Feds Rule PayPal Is Not A Bank

dthable writes "CNet has posted an article update describing the Feds latest ruling - PayPal is not considered a bank. The article describes the effects of not being a bank which includes the lack of government regulations."

Comments

I don't like their attitude...

[SkyLeach]

"'As long as we continue doing what we are doing today, we won't be subject to Federal banking laws,' said PayPal Chief Executive Peter Thiel."

These guys really need to back down and start telling people how they will fix the numerous complaints about their service instead of acting so arrogant, IMHO.

Re:PayPal should be considered . . .

[Anonynnous Coward]

Ah, so the FDIC doesn't want to have to insure them. I wouldn't, either!

Re:PayPal should be considered . . .

[zsmooth]

Just because you're not earning interest on your money in PayPal doesn't mean they aren't.

Re:PayPal should be considered . . .

[dhogaza]

Banks loan money and that's where they primarily make their money. PayPal's business model isn't at all like a banks and it is reasonable that they're not treated like a bank.

Re:No FDIC insurance?

[markmoss]

So once Paypal has deposited the funds into a bank, they are insured. However, if someone at Paypal takes off to Rio with all the money, leaving Paypal bankrupt, you are scr*wed.

Think that's an impossible scenario? I remember a payroll-processing company where that is almost exactly what happened, almost 30 years ago. The company president disappeared, $5 million was missing, eventually they found his airplane at a remote airstrip in Venezuala, but they never found him.

Re:No FDIC insurance?

[ichimunki]

As I read it you do not have an account with PayPal at this point. They appear to be putting plain funds into a real bank account with some partner bank. They also offer a Money Market securities product.

Who manages the Fund? PayPal partnered with Barclays Global Investors, one of the world's leading institutional money managers, to manage this Fund. With more than $700 billion in assets under management, BGI manages the Master Portfolio in which our Fund invests as well as the money for 1 in 4 Fortune 500 Corporate list companies and 100 of the largest pension funds in the world.

Which looks to me like maybe the SEC should be taking an interest-- even if their disclosures are in order, I have to wonder if they have the appropriate licensing to sell equities. I also note that at least one state consider them to perhaps be operating an unauthorized transfer service. So maybe they'll get stomped on after all. Of course, it does appear that their main problem is convincing regulators they'll fly straight in the future. Obviously when they were small fish, nobody was paying attention. Will they be allowed to keep the gains they've made as a result of running an unlicensed operation?

Hurts paypal

[bluGill]

I think this hurts paypal. the Feds basicly said "Paypal is not a bank, because they do not have a bank charter." States can now say to paypal "You are not a bank, quit acting like a bank."

In other words, they are either a bank or not. If they are a bank, then they can handle money for other people. If they are not a bank, then they cannot.

Now bank regulations vary from state to state. There are banks in the US that I cannot legally get a loan with, because they are not licensed in my state. (It gets complex in ways I don't know when I want a loan from something that isn't in my state)

Wrapper

[sporty]

So what are they.. a wrapper for a bank? They don't hold any cash per se. But they hold money, sorta.. and allow you to withdraw.. sorta..

Lord knows.

Re:Who cares? Regulations don't help us anyway.

[__aapbgd5977]

I don't use an FDIC-insured bank. I use a credit union. They pay me better interest, I am insured up to $325,000 (by 3 seperate insurance companies internationally), and they loan money to the kind of people I want to see that money going to.

...

I say give us more non-bank banks. If I could find an unregulated money-holder for me, I'd use it immediately IF they had good third party insurers, better interest, and less government big brother intrusion into my transactions.

Hey, I don't mean to undercut your frothing-at-the-mouth anti-regulatory libertarian fervor, but Credit Union deposits are insured by the government.

Don't let facts get in the way of your rant, tho. Moderators, a 5 rating for that post is silly.

Re:If you still use pay-pal

[Tazzy531]

Didn't they say the same thing about credit cards years ago? Now how many people are using credit cards? In the same analogy, CC company is telling the merchants, I promise to pay you later if you give my client the merchandise now. What recourse do you have that the CC company will pay? In the same way with PayPal, if a company decides to reneg on its promises, it constitutes fraud. A company like paypal or Mastercard or Visa is not going to get up and walk away with your money without some type of legal ramifications chasing after them.

No longer true...

[schmaltz]

Banks loan money and that's where they primarily make their money.

If only this were true, we'd live in simpler times. Banks make much more of their profit in two other areas: investing your deposits in securities and derivatives, and interest during slack time, the time between when you've made a deposit, and when the funds actually become available.

So, Paypal has the same opportunity to make profits with your money the way banks do, by investing it. This and their poor customer service says to me they're a bank.

(Amazing that in this age when all banking systems are interconnected that your transfers and deposits can still take up to a week... that's something the banks didn't want written out of the system during the last revision of banking laws.)

have you tried calling them?

[Skuld-Chan]

If you want paypal's phone number (posted on here, but no-one seemed to care) its 888-221-1161 - and yes if you push enough buttons you will contact someone.