Do Data Breach Notification Laws Work?
55 Pages Posted: 5 Aug 2022 Last revised: 30 Aug 2022
Date Written: August 30, 2022
Over 2.8 million Americans have reported being victims identify theft in recent years, costing the U.S. economy at least $13 billion in 2020. In response to this growing problem, all 50 states have enacted some form of data breach notification law in the past 20 years. Despite their prevalence, evaluating the efficacy of these laws remains elusive. This Article fills this gap, while further creating a new taxonomy to understand when these laws work and when they do not.
Legal scholars have generally treated data breach notification laws as doing just one thing—disclosing information to consumers. But this approach ignores rich variation: differences in disclosure requirements to regulators and credit monitoring agencies; varied mechanisms for public and private enforcement; and a range of thresholds that define how firms should assess the likelihood that a data breach will ultimately harm consumers.
This Article leverages the Federal Trade Commission’s Consumer Sentinel database to build a comprehensive dataset measuring identity theft report rates since 2000. Using staggered adoption synthetic control – a popular method for policy evaluation that has yet to be widely applied in empirical legal studies – this Article finds that whether identify theft laws work depends on which of these different strands of legal provisions are employed. In particular, while baseline disclosure requirements and private rights of action have small effects, requiring firms to notify state regulators reduces identity theft report rates by approximately 10%. And surprisingly, laws that fail to exclude low-risk breaches from reporting requirements are counterproductive, increasing identify theft report rates by 4%.
The Article ties together these results within a functional typology: namely, whether legal provisions (1) enable consumer mitigation of data breach harms, or (2) encourage organizations to invest in better data security. It explains how these results and typology provide lessons for current federal and state proposals to expand or amend the scope of breach notification laws. A new federal law that simply mimics existing baseline requirements is unlikely to have an additional deterrent effect and may preempt further innovations. At the state level, introducing private rights of action may help at the margins, but likely suffers from well-identified issues of adequately establishing standing and damages. States that close loopholes surrounding breach requirements for encrypted data see lower identity-theft report rates, which suggests that other states may be wise to tighten these requirements as well. Looking forward, states should experiment with solutions such as automatically enrolling consumers in identity theft protection services or providing direct incentives for strong data security.
Keywords: Data breach, privacy, empirical legal studies, synthetic control
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