[digdigdag]

Instead of warning consumers, why not do what regulators do and, well, regulate? Here, you have entities storing unsecured funds and doing god knows what with it. In the interest of the public good, a just government and a conscientious regulatory body wouldn't busy itself warning anyone. Rather, they would be bringing down the hammer on these entities and making them an example of what happens to companies that try to destabilize the financial system.

[LapsangGuzzler]

> a just government and a conscientious regulatory body wouldn't busy itself warning anyone.

Regulatory bodies issue warnings all the time, that's one of the most essential functions of a government. Why? Because we don't like it when the government unilaterally acts on our behalf.

Warning people is also the cheapest option here, which matters in a society that is constantly obsessed with government spending. There are tons of bank-adjacent services out there (pay-day loans are just one example) and it would cost a fortune in legal fees to force everyone that holds cash for customers to register as a bank.

This way, consumers know the risks and businesses don't need to take on excessive regulatory burden. How is that a government failure?

[zzzeek]

> This way, consumers know the risks

going to guess most paypal / venmo users don't read the WSJ and likely missed "CFPB Director Rohit Chopra's Thursday statement"

even if 50% of paypal's users did, that means "the government" is servicing only those consumers that have lots of free time and motivation to be reading the business section. for those losers working 12 hour days who lose their money stored up in venmo someday, sucks for them!

nope, I like the regulation idea here.

[thephyber]

This regulator statement is getting echoed in Reuters, AP News, WaPo, Yahoo Finance, CNN, CNet, Fox Business, CNBC, CBS News, Money, Business Insider, etc.

This is exactly how popular law changes are announced as well. Do you argue that citizens/people should not be bothered to know the law?

For better or worse, US regulation's first line of defense against harm/scams is public information campaigning. It's not clear that the CFPB has any authority to regulate PayPal, Venmo, CashApp, etc for their current business practices. The specific alert described in the article is about helping consumers know the legal / financial differences between these convenient apps and regulated banks.

[zzzeek]

> Do you argue that citizens/people should not be bothered to know the law?

we're talking about global multinational corporations like Paypal, not individual citizens, who absolutely don't and should not be expected to know banking laws and regulations so would not know that "by the way, Paypal is not FDIC guaranteed and your money can go poof at any time". it's irresponsible to let a vastly profitable enterprise like Paypal take advantage of vulnerable people in this way (holding onto their money without all the inconvenience of making sure their holdings are insured). turning the discussion onto "what should be expected of individual citizens" is an attempt to change the subject.

[AnthonyMouse]

Banks are required to be FDIC insured because we want a place to exist where risk-averse people can store their money. So then they can go to a bank, put it in a CD and have an assurance that if the bank goes bust, they don't lose their savings.

The drawback of this system is that it's expensive. If you want to open a bank account, they're going to have some requirements, like having your paycheck direct deposited into it, or minimum deposit requirements etc. Or they'll charge you a fee. Somehow they have to make back that cost.

PayPal isn't a savings account. Its primary purpose is transferring money to other people. In normal use there should never be so much in the account that it should need to be insured. And not paying the regulatory overhead to be a bank is how they avoid the requirements banks impose to have an account.

There is no reason we can't have both. If you're risk-averse and you want an insured institution to hold your savings, you go to a bank. If you want to open an account just to transfer money, you go to a non-bank payment processor.

But now you're proposing to prohibit the latter thing and make everyone pay more for something even when they don't need it, instead of letting people choose when they do.

It's things like this that keep accumulating which cause the cost of living to go up faster than wages.

[thephyber]

I am but a lowly individual citizen and I knew that PayPal is a terrible company, is not a regulated bank, offers a sketchy product, has been known to freeze/close accounts for opaque reasons, somehow be able to freeze the deposits of the bank account attached to the PayPal account. PayPalSucks.com has been running since last millennium with lots of this info.

It is not a bank. People should know it is not a bank. Hence, banking regulators have no authority over it.

You are saying should, but you haven’t shown under what legal authority the regulator can. You seem to be. Making a philosophical argument.

[exeldapp]

I would argue that, yes, it is okay to expect your average person not to understand the law. Of course, it would be great if everyone understood everything (laws, in this case) but that's not feasible.

The FDIC being in place means the average consumer does not have to understand nor think about the economics of a bank, for example, that by depositing money into a bank you are a creditor to that bank.

[thephyber]

But your FDIC example is perfect. FDIC effectively regulates its member banks. But the end user still needs to know if the app/product they are using is protected by FDIC, which is the point of the CFPB announcement in the article. PayPal, Venmo, CashApp are not banks, are not regulated like banks, and are not member of FDIC (or NCUA).

So far I haven’t seen anyone in this HN thread bring up a valid action a US regulator could legally take that is stronger than this statement.

[sumedh]

> Do you argue that citizens/people should not be bothered to know the law?

Police Officers dont have to know the law yet we expect people to know the law.

[artificialLimbs]

It is a symptom of a sick society when there are too many laws. Could a person even feasibly read the corpus of federal, state, and local laws in their lifetime at this point? What percentage would understand it if they could?

Fortunately many judges consider intent and circumstances in their rulings, but not always and that's certainly not where we should place our bets.

[anonymouskimmer]

Most laws and regulations don't apply to everyone, they only apply to particular people and agencies. You really only need to know the ones that pertain to you. And while this is still a long list, behaving in a considerate manner works to avoid breaking many of them. For those with peculiar circumstances (such as owning a business or renting or selling property) there are specialists who can let you know in real time what your obligations are.

[thephyber]

I generally agree that it’s generally a terrible expectation for everyone to know the law and how it is interpreted. The book “3 Felonies a Day” covers this. But it is the law we live under and the law created by the people we elect. Don’t like it? Vote with intention.

Police officers are taught the Cliff Notes of the law during police academy, in order to earn an LEO license, and by attorneys that work with the police department. As much as I would like individual officers to known more about the law, let’s not pretend like they know as little as the average citizen about the law.

[skybrian]

They might see CNN, read Hacker News, or maybe see one of the many other news sources that repeat the CFPB's statement? [1]

But yeah, there are probably a lot of people who don't read news at all. I suppose this is what things like public service announcements and billboards are for.

[1] https://news.google.com/search?q=CFPB&hl=en-US&gl=US&ceid=US...

[sigstoat]

are citizens obligated to keep themselves informed of anything? what should we continue to permit when it might have some sort of negative consequence for the underinformed?

[kQq9oHeAz6wLLS]

And at what point do you let people suffer the consequences of remaining uninformed?

[bumby]

Not the same as govt failure, but possibly govt ineffectiveness. If all the govt did was warn, we may not have the mental bandwidth to process all that into rational actions. We rely on on institutions to act on our behalf to overcome this limitation. The question is really about where the risk threshold is that transitions their role from warning to regulating.

[LapsangGuzzler]

> If all the govt did was warn, we may not have the mental bandwidth to process all that into rational actions.

The government does not exist to make sure that you just get the right amount of information that you need so you aren't cognitively overburdened while they handle everything else for you behind the scenes. It's never worked that way.

> The question is really about where the risk threshold is that transitions their role from warning to regulating.

This came from CFPB, which exists primarily to warn against bad actors in the financial world. They're positioned to do this largely because the finance industry has repeatedly lobbied successfully to block effective regulation. To get around this, Elizabeth Warren created CFPB as an office explicitly to watch how the finance industry interacts with consumers post-2008. The fact that this warning even exists represents an improvement because CFPB was created exactly to do this. They do not have the power to declare who's a bank and who's not.

And to be clear, PayPal et al haven't committed any crimes here, CFPB is just pointing out that they're not insured as bank so you can't rely on the government bailing them out. CFPB sued Wells Fargo over the fraudulent account scandal, etc. They're more than capable of acting when crime has occurred. The problem (and this is the product of the finance industry understanding the game) is that a company failing isn't itself a crime. No bank execs went to prison over 2008 because they didn't commit any crimes as the legal system defines them. The best thing the government can do in so many cases is warn people not to be stupid with their money. They can't actually manage it for you.

[MereInterest]

> It's never worked that way.

Yes, it has. When the FDA was formed in 1906, it didn’t write memos to notify buyers about the state of the meat-packing industry, it banned them. When thalidomide was found to cause birth defects, it was banned.

When the Federal Reserve Act was passed, the result was not just a letter written to customers of specific banks. It brought specific changes on how banks may legally operate.

[WalterBright]

The purpose of the Fed was not to regulate banks, but to create a fiat money system instead of a gold reserve system. The purpose of a fiat money system is to enable the government to print money and spend it with wild abandon, resulting in endemic inflation, and has happened to every single fiat money system.

The Fed and the government will never admit this, however, which is why they blame inflation on:

1. speculators

2. profiteers

3. wage-price spiral

4. cost push

5. demand pull

6. Putin

7. Arab cartels

8. oil companies

and about anything else they can think of. Anything but the real reason.

[WalterBright]

One of the more astonishing pieces of propaganda coming from the Fed is the idea that 2% inflation is some sort of "good for the economy" thing. Astonishing in that people buy it hook, line and sinker.

What it is is a 2% annual tax on the economy. Even worse, your illusory inflation "gains" on assets then get taxed, too.

The only thing it is good for is the politicians.

[WalterBright]

"As we have repeatedly emphasized, maintenance of the gold Standard means that the stock of money must be whatever is necessary to balance international payments. On the other hand, the real bills criterion sets no effective limit to the quantity of money."

-- Monetary History of the United States, pg 191, Friedman

Endemic inflation set in the next year.

[anonymouskimmer]

> The purpose of

GP comment was writing about "the result" of, not "the purpose of".

[bumby]

I think the confusion between our points is that the GP was referring to the “govt” and not “CFPB”. The govt is a bigger umbrella that contains regulators, but that isn’t mutually exclusive with pointing out the CFPB can’t regulate.

Beyond that, the govt is a service organization. Those services run the gamut from physical security, to regulation, to providing information.

[Johnny555]

Because we don't like it when the government unilaterally acts on our behalf

We're not all libertarians and many of us believe that the government has a hand in promoting a well functioning society -- including regulating bank-like entities to be sure that they are a safe place to keep our cash.

While I know that Paypal isn't a bank, it's not at all obvious that my money is less safe stored in my Paypal account than in a bank and that if Paypal goes bankrupt tomorrow, I can lose whatever cash I have with them.

[ryandrake]

Exactly. If I had to pick only one job that I want the government to do, it would be coming down like a ton of bricks on companies that are behaving badly and profiting at the people’s expense.

Most of the problems in the USA right now can be root caused to “the rich and corporations running roughshod over everything and everyone.”

[katbyte]

> How is that a government failure

because the people with money there will call it that when they finally loose money, no matter how many warnings are issued.

[kmoser]

> Here, you have entities storing unsecured funds and doing god knows what with it.

Your first mistake is assuming that when you transfer, say, USD $500 into your Paypal (or Venmo or...) account, your Paypal account now holds USD $500. Rather, you are effectively exchanging USD $500 for Paypal bucks. When you transfer your Paypal bucks back out to a bank account, you are effectively purchasing fiat currency with your Paypal bucks.

That Paypal shows your balance in USD (or whatever currency you use) is misleading; it's similar to a mutual fund balance which shows the current value of your shares in USD. You don't actually own USD $500; you own 500 Paypal bucks which have a current theoretical value of USD $500, and are thus not subject to banking regulations.

I'm not saying this is good, or that it should be this way, but rather that's effectively how it works.

Now, can somebody tell me why banking regulations don't apply to my airline miles? After all, I've earned them and they are theoretically worth USD, so shouldn't they be protected?

[acdha]

If that were true, PayPal would be able to generate an easy profit by saying “PayPal bucks” are worth $0.80. They have the ethics to do that but they don’t because they do in fact keep their books in real currency and if you transfer $100 USD they have a legal obligation to give you that amount.

What it’s not is an FDIC insured bank, so if they make a huge mistake you’ll be one of millions of people making claims against whatever assets they have left.

[schoen]

> PayPal would be able to generate an easy profit by saying “PayPal bucks” are worth $0.80.

Though that would be extremely harmful to their ongoing business because it would make funds transfers have a phenomenally high overhead.

[jjav]

> if you transfer $100 USD they have a legal obligation to give you that amount

I don't think they have any legal obligation, given the large number of times they have decided to simply keep people's money and never return it for no discernible reason.

Sure, most of the time for most people you can get the money out just fine, but no guarantees with paypal (venmo, etc).

[acdha]

They wouldn’t need the terms of services clauses they’ve cited in those cases if they could just say “we have no obligation to give you the same amount as we received”.

[Alupis]

They already do this, just not for "friends & family". That's part of the hook to get so many people to sign up and use it, making it a huge value-add for businesses.

Any sort of business transaction pays fees, making $1 equal roughly $0.97.

[arcticbull]

Absolutely not, the balance is net of transaction fees and the fees are removed and segregated.

[Alupis]

This is a distinction without a difference.

The business sells a product for $100, and receives $97 for it...

[arcticbull]

You should review the money transmitter rules under which PayPal is regulated. They’re not the same as banks, they have a much narrower charter; but they are required to safeguard those dollars and that is what is represented in your account. There’s generally a small set of permitted investments that are intended to as closely as possible track dollars.

It doesn’t have a similar characteristic to a mutual fund balance, it’s closer to a money market fund.

[toast0]

> Now, can somebody tell me why banking regulations don't apply to my airline miles? After all, I've earned them and they are theoretically worth USD, so shouldn't they be protected?

Are airline miles theoretically worth USD? Afaik, they exchange for flights on a X points = Y class flight basis, not on a dollar basis. Yes, you can usually buy more miles for USD, but price to buy isn't price to sell.

[butlerm]

FDIC member banks are subject to regular and special assessments by law to pay for deposit insurance up to the legal limit for their depositors. Much like insurance premiums. I do not imagine that your airline pays for airline mile insurance on your behalf to anyone.

[toast0]

Sure, because they can devalue the miles. Welcome to our newest mileage program where now you need 2x the miles to get anything good.

[hurril]

This is true but it is also a distinction without meaningful difference. Transferring money from your account in Bank A to one i Bank B poses the same "problem." It's not Bank A bux to Bank B bux, it's $currency. But what actually happened is that an "excel sheet" in Bank A went from +$XXX,XX to +$(XXX,XX - 500) and the other's $(YYY,YY + 500); part of one bank's liability (their debt to you) was transferred onto another bank. Now Bank B owes you (at least) USD $500. Whether or not they see fit to make you whole that amount is akin to whether or not PayPal would.

Kicker: if it can't or doesn't want to pay you, that's a you problem.

[rasz]

Not in EU where Paypal was forced to become a bank.

[butlerm]

> Your first mistake is assuming that ... your...account now holds USD $500.

Same mistake with making an uninsured deposit at any bank. A deposit at a modern bank is just a possibly insured low or no interest loan to the bank. It does not mean that the bank actually has sufficient assets to back it up or can liquidate them in time. It is bank money exchangeable for U.S. currency, but not U.S. currency. A large number of mostly business depositors at three sizable banks almost found that out the hard way in the past few months. If the FDIC did not stretch the law those businesses might be getting cents on the dollar months if not years down the road.

[xg15]

Fun fact: PayPal's EU branch is in fact a bank: https://www.telegraph.co.uk/finance/markets/2808982/PayPal-b...

[nerdponx]

Maybe the problem is that they do not have jurisdiction to regulate these organizations, so the best they can do is issue warnings.

That or it's regulatory capture. Hard to say without knowing the details of relevant legislation and case law.

[kevin_thibedeau]

They really should force US Paypal to become a bank. Clearly that is workable for their European operations.

[chmod775]

PayPal is already a bank in Europe, so it should be workable indeed.

[thephyber]

"it should be workable" sounds suspiciously hand-wavy and sounds particularly naïve about law.

EU and countries in the EU bloc are governed by completely different laws than the US (and the constituent states).

This particular regulator (CFPB) is considered illegitimate by most Republicans (the bureau leadership has more independence from the Executive Branch than they would like) and is still fighting decade-long court cases to continue to exist. It's not clear how much actual authority this bureau has to force companies to do anything.

[dataflow]

For anyone curious: https://www.npr.org/2023/02/27/1159748990/supreme-court-cfpb

Decisions will likely come out in 2024.

[pharrington]

IANAL, but I am quite sure that is not how our country works. The closest legal possibility to what you're talking about is the government buying PayPal and turning it into a bank, but that's not happening anytime in the foreseeable future.

[babyshake]

At least require the apps to all have an option to automatically withdraw any funds sent to the balance, at least within excess of some marginal amount. Let them leave the option disabled by default, but at least it gives us a reasonable way of not needing to constantly remember to withdraw funds.

One additional benefit is it would put some pressure on the apps to offer practical incentives for users to maintain a balance instead of using the automatic withdraw option.

[cam_l]

PayPal does this already, no? or is this another weird US only thing.

[shri_krishna]

It is really easy to tackle this problem. Do what the RBI (Reserve Bank of India) did and create a policy whereby PayPal has to payout funds to customers attached bank account in 1 day. RBI banned PayPal from holding funds. And not just PayPal but Stripe and every payment processor out there (unless you are using a MOR then this rule currently does not apply). Since implementation of this rule, PayPal and Stripe are forced payout funds every day for all funds collected from customers throughout the day. They cannot hold any funds. Once payout is initiated, it may take 3-5 working days for the funds to be realized in the account (which I blame SWIFT for being so damn slow).

[lost_tourist]

We really have enough federal regulation on money to be honest. Just get your money out of venmo/cash app and put it into your bank account and there will be no worries.

[Mistletoe]

This is such a bizarre take to have in 2023 when we just had the 3 of the top 4 bank failures of all time. Yes they were fully backstopped by the FDIC (even though they shouldn't have been) because they were the first out the door. The FDIC can't back them all.

https://www.bankrate.com/banking/largest-bank-failures/

[retube]

What do you mean, "bring down the hammer" ?