Proposed data breach notification bill criticized as too weak

Proposed legislation that would require U.S. businesses to notify affected customers after data breaches is too weak because it would preempt stronger breach notification laws in several states and it wouldn’t cover several classes of data, including geolocation and health information, critics told lawmakers.

The proposed Data Security and Breach Notification Act covers only data linked to identity theft or financial fraud, including Social Security numbers, but would not require businesses and nonprofit groups to notify users if other information is stolen, said critics, including Democratic members of the House of Representatives Energy and Commerce Committee’s trade subcommittee.

The proposal would preempt 51 existing state and territorial breach notification laws, and would take away much of the U.S. Federal Communications Commission’s authority to enforce data security standards for telecom carriers, giving enforcement authority instead to the Federal Trade Commission.

“It would be better for [consumer] privacy to pass no bill than to pass this bill as currently drafted,” Laura Moy, senior policy council at the New America Foundation’s Open Technology Institute, said during a subcommittee hearing Wednesday.

The draft legislation, with its preemption of state laws, would “hamstring” state attorneys general in their efforts to protect consumers against data theft, added Sara Cable, assistant attorney general in Massachusetts. The bill “would set aside the robust consumer protections that already exist in Massachusetts and many other states and replace them with weaker protections at a time when stronger protections are imperative,” she said.

The bill also would require businesses and nonprofits to take “reasonable” data security measures, but it doesn’t define “reasonable,” Cable added. “The only way ‘reasonable’ can be determined under the bill, as drafted, will be through piecemeal, protracted litigation,” she said.

For the past decade, many businesses, including several tech vendors, have called on Congress to pass a national data breach notification law as a way to reduce compliance costs associated with many state laws. States began passing notification laws, beginning with California in 2003, after a wave of high-profile breaches.

U.S. lawmakers have introduced several breach notification bills over the past decade, but none have passed. The bills have gotten bogged down over several issues, including a debate over whether businesses should notify consumers if they determine there’s little risk of harm.

The proposed Data Security and Breach Notification Act focuses narrowly on consumer financial information in an attempt to avoid past hurdles, said Representative Peter Welch, a Vermont Democrat and a co-author of the draft bill.

Since 2005, 1 billion consumer records have been compromised, Welch said. “We need to pass legislation that’s going to deal with this incredible problem,” he added. “We have to act and let there be a cop on the beat to protect people.”

The push for a national law received a boost in January, when President Barack Obama voiced support for legislation.

While several lawmakers called on Congress to move forward with a bill, just one of seven witnesses at Wednesday’s hearing voiced support for the draft bill as written. The draft bill goes beyond breach notification by including “substantive” data security requirements,

said Jon Leibowitz, co-chairman of the 21st Century Privacy Coalition, an advocacy group supported by large telecom and cable firms.

By replacing the “ever-changing patchwork” of state laws, the bill would give consumers certainty that they’re protected in data breaches, added Leibowitz, a former FTC chairman. “Consumers in every part of the country are entitled to the same robust protections, and companies are entitled to a logical and coherent compliance regime,” he said.

Leibowitz also praised the bill for putting enforcement in the hands of the FTC. “This bill is better for consumers than current law,” he added.

Representatives of the National Retail Federation and the Information Technology Industry Council [ITI] raised concerns about parts of the draft bill, however. ITI supports a move toward federal data breach notification, but the bill could lead to too much notification because it requires breached businesses to send out notices for “economic harm,” which could be broadly defined, said Yael Weinman, vice president for global privacy policy at the tech trade group.

The bill allows the FTC to levy fines of up to US $2.5 million for each violation of its data security rules and $2.5 million for failing to provide notice to consumers. “These amounts appear punitive, and do not seem to reflect that an organization that suffered a data breach, in most cases, is a victim itself of criminal hackers,” Weinman said.

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