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.
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.
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.
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.