This article was originally published in Real Clear Markets
Americans' aversion to being watched, tracked, and tagged is currently playing out in the raging debates over online privacy. While Americans fight to keep some things private, a new government agency with broad monitoring abilities over financial transactions is beginning to take shape. Consumers have the ability to walk away from online companies that want their information, but the Office of Financial Research offers no opt-outs. We should not let the agency's harmless-sounding mission - collecting information, conducting research, and analyzing data in the name of financial stability - fool us.
The OFR has very broad powers and very little accountability, which could cause it to compromise our financial privacy without enhancing our financial stability. The OFR will be able to use its nebulously defined powers and supercomputers to collect any information it wants. The OFR may decide that it needs to monitor the transfers that we make among bank accounts, the type of insurance we are buying, our ATM withdrawals, and the rate at which we are paying off our credit card debt and car loans. The only limit on this power is the self-restraint of the director, who has "sole discretion" over how to do his job. He has to consult with other regulators, but does not have to follow their advice.
The OFR shares many structural flaws with another powerful and unaccountable Dodd-Frank agency, the Bureau of Consumer Financial Protection (CFPB). Congress should take both agencies back to the drawing board for an overhaul that preserves their core missions, but makes them accountable to the American people.
As they are structured now, neither the OFR nor the CFPB has to answer to anyone, including the agencies within which they are housed. A single director, rather than a politically balanced board, heads both regulators. These directors serve longer terms than the President who appoints them - six years for the OFR and five years for the Bureau. Dodd-Frank limits the President's ability to remove the CFPB director, and does not give the President the power to remove the OFR director for any reason at all. Both agencies' budgets are free from oversight by Congressional appropriators and essentially within the sole discretion of the director. Neither is bound by the constraints of the usual government pay-scale. Both agencies have subpoena power. Finally, Dodd-Frank grants both agencies broad powers through ambiguous statutory wording that allows lots of room for creative interpretation.
What's worse, the OFR won't necessarily keep the information it collects close to the vest. Dodd-Frank specifically authorizes the agency to disseminate that information to, among others, "financial industry participants" and "the general public." The statute affords a small measure of protection to "business confidential information," but there is no prohibition on the sharing of personal information. Dodd-Frank does a better job of providing OFR employees with flexible work schedules and phased retirement than offering protection of the information the OFR collects.
The lack of attention being paid to this agency only makes it more likely that the OFR will take full advantage of its essentially unconstrained authority to the detriment of Americans' (and everyone else's too) financial privacy. There is nothing preventing an ambitious director from building it into an enormously powerful bureaucracy that monitors all of our financial transactions.
Even an OFR director who is temperate by nature will have an incentive to collect as much information as he can, lest later he be faulted for leaving the rock under which the next financial crisis is lurking unturned. Without meaningful statutory constraints, we can't take much comfort in the promise by the President's nominee to be Director of the OFR that he will be "extremely thoughtful and judicious" in deciding which data to collect and what to do with it. The OFR might soon know things about you that even Google does not know.