Q Is there a new law that allows my bank to ask me personal questions about my finances?
Although it is not yet law, the Know Your Customer legislation that is currently in its feedback stages could have an intrusive effect on your day-to-day dealings with the bank.
The current notice of proposed rulemaking states that the legislation: "would require each banking organization to develop a program designed to determine the identity of its customer; determine its customers' sources of funds; determine, understand and monitor the normal and expected transactions of its customers; and report appropriately any transactions of its customers that are determined to be suspicious..."
If the legislation were to pass, banks would keep detailed "customer profiles," that track every individual's deposits and withdrawals. Any "potentially suspicious activities" (such as an unexpected deposit) would require documentation to explain where the money came from. If a customer refused to cooperate, the transaction would not be completed.
For the independent businessperson (such as an owner-operator) whose income is erratic, this could translate into added paperwork with every bank deposit. The legislation also notes that business accounts will be watched "more in-depth" than personal accounts.
The Federal Deposit Insurance Corporation (FDIC) claims that the legislation will make it easier to recognize accounts used for money laundering, fraud, etc. Implementation would be required by April 1, 2000. Because the FDIC claims that effective Know Your Customer programs would vary from bank to bank (depending on factors such as the number of customers), each institution is responsible for formulating their own method of dealing with the requirement. So, no two Know Your Customer regulations would necessarily be alike.
Several grassroots efforts have sought to stamp out the Know Your Customer Legislation. Some banking officials claim that the resulting paperwork would require the addition of an entire department to their staff. The FDIC, in a Dec. 7 press release, said, "This proposed ‘Know Your Customer' regulation has generated a great deal of public interest in advance of today's publication."
The FDIC and other federal banking agencies have begun to solicit public comments on the proposed legislation. Input should be sent to: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th and Constitution Ave. N.W., Washington, D.C. 20551. Comments should refer to Docket R-1019, and must be received by March 8, 1999. LL