Several Members of Congress just introduced legislation that aims to protect consumer data from misuse and abuse.
Unfortunately, the “American Data Privacy and Protection Act” contains significant defects unrelated to much-needed privacy protections for consumers or businesses.
Instead of simply safeguarding the personal information of ordinary Americans and simplifying legal obligations for companies, the bill would uncork a torrent of counterproductive lawsuits that would damage job creators and enrich trial lawyers.
There’s no question America needs a federal data privacy law. Due to the lack of a uniform federal standard, data privacy is governed by a patchwork of state laws and regulations. Consequently, American firms may needlessly spend up to $1 trillion over the next decade trying to navigate that legal maze and comply with the varying statutes — with $200 billion of that burden falling on small businesses.
A single, streamlined federal law would help reassure consumers that their data remains secure, regardless of where they live or where a company is located.
The legislation under consideration, however, contains two massive flaws that would unleash endless class-action litigation over minor or technical violations, allowing lawyers to reap millions while class members receive just a few dollars or, in many cases, nothing at all.
First, the proposed legislation includes a ban on class-action waivers in arbitration agreements, which could prohibit companies and consumers from having their disputes resolved on an individual basis. Arbitration offers a more efficient alternative to court litigation, relying on independent third parties to mediate conflicts. Essentially, the parties in dispute take their issues to a neutral party, present their respective arguments, and agree to abide by whatever the arbitrator decides.
Although trial lawyers are understandably loath to admit it, arbitration is generally better for consumers than traditional court litigation. It is typically cheaper, quicker, and less complicated than formal lawsuits. Consumers prevail 41% of the time in arbitration, versus 29% in court. Additionally, awards in cases decided by arbitration actually exceed courtroom awards — $80,000 versus $71,000, respectively. Arbitration cases are also resolved 27% more quickly on average, and there’s often no need to involve — and thus pay — a lawyer.
However, those benefits present big problems from trial lawyers’ perspective. They prefer huge, class-action lawsuits that, according to a 2015 study by the Consumer Financial Protection Bureau, net consumers an average of $32 while lawyers earn close to $1 million.
The bill’s second massive flaw would create a “private right of action,” which allows individuals to sue to enforce the law no matter how trivial the violation. When numerous individuals can file the same complaint, plaintiffs’ lawyers try to lump them all together in one big lawsuit against a business — even if most of the people in the class are unaware they’re part of a lawsuit. It’s perfectly clear how that benefits lawyers. But it’s uncertain how it would advance consumer privacy and data protection.
Data security and privacy remain serious, complex issues, and Congress should absolutely pursue a uniform national policy. People who steal our data, and businesses that fail to adequately protect it, must be held accountable.
As currently drafted, however, the American Data Privacy and Protection Act contains unacceptable provisions that would enable rich trial lawyers to get even richer while delivering scant benefits to ordinary Americans whose interests they claim to represent.
Timothy H. Lee is senior vice president of legal and public affairs at the Center for Individual Freedom. This piece was originally published by Inside Sources.