Academic journal article ABA Banking Journal

European Privacy "Setback" May Be Opportunity

Academic journal article ABA Banking Journal

European Privacy "Setback" May Be Opportunity

Article excerpt

IN JULY, THE EUROPEAN PARLIAment effectively rejected the agreement reached in March by the U.S. Department of Commerce and the European Commission (EC) creating "safe harbors." These safe harbors would have allowed U.S. multinationals to establish specialized departments or subsidiaries that will be certified as complying with the European Union Directive on Privacy. The European rejection, however, can be considered welcome news.

Under the safe harbor agreement, U.S. multinationals would have given European consumers notice about, and access to, any data collected, and choice if the information was given to third parties or used for any other purpose than that disclosed initially. Participating U.S. companies would accept the data-protection authority in one of the 15 EU countries; submit to similar U.S. privacy laws such as those covering videocassette rentals; subscribe to a self-regulatory organization that the EU certifies as having an adequate level of privacy protection and subject to oversight by the U.S. Federal Trade Commission (FTC); or refer all privacy disputes to a panel of European regulators. For the most part, Europeans reject any notion of self regulation and involvement of U.S. states in the process.

American financial services providers--whose own agreement is pending--may want to seize any renegotiation to take the offensive. Restrictions on the flow of information in a more information-oriented age may be the equivalent to tariffs between nations at the dawn of the last century. As a start, Americans (and Europeans) should evaluate the impact of a more restrictive privacy regime on financial modernization in Europe. The overwhelming characteristic in the European market has been the concentration of financial services in the hands of a few dominant players in each market. Even the development of accurate credit histories maintained by credit reporting agencies in the U.S., and taken for granted by U.S. consumers and policymakers, has been restricted. This has limited the growth of consumer credit and the ability of a new entrant to promote it.

Too-strict privacy rules restrict growth

Despite the claim that strict privacy laws engender confidence in banking systems, the largely self-policed U.S. system enjoys greater public confidence when measured on almost any score. In the United States, there are more than 23,000 financial services institutions. In Europe, there are fewer than 5,000. …

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