Federal officials are weighing alternatives to a controversial bank-monitoring plan in response to mounting public concerns about privacy and far-reaching surveillance.
Over 51,000 irate Americans have condemned the Know Your Customer proposal in an unprecedented storm of email outrage that has regulators ducking for cover and contemplating less controversial approaches. Only 18 people endorsed the plan, and 8,700 opponents weighed in on Friday alone.
"We could write a policy statement that still gets a program in place, but takes into account comments," David Barr, a spokesman for the Federal Deposit Insurance Corporation, said Friday. Policy statements do not have the same force as an official regulation.
At a recent private meeting, officials from the FDIC, the Federal Reserve, the Office of Thrift Supervision, and the Office of the Comptroller of the Currency -- all have published identical rules -- considered how to respond.
"It was a preliminary meeting. The four agencies are getting together to discuss where we go after March 8," Barr said. Public comments are due no later than that date.
Another possibility being discussed was accomplishing the same goal in other ways. "[We could] just give bankers some guidance out there as to what a Know Your Customer program should entail. When our examiners come in to an institution, they'll look for a Know Your Customer program," Barr said.
The proposed regulations, which will take effect in April 2000 unless officials change their minds, requires banks to review every customer's "normal and expected transactions" and tip off the IRS and federal law enforcement agencies if the behavior is unusual. The government says the rules will stifle drug-related money laundering.
Critics of the plan say the possible modifications are still distressing. "You look at history and a lot of things that start with general guidance become firmed up into a regulation again. It's the camel's nose under the tent," said Richard Rahn, president of Novecon Financial and the author of The End of Money.
"I'd look at this as a typical temporary government back off, but they haven't gotten the fundamental point. The cost to banks will still be there. Bank examiners will give banks a real hard time if they don't have a program that complies," Rahn said.
