Legislation is needed, she added, because in many cases consumers don't know how much information is being collected about them and how easy it is to identify an individual using a couple of pieces of data.

Online companies can protect user privacy and still deliver useful services, Davidson added.

Privacy advocate Jeffrey Chester, executive director of the Center for Digital Democracy, called the TPI paper flawed. TPI's assertion that new privacy rules could cause major harm to online services is "an absurd, reductionistic, and intellectually-dishonest claim," Chester wrote on .

"Consumer privacy laws are required to ensure that our financial, health and other personal transactions online are conducted in a responsible manner," Chester added. Anyone -- or group -- who believes that we can’t have both privacy and a robust online marketplace is out of touch."