Financial ‘Reform’ Imperils Consumer Privacy

There may be a number of reasons to oppose the financial services “reform” legislation passed recently by both houses of Congress and now headed to conference committee to work out differences — its length, its complexity and its many regulatory mechanisms.

One of the strongest grounds on which to cast a jaundiced eye toward this latest legislative initiative of the Obama administration, however, is its creation of privacy-invasive mechanisms through which the federal government will be able to monitor and direct every facet of personal consumer financing activity in the country.

Lurking within the more than 1,600 pages of the Restoring American Financial Stability Act are provisions that empower a new office to be set up (headed by a high-level presidential appointee) to gather “financial transaction data” on everything from the largest bank’s internal transaction sheets down to the daily withdrawals from a community bank’s local ATM. Another new agency will have jurisdiction to establish and enforce far-reaching measures to ensure that every “financial product or service” is “fair, transparent and competitive.”

In the pre-financial-services-meltdown-of-2008 era, the transparent and lawful operation of financial services was supposed to have been ensured through consistent and forceful enforcement of the myriad federal laws designed to uncover and thwart fraud, discrimination and other bad behavior by providers of financial services. Obviously, this paradigm failed us big time.

The solution proposed now by Congress is not to do what prior administrations failed to do — enforce the laws — but to create a massive new regulatory structure giving federal bureaucrats power to look over the shoulders of everyone in the financial services sector, from CEOs to bank tellers, to decide if the system is running “fairly” (whatever that means). These new regulators would be able to make changes to that system — under threat of subpoena and wide-ranging enforcement action — whenever they deem it necessary.

Fundamentally, this legislative road map is premised on the principle that the only way to ensure that the financial marketplace operates properly is to have it overseen at all levels by federal regulators.

Unfortunately, even if one accepts this premise and supports the regulatory mechanism incorporated into the legislation, the new powers granted the government to gather detailed data on consumer financial transactions go far beyond those necessary to correct the imbalances that led to the 2008 debacle.

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