A federal data breach notification law is probably a bad idea, but not for all the reasons put forth in debates over legislation currently being considered by the U.S. Congress.
Economist Paul H. Rubin analyzes the costs and benefits to businesses and consumers of mandating disclosure of data breaches, in a paper for The Progress & Freedom Foundation. His analysis is representative of the typical objections to the bill before the Senate. The cost to consumers of identity theft, Rubin writes, is one tenth the cost businesses bear to remedy the fraud. He puts the expected cost per consumer at $50. Put aside Rubin's questionable assumption that the cost of a consumer's time is worth only $15 per hour. The $50 figure, which averages out certain costs to victims over the number of all consumers in the economy, downplays the real effects on consumers vs. businesses: That is, it's much easier for businesses to absorb their 90% share of the costs. An ID theft victim can be devastated for years, with trouble getting jobs, loans or leases. But a disclosure law won't help stop criminals, improve fraud detection or save consumers money.
Turns out that some businesses, such as Visa, advocate the legislation because it would preempt their liability under general tort law. Considering the general ineffectiveness of data breach notification, consumers are better off keeping their abilities to sue for damages.
— Jeanette Burriesci
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