Memo To The FTC: No Harm, No Foul

Suppose I order a book about scuba from an online bookseller. Unbeknownst to me, the bookseller provides this information to a data broker, who sells my name and email address to a dive shop in my neighborhood, which then sends me an enticing discount coupon for a fancy new dive mask.

Is this unfair?

Section (a)(4)(A) of the Federal Trade Commission Act declares that a business practice is unfair if it causes or is likely to cause foreseeable injury to a consumer. So then: Am I injured?

The transaction hasn’t cost me anything. I probably don’t know, though I might guess, that the information about my purchase has been disclosed, but the only effect on me will be to eventually receive an advertisement targeting my presumed interest in undersea sightseeing. I don’t see this as a big deal.

The Federal Trade Commission, however, thinks I have been injured without knowing it, because my privacy has been invaded. The bookseller has sold my data to someone else without explicitly telling me so. But all I know is that some time after my original purchase, the dive mask manufacturer’s message appears. I won’t need much time to recover from the shock.

This, in a nutshell, is the problem with the FTC’s aggressive approach to privacy protection.

Most truly sensitive information is already protected by statute. This information includes financial records, educational records and medical records. All of these are covered by existing law, and can only be shared in very specific ways, with explicit permission.

This isn’t the sort of data the FTC is talking about in a recent report offering “best practices” for consumer privacy protection. Instead, the FTC is now taking aim at a much broader array of information.

In the case of my hypothetical purchase, there were two parties to the transaction. I was the consumer, but the bookseller was an equal part of the exchange. I willingly became that seller’s customer. Does the seller not have the right to use information it lawfully obtained when doing so doesn’t hurt me? The FTC thinks not.

When I first saw the recent New York Times article covering the FTC’s new guidelines, it struck me that you can tell the economy is recovering, given this revived interest in doing something that will so directly inhibit business activity. The FTC has framed this issue as a simple trade-off between privacy and profits. The agency, especially in its current incarnation, sees its mandate as to protect the consumer above all else. It does not see profit and jobs as much of an offset to any loss of privacy, real or perceived.

But the FTC should limit its concern to protecting consumers from actual injury. If the consumer, or the consumer’s wallet, does not notice an injury, chances are that there isn’t one to notice. In truth, the FTC getting its way would cause the only injury in this scenario: to the businesses that use the – largely public – data, and to consumers who want more effective advertising.

Advertising can be deceptive and is frequently silly, but that does not mean it is inherently harmful to consumers, though the FTC seems to think this is the case. Advertising, as any value-conscious shopper knows, is most useful when it offers prospective buyers things they want or need: either good deals on products they already use, or new products that align with their lifestyles and interests. Why would we needlessly inhibit ads that have the best chance of reaching the consumers who are most likely to respond?

Maybe I bought that scuba book for my niece, not myself; I still might be interested in the scuba mask to give her as another gift. If not, I’ll ignore the ad. But if I have purchased many books about scuba, it’s even more likely the interest is my own. If someone wants to offer me a great deal on the latest technology in scuba masks (and there are some very cool masks out there, with built-in flash cameras and dive computers), I won’t want to miss it.

This sort of transaction is the opposite of consumer injury. It’s also one that consumers are generally already used to if they spend any significant amount of time on the Internet.

The FTC’s own press release highlights its overly aggressive stance on the matter. The agency “recommends that Congress consider enacting general privacy legislation, data security and breach notification legislation, and data broker legislation.” In other words, the FTC must go back to Congress and ask for new legislation, because some of the protections it wants to enact are not covered by current law. However, as The New York Times points out, “none of [the] legislation is likely to make it into law in this Congressional session […] given the heavy schedule of pending matters and re-election campaigns.” Or, more succinctly: Good luck with that, FTC.

It isn’t that Congress has anything against consumers. For that matter, it isn’t that consumers don’t care about privacy. But the cost of making non-sensitive information inaccessible is that it becomes harder for businesses to reach consumers with messages that both sides want to exchange. There ought to be a good reason to interfere with that sort of transaction, beyond the FTC imagining an injury consumers themselves don’t feel.

The FTC was established for good reason, back in the days when “caveat emptor” was the marketplace’s guiding principle. By this point, however, the FTC could benefit by considering another principle, like “no harm, no foul.”

About Larry M. Elkin 525 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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