Federal Government Declares War on Financial Privacy

Has the federal government declared war financial privacy? The question is more than rhetorical. A variety of actions on the part of the federal government indicate that financial privacy is the last thing that it believes anyone has a right to. The latest indicator of this is a proposed IRS rule change that will allow your tax preparer to sell you tax data – all of your tax data – to the highest bidder and leave millions exposed to identity theft.

Under the new rule, your tax preparer would be aloud to ask you to sign a permission slip, allowing the sale of your data. While consumers would have the right to refuse, the change would open up a Pandora’s Box of abuse opportunities.

The data that would be sold could prove to be quite valuable to marketers, data brokers and identity thieves. Once signed, consumers would have absolutely no control over whom their tax preparer was selling their data to. And all of the data contained in a tax return could be included. This information includes Social Security Numbers, dates of birth and current contact information. For many taxpayers that file long returns, additional information such as brokerage accounts and bank account numbers are also included.

The opportunities for consumer abuse may be too large for some to resist. The rules change would make it simple for a tax preparer to "slip" the consumer consent form into a tax return. Consumers commonly hear the phrase "sign here" from their accountant and don’t think twice about signing.

It would only be a matter of time before this kind of behavior became the norm.

And if history is any indicator – and it usually is – other abuses would almost certainly occur. Among these would be forged permission slips; some by dishonest tax preparers and others by those filing a tax return using a stolen identity. Either of these could prove disastrous for unsuspecting victims because once the data is released, it can’t be recalled.

The proposal comes at a time that Congress is seriously considering weakening state laws on privacy and identity theft.

Last week HR 3997 erroneously named the Financial Data Protection Act passed out of the House Financial Services Committee for consideration by the full House on a 42 to 17 vote. The bill, which is commonly referred by privacy advocates as the "worst data breach notification law ever" has a nearly identical counterpart in the Senate.

In a nutshell, HR 3997 will set an extremely weak federal standard for corporate notification of consumers when their data is stolen. It will override stronger notification laws currently in place in 23 states. The law would also end all state laws that allow consumers to freeze their credit files. This is the only known way to prevent identity theft.

The most likely buyers of consumer data from tax preparers are the large data brokers. If the rule change takes place, it could actually happen at exactly the same time that HR 3997 becomes law; weakening the regulation of these same data brokers. The end result of such a rule change would inevitably be invasions of privacy, financial fraud and identity theft.

It should be pointed out that a wide variety of studies have shown that more than 9 out of ten consumers want stronger privacy laws.

The IRS will hold a hearing on the proposed change on April 4th in Washington, DC.

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