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How Notice and Opt-Out Frustrates Innovation
The Gramm-Leach-Bliley Act notice and opt-out provisions prohibit sharing of information unless financial institutions have declared their information practices in detail. Once they have done this, of course, they must adhere to their declarations. Requiring financial institutions to detail their information practices in advance — rather than just forbidding them from making harmful uses of information — is a significant impediment to innovation in the financial services sector.
As the exceptions to the notice and opt-out provisions illustrate, many appropriate reasons for information-sharing have evolved over years, and they benefit consumers or society in a variety of ways. It is certainly possible that the U.S. financial services sector has already discovered all the ways that information may be used to save consumers time and money. More likely, Gramm-Leach-Bliley has hindered and perhaps ended the evolution of new information practices that benefit consumers.
A financial institution that wants to make a new, innovative, beneficial use of information must not only take all the risks that innovation entails. It now may not do so unless it notifies its customers of the new practice and gives them an opportunity to opt out of it. The additional expense will prevent marginal improvements in the delivery of financial services to consumers. The cost of foregone innovation will accumulate over years to the detriment of consumers and the economy alike.
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