A Compromise Proposed in Data Privacy Standoff
Barancik, Scott, American Banker
Just days after the White House introduced a sweeping privacy proposal that could handcuff bank marketing practices, an economist has suggested a middle ground.
During a debate Monday, Robert E. Litan, director of economic studies at the Brookings Institution, said customers should be notified and allowed to opt out only when a bank plans to use personal transaction data for marketing purposes.
Under Mr. Litan's plan, banks would not have to alert customers about plans to share data for other reasons, such as to prevent fraud or provide more efficient service.
Mr. Litan said his limited opt-out plan would be inexpensive and would let banks continue to cross-market. History shows that very few consumers bother to opt out when given that choice, he said.
In return, Mr. Litan said, banks would gain the trust of their customers. He drew an analogy to a 1970s law that limited a credit card customer's liability for a stolen card to $50. After that law was passed, he said, credit card use skyrocketed.
Mr. Litan staked out some middle ground between President Clinton and the banking industry.
The administration's plan, unveiled May 4, would require banks to notify customers before selling or sharing financial transaction information, such as the names of payees written on customer checks. Banks would also have to give customers the opportunity to prevent the transfer, a procedure known as "opting out."
Peter Swire, the newly appointed White House privacy advocate, said that "individuals, to be free," should have some notice and choice about how their personal information is being used. Mr. Swire was among the panelists at the debate Monday, sponsored by the American Enterprise Institute.
The Clinton administration could have come down harder on banks. …