Academic journal article Duke Law Journal

The Impact of Opt-In Privacy Rules on Retail Credit Markets: A Case Study of MBNA

Academic journal article Duke Law Journal

The Impact of Opt-In Privacy Rules on Retail Credit Markets: A Case Study of MBNA

Article excerpt


U.S. privacy laws are increasingly moving from a presumption that consumers must object to ("opt out" of) uses of personal data they wish to prohibit to a requirement that they must explicitly consent ("opt in ") to uses they wish to permit. Despite the growing reliance on opt-in rules, there has been little empirical research on their costs. This Article examines the impact of opt-in on MBNA Corporation, a diversified, multinational financial institution. The authors demonstrate that opt-in would raise account acquisition costs and lower profits, reduce the supply of credit and raise credit card prices, generate more offers to uninterested or unqualified consumers, raise the number of missed opportunities for qualified consumers, and impair efforts to prevent fraud. These costs would be incurred despite the fact that as of the end of 2000, only about two percent of MBNA's customers had taken advantage of existing voluntary opportunities to opt out of receiving MBNA's direct mail marketing offers. If Congress were to adopt opt-in laws applicable to financial information, the impact across the economy on consumers and businesses would be significant.


     I. The MBNA Experience
        A. Free-Flowing Information Transformed the Credit
           Card Industry
        B. Personal Information as the Cornerstone of the
           MBNA Strategy
    II. Dimensions of the Opt-In Versus Opt-Out Debate
        A. Opt-In Regimes
           1. Opt-In Regime One--Third-Party-Sharing Opt-In
           2. Opt-In Regime Two--Affiliate Sharing Opt-In
           3. Opt-In Regime Three--Blanket Opt-In
        B. The Differential Impact of Opt-In Versus Opt-Out
   III. The Impact of Opt-In on MBNA Products, Services and
        A. Impact on Affinity Cards, Customers and Prospects
           1. Acquisition of Member Lists
           2. Culling Prospect Lists to Target Solicitations
        B. Impact on Cross-Selling
           1. Cross-Selling as Customer Service
           2. The Impact on Efficient Corporate Organizational
        C. Impact on Efforts to Prevent and Detect Fraud and
           Identity Theft


The free flow of information has become a defining characteristic of the New Economy in the United States. (1) Economists have long recognized that the costs of acquiring information and arranging transactions are like sand in the gears of commerce. (2) Markets function more efficiently when it is less costly to identify and design the right product for the right consumer and deliver it at the right time. Many of the factors underlying the remarkable growth in productivity during the 1990s, including just-in-time delivery, total quality management, and electronic commerce, are a consequence of advances in information technology that support the rapid acquisition and transfer of information.

The financial services sector has benefited substantially from these advances in information technology, especially through the industry's use of personally identifiable information. As Comptroller of the Currency John Hawke, Jr., testified before Congress in 1999, the financial services market is an "information-driven industry.... Information exchanges thus serve a useful and critical market function that benefits consumers and financial institutions alike, in facilitating credit, investment, insurance and other financial transactions." (3)

Much of that essential information relates to individuals and their specific transactions. Notwithstanding the resulting benefits, surveys over the past decade document that consumers have become increasingly sensitive about the collection and commercial use of personal information (financial and otherwise) by businesses. In a 1999 IBM/Harris survey, 94 percent of Americans said they were worried about "possible misuse" of their personal information, and 80 percent thought that "consumers have lost all control over how personal information about them is collected and used by companies. …

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