Originally published by the Washington Times on March 7, 2023.
The rapid march of technology has paved the way for a slew of privacy challenges that lawmakers have struggled to address.
Consequently, data privacy is a growing concern for Americans finding it difficult to control their personal information. Rep. Patrick McHenry, North Carolina Republican and chairman of the House Financial Services Committee, recently introduced the Data Privacy Act of 2023 to give consumers more control over how their personal information is used by financial institutions. Still, special interests are threatening to turn the bill into a vehicle for self-enrichment.
At a recent hearing, Mr. McHenry said: “Technology has fundamentally changed the way consumers participate in our financial system — increasing access and inclusion. It has also increased the amount of sensitive data shared with service providers. Our privacy laws — especially as they relate to financial data — must keep up.” Keeping up with technological change, however, is not something for which regulators are known.
One way for Congress to minimize future challenges related to outdated regulations is to write laws that are technology-neutral to the extent possible. Mr. McHenry’s bill seeks to modernize the financial data privacy framework with consumer protections that withstand technological advancement. Other key components of the legislation include provisions to ensure that privacy terms and conditions are transparent and easily understandable, rather than inscrutable legalese, and that consumers are given the option to terminate the collection of their personal information. Data is also required to be used for its stated purpose.
Unfortunately, some see pending updates to an outdated law as an opportunity to pad their pockets.
Trial lawyers are pushing members to add a “private right of action” authorizing them to sue for any violation. Lawsuits are a viable enforcement mechanism in a lot of contexts but tend to work best when harm to an individual is concrete and substantial. Sending lawyers out hunting for technical violations of government mandates, on the other hand, has significant downsides.
Consider the problems with class-action lawsuits. Lawyers are often able to extract significant legal fees even in cases where harm to individual consumers is relatively minor. This creates an incentive for frivolous suits that can drag down the economy. Consumers, on the other hand, are often left with pennies after legal fees but face higher prices in turn as litigation costs are passed on to consumers.
Furthermore, compliance costs disproportionately burden small institutions, leading to reduced competition and thus higher prices.
There’s an added perverse incentive for lawyers, who by necessity have a significant role in the legislative process, to push for more numerous and complex rules in hopes of tripping up businesses and creating new paydays. Fueling this process won’t protect privacy or benefit consumers.
The House Financial Services Committee is expected to mark up the legislation, where further tweaks and improvements can be made if necessary, and move it to the floor in the next few weeks. Mr. McHenry should be praised for seeking a balance between protecting consumers’ data and interests while ensuring the heavy hand of government does not destroy the ability of businesses to engage in ethical commerce. Congress would be prudent to ensure the trial bar does not transform this sorely needed legislation into their own personal piggy bank.
———
Image credit: EFF Photos | CC BY 2.0.
