Firms Renew Assault on Privacy Rules
The drive to expand privacy protections on the Internet--which seemed unstoppable just six months ago--suddenly appears vulnerable to a newly energized business lobby.
Emboldened by a string of victories on bankruptcy reform and regulatory rollbacks, business groups are gearing up to block proposals that would restrict how companies collect and use information gathered on the Internet and elsewhere.
Privacy advocates say such information--everything from credit card numbers to buying habits--is being used by marketers to profile consumers without their knowledge and might leave people more vulnerable to identity theft and other fraud.
The lobbying battle began this month with the release of two industry-funded studies arguing that proposed restrictions on how companies collect and use consumer information would not only trigger higher prices for Internet shoppers but also put a damper on the already slowing national economy.
An industry coalition including IBM Corp., Ford Motor Co. and Proctor & Gamble Co. is planning a $30-million national advertising campaign this fall aimed at easing consumers’ privacy fears. The coalition says catalog companies would have to raise prices by a total of $1 billion if they could not use customer information for marketing purposes.
In addition, an army of business lobbyists has fanned out over Capitol Hill in recent weeks to fight the privacy advocates.
Microsoft’s chief privacy officer, Richard Purcell, made the rounds earlier this month, demonstrating new privacy-enhancing technologies that could reduce the need for government restrictions. Officials at Online Privacy Alliance, consisting of dozens of companies from AOL Time Warner to Verizon, are urging lawmakers to give businesses more time to regulate themselves.
Parts of the business lobby have already notched some successes. Health-care lobbyists persuaded the Bush administration to delay implementing medical privacy rules that would have required that patients consent before confidential information could be released. Now those rules may be rewritten.
In this climate, Evan Hendricks, publisher of the newsletter Privacy Times, says the chances for online privacy bills appear dim. “I don’t think the current administration is interested,” he said.
Asked about privacy legislation on a visit to Los Angeles on Thursday, Commerce Secretary and close Bush advisor Don Evans said the administration would prefer to “let entrepreneurs, workers and innovators continue to thrive . . . and not get in their way.”
About 15 consumer groups, labor unions and privacy advocates recently banded together to push for rules requiring companies to disclose their data-collection practices and get permission before using consumer information for marketing. The groups also are pressing lawmakers to conduct public hearings to expose Web-tracking technology and data-collection abuses.
“We need to ramp up our own educational effort,” said Ed Mierzwinski, program director at U.S. Public Interest Research Group. “It’s a rather specious argument to say that privacy laws are going to cause our economy to tank.”
The two studies released this month emphasized the “price of privacy” and warned of “information taxes” levied on consumers and businesses, particularly in the technology sector.
A report on catalog apparel retailers estimated that companies would need to boost total mailings to achieve the same number of responses if they could not use consumer information databases to tailor their marketing offers to the most promising customers. The study, funded by the Privacy Leadership Initiative and Direct Marketing Assn., estimated that companies would have to raise prices by 7%, or about $1 billion.
The study said low-income and rural customers, who frequently use mail-order and catalog services, would be hit the hardest. At a Federal Trade Commission hearing on March 13, a lobbyist for the Direct Marketing Assn. raised the specter of low-income parents being unable to read to their children because they couldn’t afford mail-order books.
“That’s just nonsense,” said Mark Rotenberg, director of the Electronic Privacy Information Center, a privacy advocacy group. “These are very political reports being dropped into the legislative process to make a point.”
Rotenberg, citing independent research, said e-commerce companies would do better to convince potential customers that doing business over the Internet is safe. Forrester Research recently estimated that companies doing business over the Net lose $12.2 billion in annual sales because of privacy concerns.
A second industry study, funded by 90 banks and financial services firms, estimated that customers would have to pay an extra $195 a year in fees and interest if subsidiaries and affiliates could not share information. Discounts to customers with a mortgage and a credit card with the same bank could fall victim to such a policy.
The Privacy Leadership Initiative is planning an ad campaign educating consumers about the benefits of information-sharing and giving them tips about how to better protect their privacy.
“It’s about consumer education,” said Wally O’Brien, executive director of the group. “Legislation is not on our agenda.”
Some early signs suggest the business lobbying effort is starting to pay off. “The mood is changing,” said Harriet Pearson, chief privacy officer at IBM. “The debate has slowed down as people take a more fine-tuned look at what it all means.”
The slowing economy and dot-com meltdown are giving ammunition to business lobbyists arguing for more modest restrictions. Additional regulations, said Rick Lane, director of Internet technology at the U.S. Chamber of Commerce, could drive some companies out of business.
Rep. Bob Goodlatte (R-Va.), who co-chairs the Congressional Internet Caucus, said he was mindful that privacy legislation has to take account of costs. “We don’t want to kill the goose that lays the golden egg,” he said. “Well, it may not be golden anymore, but it still contains a lot of the future.”
Some business groups now see an opportunity to block privacy legislation completely, or at least to delay it until next year.
“Chances for comprehensive privacy legislation today are less than they were six months ago,” said Mark Uncapher, vice president at Information Technology Assn. of America, which has joined the U.S. Chamber of Commerce and the Direct Marketing Assn. in opposing all pending privacy legislation.
Other business leaders believe that federal privacy legislation is unavoidable and instead are focusing on ensuring that the rules are not too costly. Many now say they are willing to accept a federal law as long as it preempts individual states from passing their own rules.
Large companies, including Intel Corp. and America Online, have endorsed requiring Web sites to post their privacy policies and give consumers a chance to opt out of data collection.
“Some sort of privacy legislation is inevitable,” said IBM’s Pearson. “This debate will never come to a standstill.”
In Congress, several influential lawmakers have staked a claim on privacy. Sen. John McCain (R-Ariz.) is expected to hold hearings in late April and introduce legislation sometime after that. Others who have expressed strong interest are Rep. W.J. “Billy” Tauzin (R-La.) and Sen. Orrin G. Hatch (R-Utah).
President Bush is a wild card, so far. Though he said during the campaign that he believed that businesses should get permission before using certain types of information, such as financial or medical records, Bush also favors deregulation and has handed businesses a string of victories since taking office. But he has not made privacy a top priority.
“There is definitely a desire on the part of many to find out where the Bush administration is on this issue,” Goodlatte said.
All sides will be watching closely to see how consumers respond to a slew of financial privacy disclosure statements being mailed by banks, credit card issuers and other financial services firms.
The notices, which must detail what types of sensitive information financial companies share with third parties and give customers a chance to opt out of some disclosures, were mandated by last year’s banking reform bill. They take effect in July, but many banks are already mailing the notices.
If the process goes smoothly, the financial privacy law could serve as a model for expanding similar protections to the Internet or other types of business. If consumers react negatively or find the notices confusing or burdensome, privacy advocates might try to push for tougher rules.
“That’s going to be the fly in the ointment,” said Jerry Cerasale, senior vice president for the Direct Marketing Assn.
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Sending a Message
Business groups are preparing to torpedo legislation aimed at protecting consumers’ online privacy.
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A sampling of online-privacy bills introduced this year:
* HR 89 Online Privacy Protection Act of 2001: To require the Federal Trade Commission to create regulations to protect the privacy of personal information. Sponsor: Rep. Rodney P. Frelinghuysen (R-N.J.)
* HR 112 Electronic Privacy Protection Act: To prohibit the making, sale or use of an information-collection device without proper labeling or notice and consent. Sponsor: Rep. Rush D. Holt (D-N.J.)
* HR 237 Consumer Internet Privacy Enhancement Act: To protect the privacy of consumers who use the Internet. Sponsor: California Rep. Anna G. Eshoo (D-Atherton)
* HR 347 Consumer Online Privacy and Disclosure Act: To require the Federal Trade Commission to create regulations to protect the privacy of personal information collected from and about individuals on the Internet. Sponsor: Rep. Gene Green (D-Texas)
* HR 583 Privacy Commission Act: To establish the Commission for the Comprehensive Study of Privacy Protection. Sponsor: Rep. Asa Hutchinson (R-Ark.)
Source: Electronic Privacy Information Center
