Shouldering costs at the center of junk e-mail debate
By Sarah Lai Stirland

Nobody likes junk mail. But the financial services industry is part of a group of lobbyists that is in the position of opening the virtual floodgates on consumers - and themselves - for the future flood of electronic junk e-mail, say privacy advocates.

As HR 718, yet another piece of junk-mail related legislation winds itself through Congress, the financial services industry is quietly maneuvering behind the scenes. Though initial press stories report that corporate America failed in its initial lobbying efforts to weaken the bill, privacy advocates say that corporations have managed to successfully shift of burden of bearing the costs of electronic direct marketing onto the infrastructure providers and - advertantly - consumers themselves.

Though the bill still has a long way to go before it becomes law, it appears that the financial services industry's lobbying efforts have met with some success after several amendments were made to HR 718 by the House Energy & Commerce committee at the end of March. For example, rather than requiring marketers to check with and negotiate with every Internet Service Provider before they send out unsolicited commercial bulk e-mails, Internet Service providers would now be required to contact the senders of the mail to prohibit them to stop sending the mails after having received junk e-mails, placing the burden and cost of action on the ISPs, the infrastructure providers.

The problem with this approach, say privacy advocates, is that few companies will likely have the resources to contact every single e-mail marketer and spammer.

Under the bill, junk e-mail, otherwise referred to as spam, is defined as unsolicited commercial e-mail sent from someone with no prior relationship with the recipient. The bill seeks to provide consumers with more control over the process and avoid receiving spam by imposing conditions on the practice of sending out bulk e-mails. This includes mandating a valid return e-mail address and providing consumers with the ability to choose not to receive the mail. It would also criminalize violations of these rules. The initial bill also sought to provide ISPs relief. ISPs have been complaining that they are the ones who have to pay for the costs of junk e-mail by having to set up filters and additional infrastructure to deal with the increased message traffic across their networks. A recent study released by the European Commission supports this view, pegging the cost of junk e-mail to subscribers and ISPs at 10 billion Euro, or around $9 billion worldwide. The ISPs contend that in opposing several provisions in the initial spam bill, direct marketers are getting what amounts to a $9 billion free-ride in infrastructure costs.

Financial service firms, including Bank of America, Merrill Lynch and Credit Suisse First Boston and the Securities Industry Association in a letter dated March 20 complained that having each individual ISP establish national spamming policies was problematic. In addition, the industry was concerned that HR 718 would open the floodgates to a host of lawsuits as the bill gave consumers and ISPs the right of action to sue companies that violated the proposed rules. The industry also complained that the federal bill would not override state law and would also make the industry have to deal with 50 different state laws on spamming. Currently there are around 18 state laws on spamming. It's unclear whether these laws are actually effective since the legal community has questioned their constitutionality in limiting interstate commerce. In addition, many ISPs already have spamming policies by subscribing to filters that aim to block spam.

Marketers' say that their bulk e-mail differ from spam because these e-mails are usually sent out to customers with whom companies already have relationships and often these messages give customers the option of not receiving the mail.

"Our key concern is that the bill as written could potentially curtail the ability of our member firms to engage in normal electronic communications with clients," said SIA spokesman Dan Michaelis. "We are working with committee staff both on the Judiciary committee and the Commerce committee to address some of those concerns. They've been very co-operative and hopefully some of our points will be made and the bill can be amended."

The financial services industry letter inadvertently sparked off a request to the Securities and Exchange Commission from Congressmen John D. Dingell and Edward J. Markey to investigate the financial services industry's e-mail marketing practices. Dingell is a ranking member of the Committee on Energy and Commerce and Markey is a ranking member of the subcommittee on Telecommunications and the Internet.

Among the questions posed by the Congressmen was how e-mails are categorized under the Gramm-Leach-Bliley Act and whether they are personal non-public information. The privacy provisions of Gramm Leach Bliley require financial services firms to disclose what information they share and sell with non-affiliated companies and to give their customers an opportunity to prevent their personal non-public information to be sold or shared without their explicit permission.

CAUCE's Everett-Church was also suspicious about the financial services' motives for wanting to change the provisions of the spam bill.

"Financial services firms are already so concerned with compliance here, with opt out requests - they already have an obligation to disclose and to track the choices they have with the customer and these are folks, if they're already sending mail to folks, they already have a relationship with them and they should have their choices respected by law. If they are opposed to HR 718, that tells me that they are interested in massive spam campaigns with people they don't have relationships with. That's the real complaint - they want to have a piece of that ad subsidy," he said.

Privacy advocates such as CAUCE contend that the bill needs to provide ISPs and consumers the right to sue violators of the bill's anti-spam provisions as an effective enforcement mechanism to give incentives to corporations not to violate the proposed rules. This has proved effective in laws relating to telemarketing and junk faxes, Everett -Church said.

Forrester Research predicts that marketers as a whole will send out more than 200 billion e-mails annually by 2004. Everett-Church says that another aspect of CAUCE's concerns is providing consumers more control over the coming deluge.

"It's when the legitimate companies get into this business and get into it with gusto that there are really going to be problems," he said.

One of the financial services' industry's goals is to cross-market their various subsidiaries' products to their existing client base to increase customer profitability. Industry analysts say that e-mail will be one of the key vehicles used for achieving this.

CAUCE proposes that marketers negotiate with ISPs before they send out bulk e-mails.

Others question the effectiveness of any law on spam.

"There's a million ways to get around [the rules,]" says Rodney Gould, director of privacy and security at Netcentives, an e-mail and loyalty marketing company in San Francisco.

A look at several cases litigated by the SEC over the years shows that spamming is indeed a problem for Netizens. It is a routine technique that cybercrooks use to perpetuate cyberfraud. Everett- Church points out that spamming doesn't just cost ISPs money. Several large corporations run their own mail servers and thus the issue of spam poses costs on the processing resources of large financial services firms as well.