Proposed Federal Data Breach Law Is Nice Gesture But No Panacea

On Jan. 12, President Obama gave a speech to the Federal Trade Commission (FTC) in which he proposed several new measures to better protect consumer privacy, including the Personal Data Notification and Protection Act. If passed, the Act would largely preempt existing state laws and require all companies across the country to inform consumers of a data breach within 30 days of discovery.

In his speech, Obama explained why he believes we need a single, federal breach notification law:

Right now, almost every state has a different law on this, and it’s confusing for consumers and it’s confusing for companies—and it’s costly, too, to have to comply to this patchwork of laws. Sometimes, folks don’t even find out their credit card information has been stolen until they see charges on their bill, and then it’s too late. 

Did states ecstatically embrace the idea of a sweeping federal law to replace the 47 state laws currently in place? Not exactly. Just two days after the president’s speech, Eric Schneiderman, New York’s attorney general, made an announcement, but it wasn’t in support of the federal bill. He said he was going to propose a state bill to expand New York’s existing breach notification laws.

Not exactly the vote of confidence the president wanted.

The question for businesses is what to do while the states and federal government debate the issue. The Personal Data Notification and Protection Act almost certainly won’t pass as written, but maybe another federal bill will. If it does, enterprises will have to be ready to comply with a new set of regulations. If no new federal bill passes, businesses will still have to find a way to comply with existing federal regulations such as HIPAA and the Gramm-Leach-Bliley Act, plus the patchwork of 47 state laws that are themselves constantly evolving.

Regardless of what happens next, the most important thing security and compliance teams can do right now is to make sure your systems for assessing incidents and proving compliance are efficient, scalable, and flexible. If you’re sitting on the fence, hoping a federal law will pass, simplify the breach notification process, and eliminate the need to invest in stronger risk assessment solutions...you will be disappointed. What’s more, even if a federal bill passes, the breach notification process is going to continue to be complex and time-consuming. Maybe even more so.

Let’s look at just one reason. As currently written, the Personal Data Notification and Protection Act would require businesses to assess every electronic incident involving protected information (broadly defined), and report incidents that qualify as data breaches to the Federal Trade Commission within 30 days. Here’s the added complexity: the Act would also require businesses to report to the FTC every single incident that is not a breach—a requirement that would mean roughly 50 times more reporting than state laws require right now.

The immense increase in reporting requirements is just one example of the complexities that would be part of any new federal bill. Consider, for instance, whether the federal law will cover only electronic breaches or also paper breaches, both of which are common issues for businesses. The president’s proposed law leaves out paper breaches, but some states cover both paper and electronic breaches, so consumer advocates will no doubt fight to have any federal bill do the same (or let states provide that protection on top of the federal law).

That brings up one more major issue that you’ll see debated in the months ahead: whether or not the federal bill should preempt existing state laws. Over the years, we’ve seen proposed bills that would have preempted all state laws, no state laws, or only inconsistent state laws. We’ve also seen attempts that would have set the federal law as a floor instead of a ceiling, allowing state laws to continue where they offered greater protection for consumers. What’s important to note is that in every instance, the result would have been new and continuing compliance challenges for businesses.

[Read what other security professionals think about proposed cybersecurity legislation in President's Plan To Crack Down On Hacking Could Hurt Good Hackers]

I don’t have a crystal ball to tell you whether some version of a federal data breach notification law will pass this year, and if so, what its specific requirements will be. But I can tell you that even if a federal law passes, it will bring many new complexities and requirements, even as it perhaps smooths out some issues with the onerous state-by-state system now in place.

Rather than fretting over what Congress may or may not pass, the best thing businesses can do right now is join the public and politicians in prioritizing protection of consumer data privacy in 2015. For businesses, that means investing in security incident assessment and reporting solutions that can handle whatever the state and federal government throws your way.