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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."
PayPal is not a *good* bank. =)
Does "not a bank" mean "not insured by FDIC"?
From the article:
As of this quarter, PayPal began depositing customer balances into FDIC-insured bank accounts. The company had asked for an opinion from the FDIC on whether it could pass the insurance protection on to its customers. In its advisory letter, the FDIC said the insurance protections--up to $100,000 per customer per bank--would extend to PayPal customers, even when PayPal deposited the funds for them, PayPal said.
Tarsnap: Online backups for the truly paranoid
"'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.
My $0.02 will always be worth more than your â0.02, so
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.
WARNING:
Your Paypal account can be frozen at any time, without advance notice leaving you without your money for weeks (if not forever), and there isn't much you can do about it.
Paypal Warning
Quidquid latine dictum sit altum viditur
What, if it weighs the same as a duck, then it's a bank... and we can burn it?!
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.
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.)
Big Daddy, Johnny, Burp, Aunt Zelda, Scott, Slurp, Big Momma
Banks must keep a certain percentage of all "deposits" in the bank so pay for withdrawals. If they didn't, people would lose confidence, panic and pull out all their deposits and it turns into a rush to pull out the money. This is why the FDIC was created - to tell citizens their deposits are guaranteed federally, so there is no need to get your money out before others do.
Now, as for lending, again banks must balance their books. They borrow the money from another bank. Only at the top level (the Federal Reserve), is money "made up" per se - and this is per the directive of the Federal government. If too much money is "made up", it loses value, and inflation happens (supply & demand where money has too much supply). Alan Greenspan is presently responsible for monitoring this process, upon a board of recommendation from the FR. Last year, companies slowed down borrowing money, jobs were lost, etc. So it was combated by droping the Prime interest rate (the interest rate that banks charge each other for borrowing money) to make up more money, because the money was too scarce.
In other words, only the Federal Reserve makes up money. All other banks must balance their books between deposits from customers, loans to customers, and loans from other banks.
Banks are regulated either by the Comptroller of the Currency (that's what "National Bank" means) or by individual states. Savings and loan institutions are regulated by the Office of Thrift Supervision. Money transfer firms are regulated by states. Credit card issuers are regulated by Federal law. Broker/dealers are regulated by the Securities and Exchange Commission.
It's not clear what PayPal is, but because they appear to accept deposits, they're subject to regulation. Even if they store the money somewhere else, that doesn't help; that may make them either a broker or a mutual fund.
In the early days of money-market funds that offered check-writing privileges, there was a real question how they would be regulated. But that's been worked out. PayPal will end up being regulated as some kind of financial institution, even though it's not yet clear which kind.