millions of Character.AI customers whose chats and data might be sold as the company goes through bankruptcy. It says a consumer privacy ombudsman is needed to advise the court on what data can be sold and under what terms. The court has the power to restrict any sale of user data, which the office notes is often sensitive and sometimes involves minors.

According to a Tuesday court filing, the platform has 12 million active monthly users worldwide, who spend an average of two hours a day on it. The filing says the chatbot tells users who ask that their conversations are private and will not be shared without explicit permission. However, the DOJ describes the company's privacy policy as ambiguous. In some places it says the company may "disclose" personally identifiable information, and it permits the transfer of that information if the company is sold.

The policy was updated on July 1, while the company was actively seeking to sell its assets. The filing asks Character.AI to make a record of earlier versions of the policy, including whether they disclosed that data could be transferred in a sale or reorganisation, how changes were communicated to users, and whether notice was sufficient.