September 29, 1999
Several months ago, the angry reaction of the American people
forced the government to withdraw its plan to require banks to make a
computer profile of all their customers, based on their deposits and
withdrawals, and report "suspicious" deviations. At least 254,000
letters poured into the Federal Deposit Insurance Corporation in
opposition to what was called "Know Your Customer."
At the time, we wondered why the 254,000 negative comments came
mostly from individuals and only a handful from banks that presumably
would find this requirement burdensome and costly. Now we know why.
Without any authorization from customer or government, many banks
have been selling personal customer financial information to
telemarketers who use it to peddle insurance, travel clubs, health
plans, and a host of other consumer products. In return for this
valuable information, some banks receive commissions on sales made by
Senator Richard Shelby (R-AL) flushed this issue out into the open
last week by urging that strong consumer privacy protections be written
into the big Financial Modernization bill (H.R. 10) that is now making
its way through Congress. As passed by the House, the bill would give
customers the right to "opt-out" of letting banks share information
with third parties.
But Shelby believes the American people deserve an "opt-in"
system. That would mean that banks would first have to get the
permission of their depositors before selling their personal
information to third parties.
Bank lobbyists immediately staged tantrums about this suggestion,
claiming they need the current system to prevent "fraud" and to
"compete in global markets." Bank lobbyists are so upset that they
threaten to withdraw support for the entire financial modernization
bill if an "opt-in" requirement is included.
Consumer groups claim that the real reason for this reaction is
that banks just don't want to give up the profits they've been making
by secretly selling customers' personal financial information. Banks
don't want to have to ask customers for permission because they doubt
that customers will give it, and that's probably correct.
The checks you write and receive, the invoices you pay, and the
investments you make reveal as much about you as a personal diary.
Some bankers shamelessly admit that they profile their customers so the
bank can advise telemarketers which products a customer might like.
But why should banks be able to make secret profits off of
customers' personal information such as deposits, checks, phone numbers
or credit card numbers? Many of us don't want to be solicited by any
One of the incidents that brought this secret banking practice to
public attention is the case of Albert Newman, age 79, of Washington
State who suddenly started getting mailings from an insurance company.
It turned out that Mr. Newman was a cryptographer during World War II,
and he deciphered the numbers on the mailing labels and traced them to
his local bank.
In another recent case (according to a report filed in U.S.
District Court in Los Angeles), a San Fernando Valley, California bank
sold 3.7 million credit card numbers compiled from its merchants'
accounts. The buyer ran up $45.7 million in bogus charges against
these credit cards before his fraud was discovered.
The most amazing thing about this case is that it's not clear that
the bank's sales are illegal!
Another problem involving banks revealing personal financial
information was caused by a new federal law designed to catch parents
who fail to pay child support. Financial institutions are now required
to help locate so-called deadbeat parents by searching their customer
databases every three months for matches against state-provided lists
of child-support delinquents.
If matches are found, the banks must turn over the names, account
balances and all other information to the state, which can then seize
the assets. But small banks and credit unions that can't afford the
technology or manpower to comply are using a provision in the law that
lets them simply hand over all confidential information on all their
customers, thus forcing the state to conduct the search for matches.
This is another shocking invasion of the personal privacy of law-
abiding Americans. Information about your spending habits should be
your property, not the bank's, and the overbearing demands of the law
enforcement lobby should not be allowed to override the rights of law-
In order to catch crooks and money launderers, the Bank Secrecy
Act of 1970 requires banks to send a Currency Transaction Report to the
government for every transaction involving more than $10,000 cash. The
inefficiency of the process is shown by the fact that, between 1987 and
1995, the snoopers sent 77 million Currency Transaction Reports to the
government but the bureaucrats failed to catch the $50,000
transmissions made by the Communists to CIA spy Aldrich Ames.
One of the worst aspects of all this snooping is that Congress has
prohibited financial institutions from telling their customers that the
bank spied on them and reported their transactions to the government.
Three cheers for Senator Shelby for speaking up for law-abiding
citizens' privacy rights in their personal financial information.