The National Business Coalition on E-Commerce and Privacy, of which I am the Executive Director, is comprised of 15 widely recognized companies dedicated to the pursuit of a balanced and uniform national policy pertaining to electronic commerce and privacy.  We are engaged in virtually every sector of the economy and in every geographic location in the country, with over 40 million customers.  We deliberately created a diverse coalition because the privacy issue is not just restricted to the financial services industry or the health care community, but touches on every sector of our economy.  

We believe that we are the only coalition whose membership includes financial and non-financial companies.  Our wide range of companies are in manufacturing, like General Motors and John Deere Corporation; retail, like Home Depot; hospitality, like Six Continents Hotels; media, like General Electric; as well as some insurance and financial services companies such as Charles Schwab.  These and our other members are all top competitors in the e-commerce marketplace, who use the Internet as an essential component of their ability to deliver goods and services to their customers.  

Our members have spent decades developing respected brand names and cultivating mutual trust with their customers, and I can assure every member of this Subcommittee that we are strongly committed to ensuring the privacy of our customers both on-line and off-line. 

It is for that reason that we are very encouraged by the provisions of HR 4678.  We believe this bill moves the privacy debate in a positive and useful direction, and the Coalition would especially like to thank you, Mr. Chairman, for the enormous amount of work that you and your staff have put into analyzing the complexities of the privacy issue and in crafting this legislation. 

The Coalition is pleased that HR 4678 lays out a clear-cut and balanced privacy policy for the nation.  By requiring the prominent posting of, and by requiring adherence to, a company’s privacy policies, it is our view that HR 4678, more than any other piece of legislation currently before the Congress, assures that consumers have the information that they need in order to make informed choices about the use of personal information that pertains to them.  A well-informed consumer is the heart of the matter because in a free market economy, knowledge empowers the customer.  And we believe that the simple and straightforward step of letting consumers know how information is going to be used is the single most important and useful thing that we can do in the area of privacy. 

I will focus my remarks today on three areas that our Coalition deems especially important:  1) the creation of uniform national privacy standards; 2) the equal treatment of off-line and on-line information; and 3) private rights of action.  We are pleased to see that HR 4678 deals with each of these vital issues in a balanced and sensible way. 

By creating uniformity of state and local privacy laws, we believe HR 4678 demonstrates an appropriate appreciation of the nature of e-commerce and the modern economy.  An economy in which orders for new products and services can be made at the touch of a button.  An economy that allows a customer in Oregon to purchase a product in Florida in a matter of mere seconds.  An economy that is, in a very real way, an economy without borders. 

A patchwork of state and local laws would pose an enormous burden to, and fragmentation of, our economy.  This would be a significant disincentive for companies to participate in the e-commerce marketplace, especially smaller companies, since they would be forced to navigate a sea of sometimes conflicting state and local privacy laws.  Furthermore, the costs of complying with such conflicting laws would, more likely than not, be passed on to the consumer. 

Mr. Chairman, in the 50 states this year, over 548 privacy bills were introduced in the state legislatures.  That’s 548 different approaches to what 50 different state jurisdictions ought to do about the single issue we’re discussing here today. 

And if that weren’t enough, numerous local jurisdictions are now also jumping in and beginning to tackle the question of privacy.  For example, in the State of California, San Mateo County and Daly City have both just passed their own privacy laws, with San Francisco, Berkeley, Marin County, Contra Costa County, and Alameda County all expected to do so in the coming weeks.    And that’s within just the San Francisco Bay Area.  Surely there will be more after that.  Remember, there are almost 100,000 local government jurisdictions in the United States.  I’m not sure I want to even contemplate how a company could comply with 50 states multiplied by 100,000 localities multiplied by a minimum of 548 different privacy policies. 

Obviously, this is a recipe for a disjointed and inefficient marketplace.  We, therefore, wish to strongly impress upon the Congress the urgent need to pass legislation with strong Federal preemption of both state and local laws.  We believe that only by effectively providing a uniform privacy standard across the nation, will the Congress be able to avoid the problems that would accompany a multitude of legal requirements, with all of the ultimately unworkable administrative requirements that would imply.  

I would also add, Mr. Chairman, that those who argue that they seek a Federal privacy law to create “a floor but not a ceiling,” are begging a fundamental question of fairness.  If privacy is to mean anything it is as a guarantee of certainty that consumers may know the rules of the road wherever they go in our economy.  Far from being a protection of privacy, the “floor and not a ceiling” argument will result in confusion and conflicting standards that will benefit some consumers and punish others almost at random because of the mere accident of geographical location.  In the world of floors and ceilings, where you live will be more important to your privacy than who you are. 

Secondly, the Coalition is greatly pleased to see that HR 4678 treats information gathered on-line and off-line in the same way.  Every one of our member companies operates both on-line and off-line, as does, I assume, almost every major American company, as well as a number of smaller ones.  While we appreciate that those Members of Congress who seek to make a distinction between on-line and off-line information believed that they are assisting certain portions of the business community, the truth is that doing so, in fact, would be enormously burdensome and presents some very real difficulties. 

To begin with, as a general rule, all information collected by companies either on-line or off-line is stored in the same system.  Often no distinction is made based on where the information is collected.  To create such a distinction in law would be to invite enormous record keeping and financial burdens for private industry, to no practical real world benefit for the consumer. 

Furthermore, to create such a distinction becomes an exercise in the most profound hair splitting.   Is information collected in person and then stored online considered online or offline?  What if the information is collected over the telephone, or through a computer?  Or transmitted from a telephone to a computer?  These are the kinds of Solomonic judgments that will keep the courts busy for years if a distinction is made between on-line and off-line information. 

By treating similar information gathered on-line and off-line in the same way, HR 4678 sensibly balances the needs of industry with the privacy of the consumer, and assures the protection of both with a minimum of ambiguity. 

Thirdly, we are greatly pleased that HR 4678 does not permit private rights of action at a time when everyone agrees that our society is already far too litigious.  The Coalition is well aware that this matter of private rights of action will be highly controversial and is an outgrowth of broader legal reform issues facing the Congress.  But the likely result of a private right of action would be to dissuade companies from relying on e-commerce, or more likely, it would cause them to hedge their bets against frivolous lawsuits by adding costly procedures and protections.  Such procedures and protections would not measurably aid consumers, but their costs would be passed on in the form of higher prices and reduced service. 

In the context of privacy, there is concrete evidence to show that existing law has more than sufficed to protect consumer interests.  The Federal Trade Commission has recognized that existing enforcement authority deals with most violations of privacy law and opening the door to private rights of action would simply create an environment conducive to even more unnecessary lawsuits in an already clogged and expensive legal system.  I would also point out that under this bill, the states would still have existing private rights of action and the litigation authority already vested in them through the mini-FTC Acts. 

Instead of creating a new private right of action, HR 4678 more appropriately creates a Self Regulatory Organization (SRO) process in which arbitration may be binding.  This possibility of binding arbitration is critical – otherwise the SRO process would represent little more than yet another expensive layer of compliance.   

Mr. Chairman and Members of this Subcommittee, HR 4678 is a reasoned and measured step forward in the privacy debate, and the most promising alternative currently pending in the Congress.  We would like to suggest, however, some potential sandtraps to avoid and some drafting improvements to HR 4678, where possible.  

For example, we would highlight the need to apply the opt-out provisions of the bill to the use of information, rather than to the collection of information, as the bill currently requires.  Likewise, our Coalition companies, who all deal in both the business-to- business and the business-to-consumer environments, would like it to be made more explicit that HR 4678 applies to business-to-consumer relationships and not to business-to-business transactions.  With regard to remedies and enforcement, we believe that it would be helpful to explicitly prohibit class action lawsuits.   Finally, unnecessary access provisions are best avoided because they could ironically create perverse incentives for companies to centrally maintain exactly the sort of customer profiles that we all seek to avoid.  

Mr. Chairman and Members of this Subcommittee, once again, on behalf of the National Business Coalition on E-Commerce and Privacy, I would like to congratulate you on your leadership in successfully moving the privacy debate forward and in drafting HR 4678.  We believe that with this legislation, you have taken a singularly positive step, and that you have struck a prudent and sensible balance between the privacy of the consumer and the needs of the business community.  We hope to be able to continue to work with you as the privacy debate develops, and I would now be happy to answer any questions that you may have. 

Attachment

National Business Coalition on E-Commerce and Privacy 

Member Companies: 

American Century Investments

AMVESCAP

CheckFree

CIGNA

Deere & Company

Dupont

Fidelity Investments

Fortis, Inc.

General Electric

General Motors

The Home Depot

Investment Company Institute

MBNA America

Charles Schwab & Company

Six Continents Hotels

For further information contact:

John A. Schall

Executive Director

601 Pennsylvania Ave. NW

North Building, 11th Floor

Washington, DC 20004-2601

(202) 756-3385

Fax: (202) 756-3333

Jschall@alston.com

Visit our Coaltion website at:

www.practicalprivacy.org