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Home > Past Releases and Reports > Privacilla and The Mercatus Center Assess Privacy "Short Notice" Mandates


For Immediate Release
March 30, 2004

Contact: Jim Harper

(202) 546-3701

http://www.privacilla.org

Privacilla and The Mercatus Center Assess Privacy "Short Notice" Mandates

Mandated Short Notice Could Reduce Competition Along the Privacy Dimension, Drive Consumers to Opt Out Without Full Information

Washington, D.C. — New short notice mandates may thwart competition among financial services providers and fail to inform consumers fully, according to regulatory comments submitted by Privacilla.org and The Mercatus Center at George Mason University. The comments find that U.S. federal agencies have not laid a foundation for more regulation, and that anticipated regulations may harm consumers.

Over the last several years, tens of thousands of financial institutions have mailed more than a billion notices to consumers, informing them about corporate information practices and the right to opt out of certain information sharing. The notice program is widely regarded as a wasteful, time-consuming, and expensive failure.

"Mandated privacy notices have spectacularly failed to reach consumers in a way that matters to them," said Jim Harper, Editor of Privacilla.org. "One would not expect the solution to be more of the same, but the agencies are preparing to add further mandates and to dictate the way information can be presented. They are not considering allowing innovation, competition, and creativity in privacy notices."

Government approved notice may stall competition among firms to deliver privacy on the terms consumers want, the Privacilla / Mercatus comments point out: “Ironically, consumers may end up with less information, or information different from what they care about, because the financial services industry and the agencies that regulate it have, in effect, colluded to thwart competition and innovation along the privacy and notice dimensions.”

The comments, authored jointly by Privacilla and Mercatus Center Research Fellow Jay Cochran III, Ph.D., find that the agencies have not laid the foundation for new regulation. They have made no attempt to assess whether consumers’ privacy or decision-making is suffering. They have put forward no evidence of market failure. Indeed, information cited by the agencies shows that companies are working to satisfy consumer interest in privacy.

“This is really a rootless exercise,” continued Harper. “The agencies have not explored why notice has failed, how this new approach might fix it, or how they will know if they succeed.”

New regulations could have many effects, few of which will benefit consumers:

  • Sample short notices appear biased toward opt-out, which will satisfy privacy absolutists but needlessly drive other consumers out of the information economy.
  • More notices may use up consumers’ scarce attention, leading them to disregard information about privacy, security, financial fraud, and other important concerns.
  • It is unclear whether government-mandated notices are a significant part of ordinary consumers' decision-making: Nutrition labels, widely touted as a model for privacy notices, have failed to stem the rising tide of obesity in the United States.
  • None of the sample notices the agencies are considering would inform consumers about information-sharing with governments.
“If it does not say that information must be shared with the IRS and federal law enforcement, short notice will short-change consumers,” commented Harper.

The agencies must begin a formal rulemaking before concrete proposals for short notice will be considered.

Privacilla.org (http://www.privacilla.org) is an innovative Web site that captures "privacy" as a public policy issue. Privacilla has been described as a "privacy policy portal" and an "online think-tank."

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