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It is proposed to tackle the problem of password leakage of popular websites like Linked-In, Adobe, Gmail, Yahoo, eHarmony, etc. by using dynamic password policy and enhanced hash algorithm. Here, an algorithm is developed that will generate password policies dynamically depending on the frequency of characters. Time complexity is computed, and it is found that the algorithm works fast. Since the algorithm creates password policies dynamically, it will be tough for the attacker to guess the characteristics of the password database.