HOW CAN CONGRESS PROTECT THE PRIVACY OF FINANCIAL INFORMATION? LET'S END
'KNOW YOUR CUSTOMER'

When government regulators recently announced they were pulling the plug -
for now, at least - on plans to strip away the final facade of financial
privacy for all Americans, one can imagine they did so with a knowing smirk
on their face.

A smirk because they know what the average American does 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 being
reported as "suspicious" to the Internal Revenue Service, FBI, Drug
Enforcement Administration and other government agencies.

Those agencies, in turn, would be able to freeze accounts and seize assets -
essentially destroying a person's life with no probable cause and no warrant
- - 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 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."

Officially, anyway.

The financial regulatory agencies have for some time "recommended" that
banks have "Know Your Customer" procedures in place. In fact, the Bank
Secrecy Act Compliance Manual actually states that banks should have "Know
Your Customer" style policies in place.

Such "recommendations," while not required, are often perceived as unspoken
threats of the federal regulators. Banks rely on the regulators to give them
a clean bill of health or face shutdown. One person I know in the industry
said it is well understood that if a bank doesn't follow the
"recommendations," 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;
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, what its privacy policy
is, if it has a "Know Your Customer" program in place and how many times it
reports its customers as being "suspicious" to federal agencies.

I would suggest that anyone concerned about financial privacy send a letter
to his or her 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 its customers, it will change its
policies - after all, what good is volunteering to assist the government in
invading privacy if 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 or her, it is possible to find out what
records the bank is keeping, what is being done with them and how they use
or share that information.

The anti-privacy movement and bureaucracy were not created out of thin air.
Blame for the existing mechanisms for violating privacy falls squarely in
the lap of Congress. It is Congress that created the ill-advised laws and
agencies that have effectively eliminated Americans' constitutional right to
freedom from government search and seizure.

It is for this reason that I have introduced two important pieces of
legislation on this topic. The first is H.R. 518, the Bank Secrecy Sunset
Act. Nearly every regulation, rule and agency "recommendation" dealing with
financial privacy has its roots in the 1970 Bank Secrecy Act, a loosely
written measure from which regulators can claim almost any power. My
legislation requires that Congress either rewrite the 1970 law or devolve
those regulatory powers back to the states.

The second piece of legislation I have introduced is H.R. 517, the FinCEN
Public Accountability Act. Under current law, Americans are allowed to see
the FBI and other government files created on them, except files created by
the Financial Crimes Enforcement Network. My legislation simply allows
Americans to see what financial records (which could include everything from
credit reports to simple check transactions) the government has gathered, so
as to challenge erroneous information - an important safeguard against civil
asset
forfeiture abuses.

While public support is developing around both pieces of legislation, it is
going to take Members hearing from their constituents before they will be
willing to tackle the entrenched anti-privacy bureaucracies. But tackle them
Congress must, before our constituents - American taxpayers - wake up to
find our most basic rights mere relics of the past.

But until Congress acts to revoke the power of regulators to create invasive
rules and regulations, Americans should use the free market to get to know
their bankers and protect their own privacy.

Rep. Ron Paul (R-Texas) is a member of the Banking and Financial Services
Committee.

BANKING PRIVACY ACT PROTECTS CONSUMERS

Do you believe your banking transaction experiences are currently private
matters?

You may be surprised to learn that with certain exceptions, financial
institutions may legally share all of the information available about you
and your bank account activity with affiliated businesses or anyone else.

This shared information includes the amount of each check that you write, to
whom each check is written, the date of each check, the amount and date of
any deposits into your account and any outside information available,
such as information submitted on your initial application for an account.
Under existing law, financial institutions are not obligated to honor your
request to restrict the dissemination of this personal information.

I became interested in banking privacy laws after reading a letter on the
subject from a constituent upset about his bank's plans to share his private
financial records. I was shocked to learn of the stunning absence of
statuary protections of consumer privacy.

Suppose banks, insurance companies and securities firms become affiliated,
something that will occur more frequently in the future. Will a bank tip off
affiliated stock brokers every time their consumers have a sudden increase
in their bank account balance, causing the consumer to be subjected to even
more telemarketing calls?

Will banks "profile" their customers after reviewing their financial
information, then have affiliates telemarket products to those customers?

Will life insurance companies affiliated with banks review personal checking
records for indications of risky behavior, then increase rates based on that
information? Under current law, there is nothing to prevent these types of
situations.

As Congress moves to modernize the financial services industry and allow the
lines between banks, securities firms and insurance companies to blur,
financial institutions gain a new incentive to profit by sharing customers'
personal financial information. Customers who prefer to keep their financial
information private have no recourse.

As a member of the Banking and Financial Services Committee, I offered a
banking privacy amendment to H.R. 10, the Financial Modernization Act. Our
banking privacy amendment required financial institutions to disclose their
privacy policies and allowed customers the right to opt out of any plan to
share personal financial information.

The Inslee-Weygand banking privacy amendment was watered down in committee,
and language requiring only that financial institutions disclose their
privacy policies prevailed. The right of a customer to keep financial
records private was not addressed.

Though I support more stringent measures, such as putting the burden of
obtaining permission to share customers' financial information on financial
institutions, I feel a moderate proposal, such as my "opt-out" Banking
Privacy Act, is a reasonable step that is likely to garner wide support.

For these reasons I will shortly be introducing the Banking Privacy Act, in
order to give consumers the right to opt out of any information-sharing plan
conducted by their banks and financial institutions. I have been working
with consumer groups, the administration, banks, banking associations and my
colleagues to solicit their ideas and to obtain their feedback on this issue.

It is important to note that my legislation will not impact routine
transactions necessary to complete consumer initiated transactions, such as
processing a credit card transaction or applying for a home loan, nor will
it prevent banks from disclosing information when required to prevent fraud
or other abuses. It will give consumers control over their financial
activity and information.

Since I began speaking publicly about financial privacy matters, I have been
contacted by citizens of every political persuasion from all across the
United States. Regardless of their political stripe, they all agree that
customers should be able to tell their banks to keep private financial
information exactly what it should be - private.

The issue is simple: Who should control the information in your checking
account?

Financial privacy should not be sacrificed at the altar of financial
industry modernization. Americans have the right to freedom of speech and
freedom of religion, and we ought to have the right to freedom from prying
eyes into our personal financial business. Financial institutions should not
be allowed to share private financial
information without customer consent.

The Banking Privacy Act is a necessary and practical response to the erosion
of financial privacy and the potential explosion in cross-marketing among
affiliated financial institutions.

Rep. Jay Inslee (D-Wash.) is a member of the Banking and Financial Services
Committee.