Mandating Opt-In May Cause Consumers to Be Left out. (from Consumer Alert)
Plummer, James, Consumers' Research Magazine
As Congress holds hearings on a handful of bills to set a national policy for the information management policies of online businesses, a number of states are considering their own set of "privacy" laws. Before they pass such laws governing the exchange of information between consumers and businesses, both Congress and the states should seriously consider the ultimate ramifications of their actions.
On the federal side, Congress should closely review the results of a recent survey by the Progress & Freedom Foundation, which found that e-businesses, both large and small, are gathering less personal information from consumers. The survey, based on an earlier Federal Trade Commission study, also found that having consumers "opt in" to sharing or selling their information with other marketers is fast becoming the standard practice of quality Web sites. And posted privacy policies have become more widely used and clearly written.
Market incentives are clearly working in this still-young industry, and clamping down now (while ignoring offline business) could serve to cramp future innovation. With search and encryption algorithms becoming ever more powerful, for instance, it may be possible to receive perfectly targeted special offers from an advertiser who doesn't even know your e-mail address, much less your name. Imposing regulation now will only hinder such boons in the future.
In the federal arena, the Gramm-Leach-Bliley Act of 1999 mandated that financial institutions that shared customer information with third parties had to notify their customers and offer them the choice of opting out of that information sharing. Banks, insurance companies, and securities firms spent billions of dollars last summer sending out millions of opt-out notices. Yet it's estimated that only 2% to 3% of customers took up those offers.
Moving on to the states, those considering mandatory opt-in laws and regulations may want to look at the Vermont experience. Under the Vermont rules, financial services firms must get the explicit permission of the consumer before sharing information with third parties. At first blush, this may seem like a fine idea. But, upon further refection, such laws can ultimately harm consumer welfare and even privacy.
Such rules harm consumer welfare by forcing consumers to take the time to opt in for each company that wants to share their information with marketers. Companies that operate nationally have to assume that all their Vermont customers have opted out of information sharing with third parties. …