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."

No FDIC insurance?

[awilber]

Does "not a bank" mean "not insured by FDIC"?

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 [slashdot.org] complaints [slashdot.org] about their service [paypalsucks.com] 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!

WTF?

[Lxy]

I've seen the complaints on /. and all the other sites out there. Where does this notion come from that they ever WERE a bank? I use Paypal to send and receive credit card payments. As soon as the money hits my account, I take it out. Why would I expect Paypal to FDIC insure it? Or to give me interest? or any of these other services?

That being said, I think Paypal has some shady stuff going on so I will discontinue the use of their service.

Paypal doesn't have the laws on its side

[Steveftoth]

Because until the internet, there was no way you could build paypal. (Well maybe over the phone, but that would be much more difficult) Because the internet allows paypal to have virtual presence wherever there is net access, and has no physical presence. You cannot goto the paypal headquarters and deposit your money into your paypal account. The laws are just not setup to deal with this kind of business yet. A bank without a physical point of presence is not covered by any of todays laws (correctly). It'll probably be awhile before the lawyers figure out what Paypal and services like it really are.

Re:No FDIC insurance?

[ergo98]

When you do your taxes you have to list your assets? This is actually a serious question: Do you not just list income and expenses, and latent assets are irrelevant?

Paypal's own fault...

[LordKariya]

Paypal has no one to blame but themselves for the current investigation.

It wasn't until PayPalSucks [www.paypalsucks] and PayPal Warning [paypalwarning.com] became well-known and the horror stories became more abundant that Paypal found itself in the sights.

Too Few Regulations Even Worse Than Too Many

[FreeUser]

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.

Do what Osama does ... use the cash-n-carry, fully trust-based money changers of the middle east. No regulations, no snooping, and the only requirement is trust ...

Personally, I'm not fond of banking, or of banks, or of excessive regulation (and sometimes corrupt regulation that facilitates, for example, the "legitimate" seizure of an accounts assets for simply remaining idle for a few years), but what you propose is a recipe for another 1929 followed by a decade or more of depression. Not the soft-market, oh-no-I-can't-by-a-new-BMW-and-my-condo-didn't-dou ble-in-price-in-just-three-months recessions we experience from time to time, but a real you-are-likely-to-starve-along-with-the-rest-of-us and armed-revolution-really-might-happen depression like our grandparents used to go on about for hours on end to anyone who would listen.

Thaks, but with as annoying as I find regulated banks, I'll take that "disease" any day over your proposed "cure."

(Having said all that, I would like to see regulations eased and brought into line with those that a credit union has to obey ... which isn't the same as no regulation and no accountability at all, which is what you get with pay-pal.)

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.

Whoops forgot the source(s)

[dada21]

Read these for more info on why the Federal Reserve caused the Great Depression. Eye-opening...

First [fff.org]

Second [fff.org]

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:GEN-DEX Bank

[Anonymous Coward]

People who have encountered him have reported that his style and affect quickly made them uncomfortable.

And that distinguishes him from the rest of slashdot how?

Re:Too Few Regulations Even Worse Than Too Many

[Anonymous Coward]

Oops - a Trotskyite just put a bullet in your head after reading your Slashdot comment history. Fun while it lasted!

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 [ncua.gov].

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 [nytimes.com], 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.