Both sides are correct. The FTC and state attorneys general help set the general requirements for privacy and data security, just as DPAs do in Europe. But another group is playing a role in the shaping of U.S. privacy and not always in a way that benefits society.
U.S. plaintiffs’ lawyers increasingly are focused on privacy law. Every week, we hear about another putative class-action lawsuit brought on behalf of large groups of customers or users. Unlike jurisdictions such as Europe, where class-action lawsuits are rare, the plaintiffs’ bar remains quite active in the U.S., even after the 2005 passage of class-action reform legislation and recent Supreme Court rulings that heighten class-action pleading requirements.
Many plaintiffs file privacy lawsuits to legitimately remediate privacy violations or data breaches. But the priorities of plaintiffs’ lawyers differ from those of independent government data protection authorities. Plaintiffs’ lawyers often focus on the statutes that maximize their monetary compensation. As Prof. Eric Goldman noted in an essay last year, “Just like privacy-invading companies, class-action lawyers often advance their own financial interests at the expense of the class members’ interests.” Indeed, some have argued that class-action lawsuits often lead to settlements that provide substantial attorney fees for plaintiffs’ counsel and very little for individual class members. These substantial fees and penalties also increase costs to businesses, which can lead to higher prices that ultimately do not benefit consumers. In some cases, these costs can drive a company out of business or influence its decision of whether to develop an otherwise useful and enterprising product or service.
Moreover, plaintiffs’ lawyers often sue under statutes that maximize payouts but do not necessarily address the privacy issues that are of greatest concern to Americans. And even when the statutes address legitimate privacy issues, the punishments—damages or settlements that reach into the eight figures—often are far greater than the actual harms caused to consumers. Put differently, the goals of some of these statutes may once have been laudable, and many still may be laudable, but their enforcement has become perverted in recent years. Among the common vehicles for such class-action lawsuits:
- California’s Song-Beverly Credit Card Act of 1971 prohibits merchants from requesting certain types of information from customers during credit card transactions. In recent years, both large and small merchants have faced large class-action suits merely because they requested consumers’ ZIP codes during a credit card transaction, even if this collection did not lead to identity theft or any other damage. It is unclear whether Americans are truly concerned about the collection of their ZIP codes during credit card transactions. And even if this presents a concern to some, there is a question of whether collection of this data has been so harmful as to justify seven-figure settlements.
- The Fair and Accurate Credit Transactions Act (FACTA) prohibits a merchant from printing the last five digits of a credit card number or the card’s expiration date on a receipt that is provided to the cardholder at the point of sale or transaction. The statute authorizes statutory damages of up to $1,000 per receipt, plus costs and punitive damages. Although FACTA is intended to reduce the risk of identity theft, the actual result has been a flood of lawsuits, often against small merchants who did not properly operate their credit card processing machine. And there has been little indication that violations of FACTA indeed have led to meaningful levels of identify theft or other harms. Additionally, putative class actions under FACTA typically exclude people who have experienced identity theft so that plaintiffs’ lawyers can avoid dealing with individualized issues that would defeat possible class certification. This results in class-actions brought on behalf of customers who simply received a noncompliant receipt without any resulting injury.
- The Telephone Consumer Protection Act allows plaintiffs to recover up to $500 for each violation of Federal Communications Commission (FCC) rules regarding prerecorded or autodialed commercial telemarketing calls or text messages to wireless phones without prior express written consent and notifying consumers in advance. (If the violation is knowing and willful, plaintiffs can recover up to three times as much). A company risks violating the rules by not including the exact notice language that is provided in FCC rules. Even a minor deviation from the rules that does not create any practical privacy risk or harm to consumers can expose a company to millions of dollars in damages. As Manatt, Phelps & Phillips attorney Becca J. Wahlquist wrote in a paper for the U.S. Chamber Institute for Legal Reform in October, “one promotional text message sent in minutes to 80,000 people who used cell phones to place earlier orders for services could lead to a class allegation that the company is liable for $40 million in statutory damages”.
- The Driver’s Privacy Protection Act allows plaintiffs to sue companies that have misused their drivers' records and obtain $2,500 in actual damages per violation, plus punitive damages and attorneys’ fees and costs. The statute contains exceptions for the uses that would most concern Americans—private investigators, employers and towing companies. But if a profession or industry did not convince Congress to carve out an exception when it passed the statute in 1994, its members can face significant liability for more legitimate uses. For example, many media outlets have devoted significant resources to fighting lawsuits arising from their use of drivers’ records to report emergencies or crimes.
- The Electronic Communications Privacy Act, enacted in 1986, is the primary federal law that restricts wiretaps and access to stored communications. Although Congress has since amended the statute, the law still relies on antiquated terms and distinctions that were developed before the emergence of the modern Internet and make little sense today. Not surprisingly, courts have issued widely divergent opinions in civil cases brought under the statute, creating great uncertainty among companies.
While European DPAs focus more broadly on hot-button issues such as government surveillance, U.S. plaintiffs’ lawyers tend to concentrate on these narrow, sectoral laws. And unlike DPAs, the FTC and state attorneys general, plaintiffs’ lawyers cannot provide well-intentioned companies with guidance that helps them comply with privacy laws going forward.
The U.S. privacy community should step back and question whether these should be the priorities for our privacy enforcement system and whether the outsized punishments that have emerged in recent years fit the alleged privacy violations that the statutes address. All of us—privacy attorneys, consumer groups, companies and regulators—must examine whether this model truly protects individual privacy, secures data and serves the best interests of society or merely benefits a select few.