'Know Your Customer' Dies -
Bank Regulators Give In
By Patrice Hill
The Washington Times
Bank regulators said Thursday they will withdraw a controversial "know your customer" rule after being overwhelmed by more than 140,000 complaints that the rule is a massive invasion of privacy.
"The proposal should be promptly withdrawn," said John D. Hawke Jr., comptroller of the currency. He was sworn in last December just as the four federal banking agencies issued the proposal requiring banks to monitor their customers' accounts, keep customer profiles, and report "suspicious" activity to federal law enforcers.
While the rule was intended to help catch drug lords and other criminals who launder their money through banks, Mr. Hawke said it inadvertently undermined confidence in the banking system by violating the traditionally confidential relationship between banks and their customers.
"Law-abiding citizens ... will understandably be apprehensive that their banks will report any transactions that may be the least out of the ordinary," he said, and people may come to view banks as "an extension of the law enforcement apparatus."
A widespread loss of confidence in the privacy of bank accounts could lead to widespread withdrawals and "do lasting damage to our banking system," he told the House Judiciary Committee's subcommittee on commercial and administrative law.
The three other bank regulators also indicated at the hearing that they will kill the controversial rule as early as Monday, the deadline for airing comments on the proposal.
Christie Sciacca, associate director of the Federal Deposit Insurance Corp., said most of the 135,000 people who wrote the agency about the rule oppose it as an invasion of privacy, and several bills have been introduced in Congress to overturn it.
"The FDIC is listening and has received the message loud and clear," she said. "It is obvious to us that the proposal cannot become final."
The Federal Reserve appeared the most reluctant to concede the proposal was a mistake. Richard A. Small, an assistant director at the Fed, said that many banks already routinely monitor their customers' activities and even provide customer profiles to businesses for marketing purposes.
The "Know Your Customer" program "would be nothing more than formalizing existing procedures," he said. "For the majority of customers, we assumed that banks would find that they posed no or minimal risk."
But the Fed official said the public uproar over the proposal was "unprecedented" and he acknowledged that it "raises privacy concerns that also pose a real danger of eroding customer confidence in the institution at which they bank."
The rare withdrawal of a regulation by the nation's powerful banking agencies was prompted by the heated opposition of organizations as diverse as the American Civil Liberties Union, the Eagle Forum, the Free Congress Foundation and the Consumers Union.
Small business groups and community banks also opposed the rule because of the high costs of carrying it out. These groups set off alarms with their members and helped stir up the whirlwind of complaints.
The rule "forces banks to become agents of the police, spying and reporting on their own customers -- without ever obtaining a warrant," said Solveig Singleton of the libertarian Cato Institute. "It's an end run around our constitutional rights."
The rule "assumes that every bank customer is guilty until proven innocent," said Gregory T. Nojeim, legislative counsel for the ACLU. "A fifth-grader establishing a savings account for her allowance will have to worry that a generous cash gift from her grandparents may bring federal agents to her door."