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.
[IMGCAP(1)]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.
For example, the new Bureau of Consumer Financial Protection would have the power to collect information on any “persons operating in consumer financial services markets.” Yes, that covers any individual consumer who has a bank account, uses an ATM, applies for a loan or buys a home with a mortgage. The enforcement powers of this new bureau extend not only nationally within the U.S., but internationally as well.
Another new office, the Office of Financial Research, will gather vast amounts of financial data from financial service institutions large and small alike to analyze and determine if America’s financial marketplace is operating according to the criteria determined by the directors of the new office. Like the Bureau of Consumer Financial Protection, OFR is granted strong enforcement power to ensure it is able to gather the data it wants.
While the legislation pays lip service to protecting the privacy of the information it thus collects, it offers little in the way of real protection. There are, for example, no real limits on which other regulatory or law enforcement agencies (such as the FBI) to which these two new offices could share a consumer’s personal financial data.
The joint House-Senate conference tasked with reconciling differences in the legislation will be headed by the measure’s strongest advocates — Senate Banking Chairman Chris Dodd (D-Conn.) and House Financial Services Chairman Barney Frank (D-Mass.). The only hope to stop or even limit the massive databasing of personal financial data that this legislation would permit is for privacy and other civil liberties groups to bring sufficient heat to bear on other conferees so they cannot ignore these extremely troublesome provisions.
Bob Barr is a former Republican Congressman from Georgia and former Libertarian candidate for president.