April 12, 1999
Get to know your banker
Free-market economics can stop privacy invasion
When government regulators recently announced they were pulling the plug -- for now, at least -- on plans to strip away the financial privacy of all Americans, one can imagine they did so with a knowing smirk on their face.
A smirk because they knew what most Americans do not: most big banks already have "Know Your Customer" programs in place. The regulations by that name, proposed last December, would require banks to keep records on the spending and savings habits of every client, with any deviation at all being reported to the IRS, FBI, DEA and other government agencies as being "suspicious." Those agencies, in turn, would be able to freeze accounts and seize assets -- essentially destroying a person's life -- without there ever being a court order or proof of criminal wrongdoing.
The reality, though, is that many banks succumbed a long time ago and adopted these rules very quietly and "voluntarily." That is to say, they started doing these things before it was required because they assumed the agencies would get the regulations. Imagine the surprise when these banks (not to mention the regulators) found that a quarter-million people sent protests to the agencies, demanding the rules be pulled. I led a groundswell movement in Congress to stop them, and the "Know Your Customer" program was 'pulled from the shelf.'
The financial regulatory agencies have for some time "recommended" that banks have "Know Your Customer" procedures in place. Those "recommendations," while not required, are often perceived as an unspoken threat of the federal regulators. Banks rely on the regulators to give them a clean bill of health, or face shut down. One person I know in the industry said it is well understood that if a bank doesn't follow the "recommendations," then the agencies will make sure they find some mistake, somewhere, no matter how small, and earn them heavy fines. In other words: do what we want and bank examiners will go easy. Many banks have given in, though some have not.
The problem for both the big banks and the regulators, though, is the free market. Not every bank is participating in this privacy grab. But you can bet you won't see anyone advertise that they share every detail of your life with any federal agent who walks in the door. As a consumer, though, you do have a right to know what records your bank keeps on you, what is being done with them, and how they are being used.
I would suggest that anyone concerned about financial privacy send a letter to their bank, asking those questions and requesting a response in writing. If the bank does have these programs which are not required, the customer should demand that such files not be kept. If the bank gets enough pressure from their customers, they will change their policies -- after all, what good is volunteering to assist the government in invading privacy if their customers leave in favor of other institutions that will not?
While it is impossible for a customer to know exactly what kind of financial records are now maintained about him, it is possible to find out what records the bank is making and what is being done with them. I have introduced legislation, HR 517, the FinCEN Public Accountability Act, which would give Americans access to their files.
Until then, Americans should use the free market to get to know their banker, and protect their own privacy.