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Ralph Nader > In the Public Interest > Watchful Legislation Bypasses Privacy

Privacy is high on the list of rights Americans cherish. Now, the right to our privacy — like many of those rights we take for granted — is at risk.

Federal agencies, led by the Federal Reserve Board, have proposed a “Know Your Customer” regulation that would require banks to monitor their customers’ accounts, presumably for the purpose of spotting “unusual” transactions.

Our sources of income would be identified; our transactions would be tracked from month to month to establish a “normal” pattern. Profiles of our financial activity would be assembled. If our financial behavior were to suddenly deviate from this bank-determined profile, we could become the subject of a report to law enforcement officials.

This wholesale invasion of privacy is ostensibly designed to help law enforcement agencies better track criminal activity, specifically the “money laundering” of drug traffickers. Successful prosecution of drug merchants and money launderers are goals supported by an overwhelming majority of the American people.

But vigorous and successful law enforcement in a free country should not depend on wholesale draconian scrutiny of the financial life of tens of millions of American families and businesses.

The public is already up in arms over this legislation. Bankers are concerned that their reputations might be tarnished if they were forced to become “government spies” as part of the Know Your Customer program. As one Indiana banker put it, “America is supposed to be the land of the free … Know Your Customer is a classic example of what this country revolted against.”

And the worst is yet to come. An even bigger invasion of privacy is being cooked up in Congress as part of a big financial deregulation bill that is being packaged as “financial modernization.”

The bill — H.R. 10 — would allow banks, securities firms, insurance companies, and certain industrial corporations to form giant conglomerates. These financial behemoths would act as umbrella corporations for dozens of affiliates involved in everything from stock market transactions to health insurance.

Financial leaders lobbying for this legislation insist that these affiliates be allowed to exchange customer information freely among themselves in “cross-marketing” schemes. Such cross-marketing is the gold that the financial industry hopes to mine under the provisions of H.R. 10.

These newly created financial conglomerates will have unprecedented access to consumers’ most sensitive financial information: account balances, CD maturity dates, sources of deposits, medical histories, and detailed data on personal assets. And they’ll be able to share this information among themselves, use it as a sales tool, and in many cases, sell it to third parties.

“Financial modernization” has become a code phrase for “violation of privacy.”

Efforts by privacy groups and consumer organizations to sound the alarm about this invasion of privacy have been ignored in the House and Senate Banking Committees, which seem determined to enact H.R. 10 regardless of the cost.

The American Association of Retired Persons is concerned about what loss of privacy will mean in the lives of the nation’s senior citizens. In a letter to the Senate Banking Committee, AARP warned:


“It is clear that elderly Americans are among the most vulnerable to the complex and fundamental changes already occurring in this period of financial transformation — and they will be put at further risk by the financial mergers permitted by this proposed legislation if the issue of information privacy is not addressed.”

Unfortunately, federal regulators, members of Congress, and the financial industry are given little attention by the media as they craft these new regulations and laws. If Americans truly cherish their rights, they need to start paying attention to what goes on in the back rooms of Congress and the regulatory agencies, particularly regarding financial issues.

If you are concerned about your financial privacy, contact the Board of Governors of the Federal Reserve, 20th and C Streets N.W., Washington, D. C. 20551. (202) 452-3201; and members of Congress, U. S. Capitol, Washington, D. C. (202) 224-3121 (Senate) or (202) 225-3121 (House of Representatives).