Don’t store cash in Venmo and PayPal, US regulator warns
cnn.com
cnn.com
That or it's regulatory capture. Hard to say without knowing the details of relevant legislation and case 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.
Decisions will likely come out in 2024.
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?
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.
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.
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.
GP comment was writing about "the result" of, not "the purpose of".
-- Monetary History of the United States, pg 191, Friedman
Endemic inflation set in the next year.
In that context, his statement is fine as a historical study but may not be suitable to model current economics.
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.
1. Constant 2% inflation at least doesn't have the negative effects of unpredictable inflation, its just a 2% tax.
2. Certain prices appear to be slightly sticky in that they don't go down, for example, wages are almost never cut in nominal terms, for psychological/cultural reasons- people tend to quit if their wages get cut. Slight inflation allows these to slowly decrease without running into the asymmetric price stickiness behavior.
What do you think?
Beyond that, the govt is a service organization. Those services run the gamut from physical security, to regulation, to providing information.
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.
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...
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.
Police Officers dont have to know the law yet we expect people to know the law.
Fortunately many judges consider intent and circumstances in their rulings, but not always and that's certainly not where we should place our bets.
Even if we assume that people not in the oil business don't need to know laws about oil wells and people not in the gaming industry don't need to know laws about casinos, there are still more laws that apply to everyday activity than the average person could feasibly understand. Good luck to anyone in avoiding the tax code.
Well, sometimes it would be. Spending thousands of dollars in preparation to do something you had no idea was illegal isn't going to get your money back even if it doesn't get you arrested.
But a warning isn't mandatory. Which turns "3 felonies a day" into the erasure of the rule of law, because then if you do something they don't like that isn't illegal, they can still throw you in jail just by sniffing around until they find something you're doing that is.
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.
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.
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.
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.
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.
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.
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.
Most of the problems in the USA right now can be root caused to “the rich and corporations running roughshod over everything and everyone.”
because the people with money there will call it that when they finally loose money, no matter how many warnings are issued.
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.
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?
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.
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.
Though that would be extremely harmful to their ongoing business because it would make funds transfers have a phenomenally high overhead.
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).
Any sort of business transaction pays fees, making $1 equal roughly $0.97.
The business sells a product for $100, and receives $97 for it...
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.
Kicker: if it can't or doesn't want to pay you, that's a you problem.
It doesn’t have a similar characteristic to a mutual fund balance, it’s closer to a money market fund.
I've not logged into my PayPal account in at least a year but got a termination notice for policy violation.
That's the real threat.
[1] - https://www.forbes.com/sites/emilymason/2022/10/27/after-pay...
[2] - https://jolt.law.harvard.edu/digest/paypals-misinformation-f...
That is one of the reasons I terminated my account of 20 years without hesitation.
It's like SEO, but with more lying.
Wayback Machine (May 23, 2003): https://web.archive.org/web/20030523125359/http://paypalsuck...
Don’t use PayPal if this doesn’t sound appealing.
https://www.finextra.com/newsarticle/16927/paypal-gets-banki...
Consumer Financial Protection Bureau Consumer advisory: "Your money is at greater risk when you hold it in a payment app, instead of moving it to an account with deposit insurance", June 1, 2023 https://www.consumerfinance.gov/about-us/newsroom/consumer-a...
Just because it acts like a bank doesn't mean it's a bank.
As a small business, this is devastating and there is absolutely nothing that can be done about it unless she increases her sales back to what they were previously, which unfortunately is unlikely given the inflation and economy here in the US. Anyone who runs a small business knows that you need cash to buy more inventory, and if your liquidity is sitting in PayPal so they can get interest on it, your sales are going to slow way, way down.
In 10 years (nearly 11) she has had one customer complaint through PayPal. The customer said she never received her item because, according to the customer herself, it was stolen from her porch after USPS delivered it. In what world is that the seller's fault? Only in PayPal's (and apparently this particular customer).
That is an incredible track record given that period of time and the number of sales she has had (10s of thousands of purchases over that period).
Many of her customers have said they would go elsewhere if she drops PayPal as a payment provider, which will only make things worse (much of her business is repeat business, like 80%).
PayPal finds or manufactures reasons to hold the money you worked your butt off to earn so they can sit on it and, I guess, earn interest. You have no recourse. Zero.
Stay far away from PayPal.
But if a business shrinks then suddenly PayPal itself becomes exposed: the volume in sales could drop faster than the liability from recent sales that are still in the chargeback window reduces and at some point there may be the possibility that PayPal will have to cover chargebacks for the newly defunct merchant. To guard against this possibility any rapid drop in charge volume will result in an increase in the hold back time.
So while understandably very annoying it does make some sense.
(I can't believe I've found a reason to stand up for PayPal for once and I hate them with a passion but this is simply the way any party that uses a shared merchant account will deal with the problem, if you don't want to have this you'll have to bring your own merchant account along and then things will be a little bit easier, but VISA, MC and AMEX all have similar rules on their books).
I think PayPal has been in dire state for quite a while, both in regular time and internet time.
That law was passed in 1970. The amount hasn't been adjusted since then. It would approach $80,000 today if it had been indexed for inflation.
Don't know about you, but I don't foresee anyone sponsoring legislation to relax these reporting requirements, or otherwise making it easier to conduct private cash transactions with anything but toy amounts of money.
I simply got error that I can't log in and I should update an app but there was not any update.
Took me two days to get to their support (I don't know how it is now, but at that time all ways was directing me to use support option in app which was not functioning). And support told me if I want to get my 2 USD I should buy a new phone.
2 USD is nothing to continue the fight but I've understood I don't want to give any money to such operator. I am not Revolut user for more than 6 years now.
Theoretically, your Revolut balance should be safe from bank failure as it's FDIC insured through their partner banks (according to https://www.revolut.com/en-US/how-we-keep-your-money-safe/)
> We have systems in place that monitor activity on Venmo, but please note that we don't reveal information about our internal systems in order to keep these systems robust. However, I'd recommend looking over our User Agreement for information on our policies surrounding acceptable use and high risk activity.
> I apologize that we're no longer able to assist you.
Thankfully I was able withdraw my cash, but I've been telling everyone I know to be careful when dealing with venmo; you really can't trust them
I still use the old paypal for juggling payment methods, like when I leave a credit card at a bar and cancel it, I don't have to punch in a new one everywhere, just paypal.
but cash transfers to people have been bank to bank anyway so no need for extra services there anymore.
https://www.aura.com/learn/zelle-scams / https://assets-global.website-files.com/6082ee0e95eb6459d78f...
Seems that Venmo thinks they should be enforcing sanctions against Cuban restaurants in the US.
Salt in the wounds was watching John Mulaney's bit on venmo[1] the next week
Banks don't want any risk whatsoever; they just want profitable customers. Frequent cash deposits, close the account; deposit money orders often, close the account; use zelle heavily, close the darn account; you don't use the debit card to purchase stuff, close the account.
The result has been a complaint to the CRTC(Canada) for sending CEM emails without an unsubscribe mechanism. Oops.
They are nothing more than common criminals in FinTech drag, in my opinion.
What state are you in? Maybe you can use some of the fresh anti-drag laws to help /s
In any case, evidently Paypal has been more stable than banks.
There's a real need for digital payments and none of the regulatory frameworks in europe or america take that seriously. So people will keep flocking to those easy to use ubiquitous services
When I lived in Canada I really took e-transfer for granted and was surprised to learn it's not a thing in other places.
But even old school SEPA transfers shouldn't take more than a few hours nowadays, outside weekends and holidays.
I believe https://empsa.org members should eventually be interoperable with UPI, among others.
YMMV. My main bank charges 0.5% up to 20€ or something. My second bank does not.
Have you?
It's the only bank/money service I used that terminated my account. I didn't used it very much. One day I got an email that I violated TOS. (At first I thought it was fishing. lol) They gave me 180 days to withdraw funds, though. (Which is nice of them. I guess.) My last payment/money transfer before the ban was a donation to OpenBSD. That shouldn't be illegal.
My boss used Paypal for several years for odd eBay sells. (Commercially, but only three, four times a year.) When they suddenly wanted to see copies of bills and passports. He eventually gave up, with still around ~100€ locked up.
In the US I’ve had decent luck with Zelle in the past (my bank had support for sending with it), but recently I’ve just been using Apple Cash with family.
Being CNN, they probably don’t know the difference
So this doesn't sound like a Paypal-specific issue. The same could have happened if you accepted credit card payments through some other entity like Square.
When you accept Paypal payments, you get no access to the customer's credit card information or identification. This is either a legal interpretation that allows Paypal to push all of its risk down to its customers and make money for nothing, or the actual law is explicitly allowing Paypal to push all of its risk down to its customers and make money for nothing, but either way it's corrupt.
I’m probably wrong, but doesn’t seller protection only protect you from PayPal disputes? i.e., not bank-initiated chargebacks and fraud reports.
It wouldn’t cover item not as described, like a buyer saying you shipped a box of rocks.
You don't want online fraud or some dotcom's Kafkaesque behavior to unexpectedly empty your main account of money that you need to pay rent, and have the dotcom simply refuse to talk with you.
In general, I try to minimize how much money I have sitting in dotcoms ('move fast, break things, disregard regulations, cash out' sociopathy). Relatively trustworthy are some traditional institutions (e.g., Fidelity Investments, some retail banks and credit unions).
Eventually, you have a system where bank-to-bank transfers happen instantly with no intermediary apps holding your money.
The above isn't just PayPal, it is anyone who has your account number.
Okay, crypto.
I'm of course not suggesting "crypto solves all the problems."
I am absolutely suggesting -- it feels like a lot of the haters of crypto forget how absolutely mediocre of a job everything else does with "money" too.
Yes but crypto has no customer protection. You make the transaction, your money is gone. Seller screws you? Oh well. Your key was stolen? Better luck next time.
There’s no perfect system because we’re all out scamming each other.
What regulatory power does the CFPB have over PayPal in this matter? Particularly in respect of deposit insurance?
How? I’m seeing little that doesn’t require new statute.
> “Tens of millions of American consumers and small businesses rely on payment apps to better spend, manage, and send their money. These accounts are safe and transparent,” the group said in the statement. “FTA members provide clear and easy-to-understand terms in all their products and prioritize consumer protection every step of the way.”
I don't see where the defense is in that statement!
Safe: No, people lose their money to these companies all the time.
Transparent: No, these companies stonewall people after stealing their money. They claim this stonewalling is legally required by AML laws or to deny information to criminals, but no matter which way you slice it, 'transparent' is a lie.
Nowadays I buy from web shops when I need something, I give them my one time Revolut debit card number and that's it, risk free.
So my question is:
Why would someone use PayPal? What is the use case here?
(Law of the internet: if an opinion/review of a product mentions a competing product by name then it is in fact an advertisement for the competing product.)
I could pay with PayPal though. Even though the same card is behind it.
Keeping any money on there though... no. Even though I'm in Europe.
However, I'm well aware they aren't a bank in any traditional sense so I only keep as much money in my account as I am willing to lose to a random act of god.
Needless to say this has worked well for me.
https://www.nerdwallet.com/article/banking/apples-new-4-15-a...
I'm thinking that worrying about Apple going the way of SVB isn't much of a risk.