Why SEC efforts to ‘Go Paperless’ warrant congressional action

It seems like every service these days is going “paperless,” with major telecom companies, utilities, credit card companies and insurers moving to make electronic billing the default.

Forcing customers to go electronic, however, can lead to missed statements and missed payments – which can result in lower credit scores and more. The National Consumer Law Center recently highlighted these electronic billing pitfalls and called on the Consumer Financial Protection Bureau to ban such company efforts to force customers to go paperless.

And while such private sector efforts are concerning, it is even more troubling when government agencies play the paperless game.

{mosads}In a new federal initiative currently being considered by the Securities and Exchange Commission (SEC), American investors are the latest targets of a paperless policy that kicks in without consent. The SEC’s “Investment Company Reporting Modernization Rule” (Rule 30e-3) would allow mutual funds to discontinue the mailing of shareholder reports and other important investment information to investors. Instead, shareholder reports would be posted on a fund’s website.

While the rule may have been intended to cut costs for mutual funds, the true price of Rule 30e-3 is decreased transparency and investor access to information.

The reality is that a significant portion of the population lacks regular Internet access. Studies by the Department of Commerce and Pew Research Center, for example, show that over 30 percent of all Americans still lack broadband. And the digital divide is even wider for seniors and minority Americans, as 41 percent of Americans over 65 years of age do not use the Internet at all, and nearly half of minority households lack regular Internet access.

Internet access isn’t the only big problem when it comes to taking investment materials paperless; another issue is the fact that citizens simply don’t want it.

Nearly 1,000 Americans have filed comments with the SEC specifically in response to Rule 30e-3, and 92 percent of them are in direct opposition. That fact should come as no surprise, when, according to SEC’s own study, 71 percent of American investors said they prefer to read annual reports in paper format rather than online versions, and a large number of respondents also asserted that printed materials yield higher content comprehension.

Many investors are also reluctant to switch from paper to e-delivery for security reasons. Currently, 30 percent of all investors don’t use the Internet for investment correspondence due to concerns about security.

While we applaud well-intentioned government efforts to save resources by giving Americans who are comfortable with electronic formats the ability to select them, there should be a balance ensuring that consumers can easily obtain information in a format that works for them. The SEC’s existing e-delivery consent process currently strikes that balance, as investors who prefer online reports can already choose to receive them electronically.

Consumer groups are keeping a watchful eye on Rule 30e-3, especially given that we don’t know when or how the SEC will act. In the meantime, we are calling on Congress to take action and ensure that this rule does not come to pass.

The American people have spoken: the SEC should not force investors to go paperless.

Sally Greenberg is the Executive Director of the National Consumers League and Linda Sherry is Director of National Priorities for Consumer Action.


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