```

[House Report 109-453]
[From the U.S. Government Publishing Office]

109th Congress                                            Rept. 109-453
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 3

======================================================================

 
                 FINANCIAL DATA PROTECTION ACT OF 2006

                                _______
                                

                  June 2, 2006.--Ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4127]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4127) to protect consumers by requiring 
reasonable security policies and procedures to protect 
computerized data containing personal information, and to 
provide for nationwide notice in the event of a security 
breach, having considered the same, report favorably thereon 
with amendments and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     3
Hearings.........................................................     3
Committee Consideration..........................................     3
Committee Votes..................................................     3
Committee Oversight Findings.....................................     3
Performance Goals and Objectives.................................     3
New Budget Authority, Entitlement Authority, and Tax Expenditures     3
Committee Cost Estimate..........................................     4
Congressional Budget Office Estimate.............................     4
Federal Mandates Statement.......................................     9
Advisory Committee Statement.....................................     9
Constitutional Authority Statement...............................     9
Applicability to Legislative Branch..............................     9
Section-by-Section Analysis of the Legislation...................     9
Changes in Existing Law Made by the Bill, as Reported............    10
Dissenting Views.................................................    11

                               AMENDMENT

  The amendments are as follows:
  Strike all after the enacting clause and insert the text of 
H.R. 3997, as reported by the Committee on Financial Services.
  Amend the title so as to read:

    A bill to amend the Fair Credit Reporting Act to provide 
for secure financial data, and for other purposes.

    For the full text of the amendment in the nature of a 
substitute adopted to H.R. 4127, see House Report 109-454, Part 
1, on H.R. 3997, the Financial Data Protection Act of 2006.

                          PURPOSE AND SUMMARY

    H.R. 4127, as referred to the Committee on Financial 
Services and as reported with the text of H.R. 3997, the 
Financial Data Protection Act, builds off of the data 
safeguards requirements and regulations of the Fair Credit 
Reporting Act (FCRA) and the Gramm-Leach-Bliley Act (GLBA). It 
requires certain entities that possess or maintain sensitive 
information about consumers to keep the information secure, 
investigate breaches of the information, and notify consumers 
of data security breaches.
    As amended, H.R. 4127 establishes the policy that consumer 
reporters have to protect the security and confidentiality of 
sensitive financial personal information. All consumer 
reporters are required to maintain reasonable policies and 
procedures to protect the security and confidentiality of their 
sensitive financial personal information relating to any 
consumer. Should a consumer reporter believe a breach has 
occurred, or is likely to occur, they are required to 
immediately investigate. If the potential breach of data 
security may result in harm or inconvenience to any consumer, 
then the consumer reporter is required to notify the U.S. 
Secret Service, appropriate regulator(s), and other consumer 
reporters in the transaction chain. If the potential breach may 
result in financial fraud against consumers causing harm or 
inconvenience, then the consumers must be notified through a 
uniform mailing. Consumer notification involving sensitive 
financial identity information must include an offer of free 
credit file monitoring for the consumer. Consumers who are 
victims of identity theft are also provided with the right to 
place a security freeze on their credit report.
    Notwithstanding the effective date in section 2(c), the 
requirements of H.R. 4127 shall apply immediately to any 
Executive agency (as defined in section 105 of title 5, United 
States Code), including the Veterans Administration, that 
determines on or after January 1, 2006, that a breach of data 
security has occurred, is likely to have occurred, or is 
unavoidable. Such requirements shall include the provisions 
relating to free credit monitoring, prompt notice to consumers, 
and data security safeguards as practicable, notwithstanding 
that the agency made its determination before the date of the 
enactment of this Act. Any relevant time periods contained in 
section 630 of the Fair Credit Reporting Act shall be applied 
with respect to any Executive agency to which such section is 
applicable as if the determination of the agency were made on 
the date of the enactment of this Act.

                  BACKGROUND AND NEED FOR LEGISLATION

    For further background information on H.R. 4127, see House 
Report 109-454, Part 1, on H.R. 3997, the Financial Data 
Protection Act of 2006.

                                HEARINGS

    No hearings were held on H.R. 4127 by the Committee on 
Financial Services.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
May 24, 2006, and ordered H.R. 4127 reported to the House as 
amended by a voice vote.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken with in conjunction with the 
consideration of this legislation. A motion by Mr. Oxley to 
report the bill to the House as amended with a favorable 
recommendation was agreed to by a voice vote. During the 
consideration of the bill, the following amendments were 
considered:
    An amendment in the nature of a substitute offered by Mr. 
Bachus, No. 1, consisting of the text of H.R. 3997 as reported 
by the Committee on Financial Services, was agreed to by a 
voice vote.
    An amendment offered by Ms. Hooley, No. 1(a), regarding the 
Veterans Administration data breach scope of application, was 
offered and withdrawn.

                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held hearings and made 
findings that are reflected in this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    As amended, H.R. 4127, the Financial Data Protection Act, 
would expand the data safeguards requirements of the Fair 
Credit Reporting Act (FCRA) and build off the implementation of 
safeguard and consumer notice provisions from the Gramm-Leach-
Bliley Act (GLBA) to establish uniform standards for all 
consumer reporters that possess or maintain sensitive financial 
account or identity information about consumers.

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act.

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  CONGRESSIONAL BUDGET OFFICE ESTIMATE

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                                      May 26, 2006.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4127, the 
Financial Data Protection Act of 2006.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact are Melissa Z. 
Petersen (for federal costs), Sarah Puro (for state and local 
costs), and Page Piper/Bach (for the impact on the private 
sector).
            Sincerely,
                                          Donald B. Marron,
                                                   Acting Director.
    Enclosure.

H.R. 4127--Financial Data Protection Act of 2006

    Summary: H.R. 4127 would require private companies with 
access to consumers' personal information to take certain 
precautions to safeguard that information. Private companies 
also would be required to notify consumers and certain 
authorities whenever there is a breach in the security of a 
consumer's personal information and to investigate and take 
steps to repair the breach. Under the bill, consumers would 
have the option of freezing their credit reports in the event 
of a threat to the security of their personal information. H.R. 
4127 would require the Federal Trade Commission (FTC) and other 
federal regulatory agencies to enforce the restrictions and 
requirements in the bill and to issue regulations related to 
the security of consumers' personal information.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing H.R. 4127 would cost less than 
$500,000 in 2006 and a total of $5 million over the 2006-2011 
period. Enacting the bill would not have a significant impact 
on direct spending or revenues.
    H.R. 4127 contains intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA); but CBO estimates that 
the aggregate cost of complying with those mandates would be 
small and would not exceed the threshold established in UMRA 
($64 million in 2006, adjusted annually for inflation).
    H.R. 4127 would impose private-sector mandates, as defined 
in UMRA, on financial institutions, employers, consumer credit-
reporting agencies and other entities that engage in assembling 
or evaluating consumer financial information using any means or 
facility of interstate commerce. While CBO cannot determine the 
total direct costs of complying with each mandate, the security 
standards and notification requirements in H.R. 4127 would 
impose compliance costs on a large number of private-sector 
entities. Based on this information, CBO estimates that the 
aggregate direct cost of mandates in the bill, could exceed the 
annual threshold established by UMRA for private-sector 
mandates ($128 million in 2006, adjusted annually for 
inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 4127 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

----------------------------------------------------------------------------------------------------------------
                                                                     By fiscal year, in millions of dollars--
                                                                 -----------------------------------------------
                                                                   2006    2007    2008    2009    2010    2011
----------------------------------------------------------------------------------------------------------------
                                CHANGES IN SPENDING SUBJECT TO APPROPRIATION \1\

Estimated Authorization Level...................................       *       1       1       1       1       1
Estimated Outlays...............................................       *       1       1       1       1       1
----------------------------------------------------------------------------------------------------------------
\1\ Enacting H.R. 4127 would also have small effects on direct spending and revenues, but those effects would be
  less than $500,000 a year.
Note.--* = less than $500,000.

    Basis of estimate: CBO estimates that implementing H.R. 
4127 would cost less than $500,000 in 2006 and about $5 million 
over the 2006-2011 period to issue regulations and enforce the 
bill's new provisions regarding the security of consumers' 
personal information. For this estimate, CBO assumes that the 
bill will be enacted before the end of 2006, that the estimated 
amounts will be appropriated for each year, and that outlays 
will follow historical spending patterns. Enacting the 
legislation would not have a significant effect on direct 
spending or revenues.

Spending subject to appropriation

    H.R. 4127 would require that private companies take certain 
steps to safeguard consumers' personal information. Private 
companies also would be required to investigate and remedy 
security breaches and to notify consumers and certain 
authorities in the event of a breach. Under the bill, consumers 
would have the option to freeze their credit reports in the 
event of a threat to the security of their personal 
information. The Federal Trade Commission, the Office of the 
Comptroller of the Currency (OCC), the Board of Governors of 
the Federal Reserve System, the Federal Deposit Insurance 
Corporation (FDIC), the Office of Thrift Supervision (OTS), the 
National Credit Union Administration (NCUA), the Securities and 
Exchange Commission (SEC), the Office of Federal Housing 
Enterprise Oversight (OFHEO), and the Federal Housing Finance 
(FHFB) would enforce the restrictions and requirements under 
the bill and create regulations related to the security of 
consumers' personal information.
    Based on information provided by the FTC, CBO estimates 
that implementing H.R. 4127 would cost less than $500,000 in 
2006 and $5 million over the 2006-2011 period for the FTC to 
develop and issue regulations and to enforce the bill's 
provisions related to information security. Those costs would 
be subject to the availability of appropriated funds. CBO 
estimates that implementing the bill would not have a 
significant impact on spending subject to appropriation for the 
other regulatory agencies.

Direct spending and revenues

    Enacting H.R. 4127 would affect direct spending and 
revenues because of provisions affecting financial regulatory 
agencies and civil penalties. CBO estimates that any such 
effects would not be significant.
    H.R. 4127 would require several financial regulatory 
agencies to enforce the regulations on the security of 
consumers' personal information as they apply to financial 
institutions: OCC, FDIC, the Federal Reserve, the NCUA, and 
OTS. Any additional direct spending by NCUA, OCC, and OTS to 
implement the bill would have no net budgetary impact because 
those agencies charge annual fees to cover all of their 
administrative expenses. In contrast, the FDIC's sources of 
income--primarily intragovernmental interest earnings and 
insurance premiums--do not change in tandem with its annual 
expenditures; as a result, any added costs would increase 
direct spending unless and until the FDIC raised insurance 
premiums to offset those expenses. Budgetary effects on the 
Federal Reserve are recorded as changes in revenues 
(governmental receipts).
    According to FDIC officials, enacting H.R. 4127 would not 
have a significant effect on their workload or budgets. For 
this estimate, CBO assumes that the FDIC would not assess 
additional premiums to cover the small costs associated with 
implementing this bill. Thus, CBO estimates that enacting this 
bill would increase direct spending and offsetting receipts of 
the NCUA, OTS, OCC, and FDIC by less than $500,000 a year. 
Based on information from the Federal Reserve, CBO estimates 
that enacting H.R. 4127 would reduce revenues by less than 
$500,000 a year.
    Enacting H.R. 4127 could increase federal revenues as a 
result of the collection of additional civil penalties assessed 
for violation of laws related to information security. 
Collections of civil penalties are recorded in the budget as 
revenues. CBO estimates, however, that any additional revenues 
that would result from enacting the bill would not be 
significant because of the relatively small number of cases 
likely to be involved.
    Estimated impact on state, local, and tribal governments: 
H.R. 4127 contains intergovernmental mandates as defined in 
UMRA because it would require state entities that regulate 
insurance to enforce certain administrative rules and would 
explicitly preempt laws in about 20 states that regulate the 
protection and use of certain personal data. Based on 
information from state and local governments and a review of 
current legal precedents, CBO expects that intergovernmental 
entities would not be required to comply with new data security 
and notification requirements contained in the bill. CBO 
estimates, therefore, that the aggregate cost to 
intergovernmental entities of complying with the mandates in 
the bill would be small and would not exceed the threshold 
established in UMRA ($64 million in 2006, adjusted annually for 
inflation).
    Estimated impact on the private sector: H.R. 4127 would 
impose private-sector mandates, as defined in UMRA, on 
financial institutions, employers, consumer credit-reporting 
agencies, and other entities that engage in assembling or 
evaluating consumer financial information using any means or 
facility of interstate commerce. Each entity would be required 
to protect ``sensitive financial personal information'' 
relating to any consumer against unauthorized access that is 
reasonably likely to result in harm or inconvenience and to 
provide notice to consumers of data security breaches. The 
legislation defines sensitive financial personal information as 
a combination of sensitive financial identity information 
(name, address, or phone number with Social Security number, 
driver's license number, or other personal identification 
information), or sensitive financial account information 
(financial account number with information allowing access to 
the account), or both.
    In addition, the bill would require the Secretary of the 
Treasury, the Federal Reserve System, the Federal Trade 
Commission, and certain other federal regulatory agencies to 
jointly develop standards and guidelines to implement data 
security safeguards. Because those standards and regulations 
have not been issued, CBO cannot determine the total direct 
costs of complying with those mandates, however, certain 
mandates in H.R. 4127 would impose compliance costs on a large 
number of private-sector entities. Based on this information, 
CBO estimates that the aggregate direct cost of the mandates 
could exceed the annual threshold established by UMRA for 
private-sector mandates ($128 million in 2006, adjusted 
annually for inflation).

Protection of sensitive financial personal information

    Section 2 would require certain private companies to 
implement and maintain reasonable measures to protect he 
security and confidentiality of sensitive financial personal 
information, including the proper disposal of such information. 
Such companies would include consumer reporting agencies, 
financial institutions, businesses, employers, and other 
entities that assemble or evaluate sensitive financial personal 
information using any means or facility of interstate commerce. 
The cost of this mandate would depend on both the number of 
covered entities and the average cost to an entity of complying 
with the mandates. According to industry sources, generally all 
consumer reporting entities have some measure of security in 
place. But because standards and regulations have not been 
issued, CBO does not have enough information to determine the 
incremental cost for such entities to comply with the mandate.

Notification of security breach

    Section 2 also would require certain private entities to 
comply with certain procedures for notifying the Secret 
Service, regulatory agencies, affected third parties, and 
consumers if a security breach involving sensitive financial 
personal information has occurred, is likely to have occurred, 
or is unavoidable. In addition, the bill would require consumer 
reporters to:
           Investigate any suspected breach of 
        security;
           Notify credit reporting agencies if the 
        breach affects 1,000 or more consumers;
           Take prompt and reasonable measures to 
        repair a breach of security and restore the integrity 
        of the security safeguards; and
           Delay the release of any security breach 
        notification if requested by law enforcement.
    If an entity becomes award that a security breach is 
reasonably likely to have occurred or is unavoidable, they 
would be required to provide a specific notification to any 
affected consumer. Any entity required to provide such 
notification also would be required to offer affected consumers 
free credit-file monitoring and identity-monitoring services 
for at least six months.
    The cost of this mandate depends on the number of security 
breaches that occur, the average number of persons affected by 
a breach, and the cost per person for notification and credit-
file monitoring. According to several industry sources, over 
100 security breaches involving sensitive information occurred 
in 2005, but generally only the largest of breaches are noticed 
and recorded. Nevertheless, available information suggests that 
security breaches are not rare. Although the cost to notify 
individuals and other entities in the event of a security 
breach may be small per person, the potentially large number of 
people in data systems maintained by some private companies 
would make the cost of notification and monitoring associated 
with one breach significant. Furthermore, certain companies do 
not maintain the mailing addresses of customers for whom they 
have name and credit card information. It would be costly for 
those entities to begin keeping that information. While the 
regulations regarding consumer notification have not been 
issued, CBO expects that the cost imposed on consumer reporting 
entities by the notification requirements could be large 
relative to the annual threshold established by UMRA for 
private-sector mandates.

Credit report security freeze

    Section 2 also would allow consumers who have been the 
victim of identity theft to place a security freeze on their 
credit report by making a request to a consumer credit-
reporting agency. The consumer reporting agency would be 
prevented from releasing the credit report to any third parties 
without a prior express authorization from the consumer. The 
agency also would be required to send a written confirmation of 
the security freeze to the consumer within 10 business days and 
provide a unique personal identification number or password to 
be used to authorize the release of any reports. According to 
industry sources, the major credit-reporting agencies currently 
provide a security freeze for consumers and have the systems 
and procedures in place to accept, impose, and release freezes 
on credit reports. Therefore, CBO expects that the incremental 
cost to comply with this mandate would be minimal.
    Previous CBO estimates: CBO has provided cost estimates for 
six pieces of legislation that deal with identity theft or the 
safeguarding of personal information. Some have different 
provisions, but all of the pieces of legislation would require 
private companies and the government to take certain 
precautions to safeguard personal information. The cost 
estimates reflect those differences.
           On May 26, 2006, CBO transmitted a cost 
        estimate for H.R. 3997, the Data Accountability and 
        Trust Act (DATA), as ordered reported by the House 
        Committee on Energy and Commerce on May 24, 2006.
           On April 19, 2006, CBO transmitted a cost 
        estimate for S. 1789, the Personal Data Privacy and 
        Security Act of 2005, as reported by the Senate 
        Committee on the Judiciary on November 17, 2005.
           On April 6, 2006, CBO transmitted a cost 
        estimate for H.R. 4127, the Data Accountability and 
        Trust Act, as ordered reported by the House Committee 
        on Energy and Commerce on March 29, 2006, with a 
        subsequent amendment provided by the committee on April 
        4, 2006.
           On March 30, 2006, CBO transmitted a cost 
        estimate for H.R. 3997, the Financial Data Protection 
        Act, as ordered reported by the House Committee on 
        Financial Services on March 16, 2006.
           On March 10, 2006, CBO transmitted a cost 
        estimate for S. 1326, the Notification of Risk to 
        Personal Data Act, as ordered reported by the Senate 
        Committee on the Judiciary on October 20, 2005.
           On November 3, 2005, CBO transmitted a cost 
        estimate for S. 1408, the Identity Theft Protection 
        Act, as ordered reported by the Senate Committee on 
        Commerce, Science, and Transportation on July 28, 2005.
    Estimate prepared by: Federal Costs: Melissa Z. Petersen 
and Kathleen Gramp. Impact on State, Local, and Tribal 
Governments: Sarah Puro. Impact on the Private Sector: Paige 
Piper/Bach.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   CONSTITUTIONAL AUTHORITY STATEMENT

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

    For a section-by-section analysis of H.R. 4127, see House 
Report 109-454, Part 1, on H.R. 3997, the Financial Data 
Protection Act of 2006.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    The bill was referred to this commitee for consideration of 
such provisions of the bill and amendment as fall within the 
jurisdiction of this committee pursuant to clause 1(g) of rule 
X of the Rules of the House of Representatives. The changes 
made to existing law by the amendment reported by this 
committee are shown in the report filed on May 4, 2006 (Rept. 
109-454, Part 1).

                      DISSENTING VIEWS OF RON PAUL

    Since the version of H.R. 4127, The Data Accountability and 
Trust Act, reported out of this Committee, is identical to H.R. 
3997, the Financial Data Protection Act, I am resubmitting my 
dissenting views on H.R. 3997:
    H.R. 3997, The Financial Data Protection Act, is neither a 
constitutional nor an effective solution to the problems 
surrounding data security. In fact, H.R. 3997 may provide 
consumers with a lower level of protection than they could 
obtain in the market. H.R. 3997 also imposes new costs on small 
businesses that could deprive consumers of desired goods and 
services. Finally, but most importantly, H.R. 3997 exceeds the 
constitutional limits on Congress's power by dictating data 
security standards and procedures for every business in the 
nation and by preempting states' data security laws related to 
data security.
    H.R. 3997 mandates that every business in the nation 
maintain ``reasonable policies and procedures'' to protect the 
security and confidentiality of its data. The bill also 
requires all businesses to notify consumers of data breaches 
that cause ``substantial harm or inconvenience'' to consumers.
    The drafters of H.R. 3997 believe that federal bureaucrats 
can craft regulations defining ``reasonable policies'' and 
``sustainable harm'' that will be both easily adaptable by 
every business and satisfy every consumer's demand for 
security. However, the authors of H.R. 3997 overlooked the fact 
that views differ regarding what is a ``reasonable'' policy or 
a ``substantial'' harm. Some consumers who have a higher 
tolerance of risk than others are willing to accept a greater 
chance of a data breach in exchange for other benefits, such as 
lower prices. Other consumers are willing to forgo certain 
benefits in exchange for greater protection than H.R. 3997 
provides.
    Businesses have different definitions of ``reasonable.'' 
What is ``reasonable'' security for Wal-Mart or amazon.com may 
be too costly for a small ``mom-and-pop'' business. Thus, by 
imposing a one-size-fits-all model on the country, H.R. 3997 
will make it cost prohibitive for some businesses to compete in 
certain markets. Driving businesses out of the market 
ultimately harms consumers who are deprived of goods and 
services.
    If Congress allowed the market to operate, consumers would 
have the ability to demand the amount, and type, of data 
protection that suits their needs, and businesses could use 
their data security polices as a means of attracting consumers. 
Each consumer could then pick the business that offers the 
combination of price, security, and other services that meets 
the individual's unique needs. Once a federal standard is 
imposed, most businesses will not devote time and effort to 
creating their own data security policies, especially 
considering it would violate federal law to adopt policies that 
conflict in any way with H.R. 3997 would be a violation of 
federal law.
    Similarly, H.R. 3997's preemption of state laws prohibits 
states from developing innovative ways to help consumers harmed 
by negligent failure to adequately protect their data. 
Proponents of H.R. 3997 claim that the differences among 
states' laws cause hardships on businesses and consumers that 
justify the federal government pre-empting state laws and 
imposing a one-size-fits-all regulatory framework. However, 
there are two flaws with this argument. First, differences 
among states' regulations in no way justify violating the Tenth 
Amendment prohibition on Congress legislating on issues, such 
as consumer protection, not explicitly placed under 
congressional jurisdiction in Article I, Section 8. In fact, 
one of the Founders' purposes in preserving state autonomy was 
to foster diversity among states' laws so the states can 
experiment to determine what laws best promote their citizens' 
interests.
    Second, states and businesses are quite capable of 
developing uniform standards without being forced to do so by 
the federal government. For example, the Uniform Commercial 
Code, which governs commercial contracts in most states, was 
drawn up by private attorneys and voluntarily adopted by the 
states. Similarly, many states have adopted the model law 
governing corporations without prodding from Congress. ``Model 
laws'' reflecting the experiences of the states and the people 
with a diversity of laws and regulations are bound to be 
superior to laws Washington imposes.
    H.R. 3997 appears on its surface to be a pro-consumer bill. 
However, it actually makes it more difficult, if not 
impossible, for consumers to obtain the data services they need 
or desire. H.R. 3997 also imposes costs on small business that 
will deprive consumers of desired goods and services. However, 
the main reason my colleagues should reject this bill is that 
Congress has no constitutional authority to dictate to every 
business in the nation the manner of protecting data security. 
Furthermore, the provisions of this bill preempting state laws 
blatantly violate the Tenth Amendment. I, therefore, urge my 
colleagues to reject this bill.

                                                          Ron Paul.

                                  

```