The Hidden Costs of Automation: ChatGPT and Privacy Risk

Written by Aiden Smith

Artificial Intelligence has become increasingly prevalent in today’s world. With 5.6 billion monthly visits on ChatGPT alone, if you are not using AI, you are putting yourself at a huge disadvantage. When AI use shifts from consumers seeking cooking recipes to massive corporations wanting greater efficiency, that is when problems arise. ChatGPT shares users’ data with third-party service providers, potentially exposing private information to unauthorized parties. When private corporations like banks deal with clients' personal information, like Social Security numbers, credit card details, and addresses, so much is at stake. To compete in the market, these corporations are using ChatGPT to increase efficiency, which creates problems when ChatGPT’s servers are interconnected. Businesses purchase an advanced version of ChatGPT, yet their data is still stored on the same ChatGPT website used by everyday consumers. Since ChatGPT is a machine-learning system, it relies on large volumes of data, raising concerns about how user interactions may be stored, processed, or incorporated into model improvements. 

This problem primarily stems from a market dysfunction: there are few alternatives to this artificial intelligence that allows companies to privatize their data. Also, legislation regarding ChatGPT aims to enable machine-learning algorithms, which perform best when data is collected and stored. ChatGPT strives to improve and become more user-friendly, which, at times, is helpful; however, for banks and other corporations that primarily use it for data calculations, this is unnecessary and potentially harmful. 

This market failure is also largely due to the lack of information being displayed to the public. Consumers are not told the extent to which their data is actually being collected, which prevents them from making important decisions, such as switching to a bank that does not use ChatGPT. Ultimately, ChatGPT hides behind an opaque wall, leaving users unaware of what happens in the background, leading to these privacy concerns. 

Artificial intelligence is the future, and it would be extremely difficult to try to convince large corporations otherwise. Its use helps us be much more efficient in our daily and professional lives. That said, it is necessary for large corporations to implement AI to improve efficiency, but at what cost? Businesses are facing legal and operational consequences arising from the leakage of confidential information by ChatGPT. This is mainly a problem because consumers trust businesses with our data, and if any of them are breached, our private information can fall into the hands of hackers and identity thieves, ultimately harming many people’s lives. According to A Little History of Economics by Niall Kishtainy, economist Arthur Pigou argues that “markets often lead people to make choices that benefit them but have damaging side-effects on others,” which is the main problem with ChatGPT at this moment. People who store their confidential information in banks and businesses are facing the unintended side effect of ChatGPT’s poor legal compliance. Corporations are the ones using ChatGPT, and even if these consumers are not using it, they ultimately pay the price when confidential information is leaked and potentially sold.

What makes this externality more severe is that the harm is foreseeable rather than accidental, involves opaque and sometimes irreversible costs, and, most importantly, shows up in an environment of trust and high expectations. Unlike factories that pollute as a byproduct, corporations choose to use ChatGPT and actively enter sensitive data into it, despite its privacy risks. Furthermore, this externality is not like pollution, where we can work on cleaning it up; it is a blindside for consumers—within an instant, their entire identity and bank statements can be compromised. The only thing worse than a blindside, however, is when you trusted the person who pulled the trigger. People provide their sensitive information and money to large banks/businesses because we trust that they will keep it secure and provide excellent service. Due to ChatGPT’s legislation, this trust is broken, and consumers end up taking the biggest fall, potentially leading to severe distrust in many industries.

To address this market failure, Congress must step in and create a comprehensive federal data privacy and AI liability standards that hold AI developers and users legally responsible for the harms their systems foreseeably cause. Unlike the current laws, which leave corporations and consumers navigating an inconsistent maze of hidden obligations, federal legislation would establish uniform privacy rights and accountability. By demanding that lawmakers address these obligations, we can begin to internalize the social costs that current firms externalize and restore consumer trust and confidence in this new, digitalized economy.

Sources

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“Data Usage for Consumer Services FAQ.” OpenAI Help Center, Updated 14 Feb. 2026, help.openai.com/en/articles/7039943-data-usage-for-consumer-services-faq. Accessed 24 Feb. 2026. 

Drenik, Gary. “What Businesses Should Know About Data Privacy and AI — Younger Consumers Lead the Way.” Forbes, 15 Dec. 2023, www.forbes.com/sites/garydrenik/2023/12/15/what-businesses-should-know-about-data privacy-and-ai---younger-consumers-lead-the-way/. Accessed 25 Feb. 2026.

Duarte, Fabio. “Number of ChatGPT Users (January 2026).” Exploding Topics, 9 Feb. 2026, explodingtopics.com/blog/chatgpt-users. Accessed 24 Feb. 2026. 

Dunphy, Kurt. “Is ChatGPT Private? A Lawyer’s Guide to Securing Confidential Client Data.” Spellbook Legal, 27 Jan. 2026, www.spellbook.legal/learn/is-chatgpt-private. Accessed 24 Feb. 2026. 

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“Samsung Employees Allegedly Leak Proprietary Information via ChatGPT.” CSHub, www.cshub.com/data/news/iotw-samsung-employees-allegedly-leak-proprietary-informat ion-via-chatgpt?utm_source=chatgpt.com. Accessed 25 Feb. 2026.