(At Mr. Morthland's request, the information referred to was inserted in the record at the close of his remarks. See page 238.)

Senator TUNNEY. You referred in your testimony to the fact that S. 3814 did not apply, or was unclear in its reference to authorization that is provided for

Mr. MORTHLAND. That is page 2, paragraph 2, sir.

Senator TUNNEY. Right.

Now, when guardians, executors, and administrators are appointed by the court, aren't they then deemed to be "account holders" under S. 3814 at that point in time?

Mr. MORTHLAND. This was simply a question of draftsmanship and an attempt to clear up any confusion or misunderstanding as to what was intended. It was not an objection.

Senator TUNNEY. I see. It can, I am sure, be cleared up. In drafting the bill I assumed that such persons would be "account holders" once they were appointed by the court as guardians or executors.

Mr. MORTLAND. They would from that point on.

Senator TUNNEY. Thank you very much.

Senator SPARKMAN. Thank you very much. We appreciate your testimony. Where did you get your Ph. D.?

Mr. MORTHLAND. From the University of Chicago, but I got my M.A. and B.A. at UCLA.

(The full prepared statement of Mr. Morthland, and the additional material referred to, follow :)

STATEMENT BY REX J. MORTHLAND ON BEHALF OF THE AMERICAN BANKERS

ASSOCIATION

Mr. Chairman and members of the Subcommittee, I am Rex J. Morthland, Chairman of the Board, The Peoples Bank and Trust Company of Selma, Alabama. I am appearing here this morning on behalf of the more than 13,000 banks that belong to The American Bankers Association. We appreciate this opportunity to express our views on S. 3814 and S. 3828.

We concur with the aims of the Congress-written into P.L. 91-508-to assist law enforcement agencies by requiring banks and other financial institutions to maintain records of bank transactions where such records have a high degree of usefulness in criminal, tax, and regulatory investigations.

We are equally anxious to preserve the individual's right of privacy and the confidential relationship between an individual and his bank-as S. 3814 and S. 3828 seek to do. We held this position throughout the legislative history of Public Law 91-508. During both House and Senate hearings, we pointed out the need to protect an individual's right of privacy in his confidential relationship with his bank. Excerpts from our previous testimony are attached as an appendix to this statement, and we request that they be inserted in the record. I would like to call to your attention particularly the statement of our witness before your Subcommittee which appears on page 227 of your hearings as follows:

"Information made available to law enforcement agencies from bank records should be confined to the records of those persons who are subject to active investigations and only in response to subpoena or comparable legal process. This would protect the rights of the individual and the responsibility of the financial institutions and would be consistent with long recognized principles of law."

The right to privacy in connection with one's financial transactions is an essential part of our American system of values and is protected by our Constitution and laws. We believe that the existing Act and Regulations raise the threat that the mere desire for information will tend to become the equivalent of the legitimate need to know. We are convinced the respect for privacy and assurance of confidentiality are essential to the reputation of any bank with its customers.

The very existence of detailed financial records creates a temptation to look at them. But, individuals' financial records must not be available for speculative exploration or fishing expeditions.

Among our members, there are thousands of smaller banks that receive demands for access to their records from large and powerful law enforcement agencies. Those records contain detailed financial information on most of the adults in this country, and they should be held in confidence. The nature of the banking industry should be considered carefully in any action that may be taken, and realistic guidelines provided to spell out clearly the procedures that must be followed by law enforcement agencies in seeking access to the records of bank customers.

Both measures being considered by the Subcommittee today are obviously designed and intended to protect an individual's banking privacy. They would do so by imposing legislative safeguards against unwarranted dissemination of information by financial institutions to agencies of the United States Government under Public Law 91-508 and the implementing regulations issued thereunder by the Secretary of the Treasury. However, both of these bills may raise some questions of construction in relation to other laws which require further study. For example, it is far from clear what effect either of these bills would have on the carefully drafted procedures in the Internal Revenue Code for examining the records of banks relating to the transactions of taxpayers being investigated.

Moreover, we would call to the Committee's attention the fact that the prohibition on providing information to other persons, not Government agencies, may be so limited as to impede the proper carrying on of ordinary business. For instance, in S. 3814 authority is given to make records available to a surviving spouse or relative of a deceased account holder, while no authorization is provided for supplying such information to a guardian or committee for an incompetent or minor account holder or for the executor or administrator of a deceased account holder if the executor or administrator is not a surviving spouse or relative.

The prohibition on disclosure in S. 3828 is even more restrictive, requiring either specific consent from the customer or a court order. Questions might be raised under this limited authorization as to the supplying of information to bank service corporations, correspondent banks, or other data processing organizations preparing checking account statements and other information for bank customers.

In view of the existing controversy now surrounding both the Act and Regulations, bank customers and the public, as well as the banking industry, need clarification of the rules of availability of banking records and information.

The Congress has expressed its understanding and concern over the right to privacy problem. Government officials have stated that neither the Act nor the Treasury Regulations alter the procedures which law enforcement agencies should follow in order to gain access to bank records, and that access to inspect bank records will still require an administrative summons or judicial subpoena. Still, the fact is that such limitation is not expressly stated in the Act, except as to foreign transactions in Section 241 (b).

Accordingly, in light of recently initiated judicial proceedings in California and the District of Columbia, we believe that additional positive legislation is needed to assure the public that their bank records will not be available to Government agencies except under proper safeguards.

This could be accomplished by extending the language of present 241(b) to all provisions of Public Law 91-508 as follows:

"No person required to maintain records under Titles I through IV of this Act shall be required to produce or otherwise disclose the contents of the records except in compilance with a subpoena or summons duly authorized and issued or as may otherwise be required by law."

APPENDIX

In its testimony before this Committee in June of 1970 the ABA recognized the importance of both of these policies and urged upon the Committee that an additional provision be inserted in the bill to carry out the policy of protecting

83-436 0- -72- -16

bank customers against unreasonable search and seizures. I should like to read from the statement presented by C. Coleman McGehee, President of the First and Merchants National Bank, Richmond, Virginia, on behalf of the Association, appearing at pages 227-228 of the hearings on S. 3678 and H.R. 15073:

"In order to avoid any misunderstanding, let me repeat the statement made by the representative of The American Bankers Association to the House Banking and Currency Committee on H.R. 15073, namely, that The American Bankers Association and its members desire to cooperate to the maximum extent possible with law enforcement agencies.

"This Association and commercial banks generally are deeply interested in the apprehension of criminals and limitation of their activities both in this country and abroad. Banks are more directly concerned than most citizens because many of them have suffered heavy losses from criminal activities with resultant increases in costs to the entire banking industry. We too are concerned with the public interest aspect of the bill and desire to do everything in our power to protect that interest.

. . . Banks have an obligation to their customers to maintain the privacy of their personal financial affairs except in response to subpena or other regular legal process.

"Information made available to law enforcement agencies from bank records should be confined to the records of those persons who are subject to active investigation and only in response to subpena or comparable legal process. This would protect the rights of the individual and the responsibility of the financial institutions and would be consistent with long recognized principles of law.

"The maintenance of individual's right of privacy has also quite properly been a matter of concern to the Congress. This has been recognized in the report of the House Banking and Currency Committee on H.R. 15073 when it is stated that there is nothing in this bill which would make such records any more accessible to law enforcement officers much less anyone else, than they are now' and again, it must be emphasized that the records required to be maintained are accessible only through legal process.'

"Senator Bennett did raise a question earlier about the privacy aspect and we would like to recommend for your consideration that an additional section be included in the bill reading somewhat as follows:

"Access to Records. The records or evidence maintained by insured banks and other institutions pursuant to the provisions of this Act and the regulations issued thereunder shall be made available to law enforcement officers or other appropriate officials with respect to specific named individuals, pursuant to subpoena or other lawful process."

Your Committee, in its report on the bill, expressed complete agreement with the position of the ABA (Senate Report #91-1139) :

"Access by law enforcement officials to bank records required to be kept under this title (Title I) would, of course, be only pursuant to a subpoena or other lawful process as is presently the case. The legislation in no way authorizes unlimited expeditions into a bank's records on the part of law enforcement officials."

On March 9, 1970, in testimony before the House Banking and Currency Committee, our representative stated:

"Banks have an obligation to their customer to maintain the privacy of their personal financial affairs except in response to subpoena or other regular legal process.

"When action is taken on H.R. 15073, we urge that information made available to law enforcement agencies from bank records be confined to the records of those persons who are subject to active investigation and only in response to subpoena or comparable legal process. This would protect the rights of the individual and the responsibility of the financial institutions and would be consistent with long recognized principles of law."

The fact that Congress also recognized that only the need for the maintenance of certain additional reporting and recordkeeping requirements relating to certain financial transactions, but also the confidential nature of such records and the need for the continuation of the traditional guarantees against invasion of privacy is clearly evident from the legislative history of the Act. For example, the House Committee on Banking and Currency, in reporting H.R. 15073 to the House (Report No. 91-975) stated:

"It should be borne in mind that records to be maintained pursuant to the regulations of the Secretary of the Treasury will not be made automatically available for law enforcement purposes. They can only be obtained through existing legal processes.

"As has been pointed out, banks have wide experience with maintaining these records, and the banking industry has a creditable record of maintaining their confidentiality. There is nothing in this bill which would make such records any more accessible to law enforcement officers, much less anyone else, than they now are.

Similarly, the Senate Banking and Currency Committee in its report (Report #91-1139) on S. 3678 stated:

"Access by law enforcement officials to bank records required to be kept under this title (Title I) would, of course, be only pursuant to a subpoena or other lawful process as is presently the case. The legislation in no way authorizes unlimited expeditions into a bank's records on the part of law enforcement officials.

[Reprinted From Paton's Digest]

§19. DISCLOSURE OF CREDIT AND OTHER INFORMATION CONCERNING CUSTOMER While the law as to a bank's duty of secrecy to its customers is not clearly defined, its policy should be not to make disclosures of information concerning them without clear justification. Any liability would seem to be limited to nominal damages, unless actual financial injury is proved.1 Apparently a court in a proper case will enjoin a bank from such disclosure.1 It seems that a bank may disclose the balance in a drawer's account to a holder who presents a check overdrawing the account,2 and may answer an inquiry from another bank whether a check for a certain amount is good although the other bank held no such check and, as a result of the information, garnished the depositor's account.3

A bank officer can be compelled to testify relative to information concerning a customer, whether or not the bank is a party to the litigation. A bank is not required to give information concerning a customer to a public agency or officer unless required by court order, or by a statute authorizing the agency or officer to compel disclosure. Such a state statute can apparently be made applicable to a national bank. Apparently state banks have, in general, power to give credit information and the same rule should logically apply to national banks although there are some contrary statements by the authorities. It is generally held that a cashier has no authority merely by virtue of his office to give information as to the credit standing of the bank's customers, and that the bank is not responsible for his statements without proof of authority or unless the bank has profited by his action. The effect of an increasing bank practice of giving credit information upon such rule is not certain.o The test of the liability of a bank to a person furnished erroneous credit information is whether it used due care in obtaining and transmitting accurate information; it is generally held that the bank's lack of power to furnish such information would not relieve it from liability. Compensation to the bank apparently does not materially affect its liability.1o A form of disclaimer clause limiting the liability of the bank is included.11

For a discussion of the bank's liability to the customer to whom the information relates, see the chapter, Libel and Slander.

19:1. GENERALLY-What general policy should a bank adopt as to making disclosure of information concerning depositors? Please state what the courts have said as to the duty of secrecy owed by a bank to its depositors?

Opinion: A bank should, as a general policy, consider information received concerning its customers as confidential, which it should not disclose to others without clear justification. The courts have not clearly defined the law as to the duty of secrecy owed by a bank to its customers. In the absence of statute, even if a bank is liable in law to a customer because of disclosure of information, such liability would apparently be limited to nominal damages unless actual financial injury is proved. Apparently a bank can in a proper case be enjoined by a court from disclosing information concerning a customer.

Several legal theories can be advanced to support a bank's duty of secrecy to its customers. One theory is that there is a contractual duty not to disclose the information. Other theories independent of contractual duty are that the customer has a property right in information concerning him or that the information is confidential, somewhat similar to information given to an attorney or physician.

A leading case on the general problem of the confidential nature of information acquired by

a bank concerning a customer is Tournier v. National Provincial and Union Bank of England [1924] King's Bench 461 (reprinted, in part, in Aigler, Cases on Negotiable Paper and Banking, p. 109). In this English case the disclosure by a bank to a third person was that a customer was connected with bookmakers. This was a disclosure which would affect the customer's reputation and might injure him in his employment or business. Such a disclosure is quite different from the disclosure of other information such as the amount of a bank deposit or information concerning a loan from the bank, which the customer might consider as confidential, but the disclosure of which would not be injurious to reputation, employment, or business. Lord Justice Bankes held that there was a qualified contractual duty not to disclose information concerning the depositor which was acquired by the bank "in the character of banker." He said that:

...

the duty is a legal one arising out of contract, and that the duty is not absolute but qualified. It is not possible to frame any exhaustive definition of the duty. The most that can be done is to classify the qualification, and to indicate its limits...

It is very necessary to speak with caution on this question upon which there is no authority... The privilege of non-disclosure to which a client or a customer is entitled may vary according to the exact nature of the relationship between the client or the customer and the person on whom the duty rests. It need not be the same in the case of the counsel the solicitor, the doctor, and the banker, though the