Financial Privacy is Under Fire (10:28)
Easy government access to financial data poses risks to everyone — not just those with something to hide.
Broadcast Retirement Network’s Jeffrey Snyder discusses the status of financial privacy and what actions lawmakers and citizens need to take to protect themselves with the Cato Institute’s Jennifer Schulp.
Jeffrey Snyder, Broadcast Retirement Network
This morning on BRN, financial privacy is under fire. Joining me now to discuss this, Jennifer Shulp is with the Cato Institute. Jennifer, so great to see you.
Thanks for joining us this morning.
Jennifer Schulp, Cato Institute
Thanks for having me on. Happy to be here.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. And look, you wrote a great op-ed piece in The Hill. And I think this is so topical.
How important in your mind is financial privacy, not just privacy, but financial privacy?
Jennifer Schulp, Cato Institute
Financial privacy is vitally important. What we spend our money on, who we give our money to, says so much about who we are, what we do and where we are at any given time. If you don’t have financial privacy, it’s really hard to say that you have privacy at all.
And that’s a really important thing to be able to protect. It’s been really something that we haven’t had in any significant fashion in the United States for more than 50 years at this point. And that’s a bad thing.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, I would agree. I don’t want my information out on the internet. I certainly don’t want other people knowing my financial status with the exception of if I’m going to buy a car, buy a house, et cetera.
I want to be able to direct that. In terms of, you mentioned the decline in privacy. Let’s talk about the federal government.
Who has the responsibility? What department or departments would typically have the responsibility for overseeing our financial privacy as citizens?
Jennifer Schulp, Cato Institute
This is one of the tricky spaces, which is why I think one of the reasons that financial privacy has been harder to come by is that there isn’t really a government agency that’s charged with protecting your privacy. We’re at the will of Congress or policymakers to make sure that they’re not crossing the line in taking a look at the information that we have. Unfortunately, Congress and policymakers have failed miserably at that, aided in part by the Supreme Court.
So we have a lot of parts of the federal government doing a bad job at protecting financial privacy. There really is not any bulwark against that, where an agency is charged with making sure that the government isn’t spying on you. In fact, it seems to work the other way a lot, where those agencies are charged with spying on you instead.
Jeffrey Snyder, Broadcast Retirement Network
Jennifer, we do so much digitally. None of these are sponsored, by the way, but Venmo, Zelle, we transact a lot of our business through credit cards, and we do the little tap. But those taps, there’s connectivity there.
That information, I don’t know if it’s flowing in the air in the gas station when I hit the pump, but it’s going somewhere. How do we step up as a country? You said you indicated, I’m going to paraphrase, that the federal government maybe hasn’t taken the bull by the horns.
We’ve lost a lot of our financial privacy. How do we get it back?
Jennifer Schulp, Cato Institute
Well, there’s a couple of places to start, and one of those is the exact thing that you raised, is the fact that we do everything digitally these days. Back when we had more financial privacy, we’ll take the 1970s, the beginning of the 1970s as an example for that. We paid for most things with cash, and you wrote the occasional check.
But when you paid with cash, your money went directly to someone, and it didn’t have an intermediary in between. It didn’t have your bank making a record of where that money was sent to. Well, in the 1970s, the Supreme Court considered several cases, and coming out of those cases, determined that anything that involved a third party, so if you had a transaction that ran through your bank, your bank is the third party.
You no longer had an expectation of privacy over the information that was shared with your bank. So that information was no longer really considered private. It wasn’t protected by the Fourth Amendment, which protects us from unreasonable government searches and seizures, and it wasn’t protected generally from other privacy protections because you don’t have any privacy over something you gave to someone else.
That’s become, I think it was a big problem in the 1970s when these cases were decided, but it’s become an even bigger problem over the years as we use intermediaries with our money more and more often. How often do you pay for something with cash?
Jeffrey Snyder, Broadcast Retirement Network
I do it pretty rarely. Never. I don’t want to let anybody know this, but I don’t carry any cash on me at all most of the time.
Maybe a little bit in a safe space.
Jennifer Schulp, Cato Institute
Yes, and you keep it just in case you need it. We almost do all of our finances digitally now, and that always involves an intermediary. So in the eyes of the government, that information is no longer subject to privacy protection.
It’s no longer subject to the Fourth Amendment. I think that’s wrongly decided by the Supreme Court, but whether or not the Supreme Court got it right, it’s also up to Congress to make sure that we’re not, Congress and the executive, to make sure that we’re not unduly intruding into people’s privacy, and that’s been happening. There’s a number of different laws, in effect, that essentially create this problem.
One of them is known as the Bank Secrecy Act, which has the government utilizing banks and other financial institutions to keep an eye on people’s finances, to make sure that they’re not doing anything suspicious in order to prevent money laundering or to prevent terrorism financing. That is an extreme intrusion on people’s financial privacy, and most people don’t have any rights as to the information that has to be given to the government by your bank. So your bank is generally always running your transactions through their process to determine whether or not you need to be reported to the federal government.
A lot of people don’t know about that, and they assume that the information that they share with their bank just by doing standard transactions is private. It’s not, and that’s a big failure.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, and co-equal branches of government, as you said, the executive and the legislature could step up and pass new laws. By the way, the Supreme Court could revisit some of their, and they’ve done this in the past where they revisited previous rulings. I want to ask you about cryptocurrency, because I don’t invest in cryptocurrency.
I don’t know much about cryptocurrency, other than I know there’s a tokenization that occurs. Supposedly, that’s encrypted at a level where it’s not transferable. But is there more privacy there, or do the same issues that we’re talking about, the Bank Secrecy Act, the intermediaries, the exclusion of the Fourth Amendment coverage, does that apply here to crypto assets as well?
Jennifer Schulp, Cato Institute
It can apply to crypto assets, and there’s ways in which it doesn’t apply to crypto assets. Crypto assets, at the beginning, just at a basic level, don’t themselves necessarily provide much more privacy than using dollars or cash or dollars through your bank, in part because the basics of cryptocurrencies utilize what are known as blockchains. One of the defining features of blockchains is the fact that they record everything.
If you’re using cryptocurrency, Bitcoin, for example, your identity might not necessarily be tied to the crypto, but some sort of pseudonymous identity is. Someone that understands how to read the blockchain and do the analytics on the blockchain can watch money move, crypto move from one wallet to another wallet to a vendor to moving on. Crypto, where it’s used through what we would think of as a centralized financial intermediary, something like Coinbase, or things that tend to look like exchanges or crypto banks, are subject to the same rules as regular banks, as money services businesses, or other types of financial institutions.
So they’re subject to the Bank Secrecy Act. But there are important ways in which crypto is not necessarily the same as using money through your bank. And that comes in terms of crypto being able to be used as a peer-to-peer, me-to-you way of transacting without using a bank.
And in those circumstances, there’s a lot of open questions about what level of government surveillance is required under current laws, and what is the right level of government surveillance going forward? These are hot topics, big questions, and they intersect along with questions about crypto that provides kind of heightened privacy, things like privacy coins or mixers that you might have heard about in the news. So there’s a lot of open questions about if crypto can provide more privacy when we’re talking about these peer-to-peer or decentralized interactions.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, well, your piece is certainly well-timed, especially since we have a presidential and legislature elections. So hopefully, we’ll be able to hear more about this. I know privacy is top of mind for many members of Congress and the executive branch.
So hopefully, financial privacy will follow suit as well. Jennifer, it’s so great to see you. Thanks so much for joining us.
And we look forward to having you back on the program again very soon. Thank you. And don’t forget to subscribe to our daily newsletter, The Morning Pulse, for all the news in one place.
Details at our website. Until tomorrow, I’m Jeff Snyder. Stay safe, keep on saving.
And don’t forget, roll with the changes.
