A Compromise Proposed In Data Privacy Standoff

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. Many privacy advocates would prefer to see financial services companies prohibited from sharing customer information without prior consent, known as the "opt-in" approach.

"Privacy is rarely people's top-level concern until they've lost it," said Deirdre Mulligan, staff counsel at the Center for Democracy and Technology.

Still, the White House proposal sent shivers down industry backs.

"The consumer can take care of himself," said John J. Byrne, senior counsel at the American Bankers Association, which opposes all opt-in and opt-out remedies.

"Banks are already very regulated in the area of privacy," added Marcia Z. Sullivan, director of government relations at the Consumer Bankers Association.

Mr. Byrne and other industry representatives at the debate said letting businesses target products and services to those most likely to want them reduces junk mail and increases economic efficiency and productivity.

The ABA would prefer to educate consumers about their rights and criminalize specific privacy abuses, such as pretext calling and identity theft, he said.

A banker attending the debate criticized the administration's approach, comparing it to one said to have been expressed by a lawmaker years ago: "It's up to us to protect the 10% who are stupid from the 10% who are venal."

The administration's plan is modeled after legislation proposed by Rep. John J. LaFalce, D-N.Y., and Sen. Paul S. Sarbanes, D-Md.

Reps. Swire and Litan are co-authors of the recently published book, "None of Your Business: World Data Flows, Electronic Commerce, and the European Privacy Directive."

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