- 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.
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- "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withdrawn," said John D. Hawke Jr., comptroller of the currency.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.
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- 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.
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- "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."
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- 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.
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- 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.
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- 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.
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- "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."
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- 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.
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- 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."
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- 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."
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- 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.
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- 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.
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- 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."
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- 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."
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