Legal and Regulatory Implications

Data protection regulations worldwide now mandate specific security measures for password storage. The European Union's General Data Protection Regulation (GDPR) requires organizations to implement "appropriate technical and organisational measures" to ensure data security. While not prescribing specific algorithms, GDPR's emphasis on privacy by design and security by default effectively requires modern password hashing techniques. Violations can result in fines up to 4% of annual global turnover or €20 million, whichever is higher.

Industry-specific regulations add additional requirements. The Payment Card Industry Data Security Standard (PCI DSS) explicitly requires strong cryptography for authentication credentials. Healthcare organizations under HIPAA must implement access controls that include proper password management. Financial services face stringent requirements under regulations like SOX and Basel III. These overlapping regulatory requirements make proper password storage a compliance necessity across industries.

Liability for password breaches extends beyond regulatory fines to civil litigation. Class-action lawsuits following major breaches seek damages for identity theft, financial losses, and emotional distress. Courts increasingly hold organizations liable for using outdated or inadequate password storage methods. The Equifax breach resulted in a $700 million settlement, while Marriott faces billions in potential liability. These legal consequences underscore that proper password security is a fiduciary responsibility to users and shareholders.