(Following is a letter sent by the author to Senators Dianne Feinstein and Barbara Boxer):

As the Senate prepares to vote on the current housing legislation, I would like to bring to your attention a dangerous hidden provision that will burden several innovative Bay Area companies and threaten the civil liberties of all Americans. Senators Christopher Dodd and Richard Shelby quietly attached to H.R. 3221 a sweeping amendment (S. Amdt. 4983) requiring pioneers in electronic commerce to collect, aggregate, and transmit details of every sale to the federal government.

Under this provision, creators of convenient technologies for exchanging funds electronically must store sensitive personal information from millions of small businesses. The bill targets major credit card providers and Internet startups alike. Over the next four years, alternative payment products such as eBay’s PayPal and Google Checkout are projected to serve 30 percent of a $355 billion e-commerce industry. To meet the demands of H.R. 3221, these services will not only incur high compliance costs, but could also needlessly subject their customers to the risk of identity theft.

Moreover, if Congress deters entrepreneurs from developing the future tools of e-commerce, it will stunt a major driving force for economic growth in California and nationwide. Unlike large corporations, technology startups cannot absorb the burdens imposed by H.R. 3221. These requirements will endanger numerous local firms working to revolutionize paperless commerce, including Sausalito-based mFoundry, Redwood City-based Obopay, and Sunnyvale-based m-Via. Internet startups such as these provide high-paying jobs for thousands of Californians. In addition, Congress could strike at the heart of the open Internet, crippling the advertising platforms that enable companies like Google to offer free and unfettered access to its services.

This provision also violates the civil liberties of every Internet user. In the aftermath of last week’s Foreign Intelligence Surveillance Act (FISA) compromise, many Americans are outraged that intelligence agencies can now secretly enlist phone companies to spy on citizens with impunity. By forcing companies such as PayPal to keep detailed records of every Internet transaction, the government is again employing private firms to do its bidding.

These companies have no business interest in retaining such information, yet H.R. 3221 compels them to construct vast databases of personal data for the government to tap at any time.

While the current proposal hands the government aggregate income data, nothing prevents a future administration from demanding detailed records about any customer’s online purchases. The Senate could act now to protect fundamental freedoms and prevent unlimited and unchecked data-mining of the Internet.

I hope you will consider the grave dangers inherent in this amendment.

Daniel R. Ballon is a Policy Fellow in Technology Studies at the Pacific Research Institute