As artificial intelligence (AI) becomes increasingly embedded in everyday products and services, businesses must take a closer look at how it intersects with privacy obligations. Disclosing your AI practices in your privacy policy isn’t just a best practice. It is becoming a legal and strategic necessity.

What Is a Privacy Policy?

A privacy policy outlines how your company collects, uses, stores, and protects personal data. It tells users:

• What information is collected
  
• How it’s used
  
• Who it’s shared with
  
• How users can manage or opt out of data collection
  

With the rise of AI, this transparency must now include how AI interacts with user data.

The Impact of AI on Privacy Obligations

AI introduces unique challenges for privacy compliance, particularly in three key areas:

1. Data collection, usage, and purpose limitation
   
2. Automated decision-making and profiling
   
3. Consent and individual rights
   

Two major regulatory frameworks are currently shaping how AI is governed.

The EU Artificial Intelligence Act

This landmark regulation introduces a risk-based framework for developing and deploying AI across the EU

• Systems which integrate practices that are deemed unacceptable risks are outright banned.
  
• High-risk systems must meet strict requirements around data quality, transparency, human oversight, and accountability
  

The Colorado Artificial Intelligence Act

Effective February 1, 2026, this law focuses on consumer protection and aims to prevent algorithmic discrimination.

• It places obligations on developers and deployers of high-risk AI systems
  
• Key requirements include transparency, risk management, and consumer notifications
  

While these laws don’t directly regulate data privacy, they highlight how closely AI and privacy concerns are connected.

Real World Examples: Legal and Reputational Risks

Recent lawsuits demonstrate the growing scrutiny over AI practices and disclosure.

• LinkedIn faced a proposed class action for allegedly using private messages from premium users to train generative AI models. The case was dismissed, but it underscores the legal risks of failing to properly disclose AI related data use.
  
• Apple is being sued not for how it uses AI, but for allegedly misleading shareholders about its AI strategy. This case shows that lack of transparency, even in corporate communications, can result in legal action.
  

These examples illustrate a critical lesson. Clear, accurate, and truthful disclosure of your AI practices is no longer optional.

What This Means for Your Business

Even if AI specific laws like the EU AI Act or Colorado AI Act don’t directly apply to your business yet, they set a precedent and signal where global regulations are heading.

Here’s how to prepare:

• Disclose your use of AI clearly in your privacy policy, especially where it affects user data.
  
• Inform users when AI is involved in your services, and provide options to opt out if applicable.
  
• Audit your third-party providers to determine whether their AI practices affect your users’ data and disclose those impacts.
  
• Update your privacy policy regularly to reflect evolving AI practices, whether developed in house or licensed from others.
  

The Bottom Line

Integrating AI into your operations brings new opportunities and new responsibilities. Transparency builds trust, and compliance reduces risk.

At Bagchi Law, we help businesses navigate the evolving AI and privacy regulatory landscape. From reviewing your privacy policy to advising on AI governance and disclosures, we can guide you toward a safer and more transparent future.

Reach out to us to learn how AI regulations may impact your business and how you can stay ahead.

Written by Deonta Woods