A coalition of ten privacy groups have launched an effort to lobby Congress for new legislation which would limit how web sites and ad networks can collect personal data and browsing habits to target advertising to those users. It is argued that in many cases consumers don’t even realize they are being tracked, and these groups hope its efforts will give consumers more control over their own online lives.

The procedure — which has become increasingly more popular as of late — is drawing increasing criticism as its detractors see it as a breach of privacy. However, advertisers in efforts to improve their results see it as an effective way to ensure their ads are seen by the right eyes.

In a list of recommendations to legislators, the groups said that Congress should mandate an opt-in policy that all sites using the practice must offer users within 24 hours of collecting their first bits of information. Additionally, they want to limit the types of data that can be collected, barring information on race, sexual orientation, finances, or personal health.

If possible to discern the age of the Web user, information collection for those under 18 would be illegal according to the group’s recommendations. If a user wants to opt-out of all behavioral targeting, they should be able to under something akin to the do-not-call list.

Not everybody’s buying the need for such legislation, with at least one industry executive saying it could do a lot of damage.

“Financial services and pharma/health are two of the leading categories for online advertising; the youth demographic is highly attractive to many advertisers, and limiting behavioral targeting to one day without an opt in severely restricts the usefulness of the data,” Lightspeed Venture Partners managing director Jeremy Liew argued.

I do think that some type of regulation on behavioral targeting is needed. I do also think it’s only fair that we know when (and what) we’re being tracked. However, I can see the point that too far-reaching legislation could potentially be harmful, especially to the advertising industry.

Hey, many websites (including this one) are funded by advertising. So, it’s in our interest to keep those advertisers around.

I think BusinessWeek’s Rob Hof says it best:

The key will be coming up with a workable mechanism for consumers to make this trade more consciously—one that isn’t so intrusive that it impedes use of the Internet. If such a mechanism emerges from the coming battle over privacy legislation, that seems likely to be a good thing for all concerned.