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Banks to Feds: drop regulations or small businesses will get it
April 8, 2014 11:31 AM   Subscribe

This is not the typical lobbying we think about; it’s more like lobbying-through-threat: try to regulate us, and we’ll make life so miserable for innocent bystanders that you’ll drop the regulations. Here, the regulation in question simply makes banks responsible for noticing the fraud happening over the payment system they nominally control. They don’t want to do it, because they don’t want to lose lucrative business from predatory scam artists while they look the other way. -- When a division of JPMorgan Chase refused to process payments for a small business selling condoms, it was not out of prudishness, but part of an attempt to force the US government to drop their payday loan regulation by hurting small business owners through overly liberal interpretations of federal guidelines.
posted by MartinWisse (25 comments total) 26 users marked this as a favorite

 
Man at this point I'm not even surprised anymore that they do something shitty. It's depressing really.
posted by Carillon at 11:54 AM on April 8 [1 favorite]


That's a nice economy you've got there. It'd be a real shame if anything were to... happen to it.
posted by Kadin2048 at 12:07 PM on April 8 [20 favorites]


Don't worry, after a few days rest from that unfortunate accident the invisible hand of the free market will take care of this just fine.
posted by griphus at 12:15 PM on April 8 [1 favorite]


Here, the regulation in question simply makes banks responsible for noticing the fraud happening over the payment system they nominally control. They don’t want to do it, because they don’t want to lose lucrative business from predatory scam artists while they look the other way.

So, they are actively profiting from the scams/fraud?

Honestly, I don't think regulators should be the key parties here. I think the risk management department responsible for these decisions - continuing to profit from illegal activities - should be in jail. Conspiracy after the fact. And all profits from these transactions are ill-gotten gains.

Look, the thing is, if you punish banks by making them pay fines, they'll just write checks... It's a cost of doing business.

Until the people responsible for the criminal behavior start seeing the insides of jails, their behaviors will continue.

The risk management employees will see it's a pretty stupid risk to go to jail for their employer.
posted by el io at 12:38 PM on April 8 [22 favorites]


It's almost as if bankers can get away with anything, and never even think about going to jail.

Upon preview:
I think the risk management department responsible for these decisions - continuing to profit from illegal activities - should be in jail. Conspiracy after the fact. And all profits from these transactions are ill-gotten gains.

Agreed.
posted by mordax at 12:40 PM on April 8 [2 favorites]


The headline is backwards: it's the Feds saying to the banks, "nice business there. It'd be a shame if anything happened to it." There's nothing illegal about payday lending, but the regulators are still threatening the banks if they don't stop doing perfectly legal business.
posted by jpe at 12:56 PM on April 8


The headline is backwards: it's the Feds saying to the banks, "nice business there. It'd be a shame if anything happened to it." There's nothing illegal about payday lending, but the regulators are still threatening the banks if they don't stop doing perfectly legal business.

That is explicitly what TFA says is not happening, despite the claims of lobbyists. The regulators are asking payment processors to comply with existing regulations about reporting suspicious activity, and the bankers are acting like they're fucking mafiosi in response because they're getting a taste of the money from illegal banking activity (scams and fraud).
posted by graymouser at 1:11 PM on April 8 [17 favorites]


Tangentially related, but not FPP worthy I don't think: Risks of being a corporate whistleblower. Sorry for the Cracked.com link, but it's an interesting article, none the less.
posted by daq at 1:13 PM on April 8 [4 favorites]


Upon preview:
I think the risk management department responsible for these decisions - continuing to profit from illegal activities - should be in jail. Conspiracy after the fact. And all profits from these transactions are ill-gotten gains.

Agreed.


A risk manager (and really the proper term is compliance) who is too aggressive with stopping things that skirt legality is more often than not an unemployed compliance professional. Revenue talks, costs don't. Its really the revenue guys who you should be getting your pitchforks out for.

JPE - they aren't targeting payday lenders so much as they are targeting payday lenders who open and reclose to avoid legal repercussions. The corollary is shady boiler rooms that cleared through bigger firms. That eventually went away - but that's mostly because people started suing the clearing brokers and the economics weren't good enough to make it worth the hassle.
posted by JPD at 1:28 PM on April 8


> Revenue talks, costs don't.

It's the risk manager's job. And if they know they will go to jail if they screw up, they will be more conservative.
posted by lupus_yonderboy at 2:18 PM on April 8


first off - lets talk about this using the right term- its compliance. And compliance is powerless. You just fire them until you find someone who sees things on the same side of the blurry line as you.
posted by JPD at 2:19 PM on April 8 [2 favorites]


you are trying to change incentives for the wrong person.
posted by JPD at 2:20 PM on April 8


: "first off - lets talk about this using the right term- its compliance. And compliance is powerless. You just fire them until you find someone who sees things on the same side of the blurry line as you."

After the first batch of compliance staff goes to jail, how many people are going to line up for this gig? Either the salary requirements skyrocket or nobody even applies.
posted by mullingitover at 2:36 PM on April 8


man you guys got it. I've got no insight at all into how big financial institutions work or how they find ways to marginalize the regulatory/compliance apparatus.

yep not at all.
posted by JPD at 2:54 PM on April 8 [2 favorites]


So which member of the bank do you think should be jailed then, JPD?
posted by the agents of KAOS at 3:01 PM on April 8


I mean, incentivized.
posted by the agents of KAOS at 3:01 PM on April 8


I get that it's fun to daydream about bankers being dragged out of their offices in handcuffs (or just dragged out and beaten with brickbats, whatevs, I'm not picky), but realistically that's not going to happen. And although I am by nature a cynic, it's pretty clear that fines work in other scenarios.

There are lots of shady things that banks could do, but don't, because the regulations tell them if they do them, they'll get fined. If (risk of being fined) x (probable amount of fine) is greater than (probable profit) from engaging in a particular activity, they're not going to do it. At least not very often, unless they're very stupid. And if you make the fines big enough, it'll beat the stupid out pretty quickly.

That's what the regulators were on track to do in this case: they'd already handed out a substantial (in view of the size of the bank, apparently) fine for violating the rules around handling payday lenders. The mafioso-like reaction on the part of the banks means that it works, in the sense that it's viewed as a threat.

The risk isn't that fines in general aren't effective, but that the regulatory infrastructure itself can be undermined by sufficiently powerful business interests squeezing innocent third parties, basically engaging in hostage-taking. The solution is for regulators to demonstrate unequivocally that they won't negotiate as a result of that. (And sure, criminal charges would be nice, but they'd be really hard to make stick, and I'm not necessarily sure what law was broken.)
posted by Kadin2048 at 3:06 PM on April 8 [2 favorites]


The problem you run into with putting the compliance folks in jail is that you'll just end up putting scapegoats in jail or ending their careers.

The people who normally make these decision are not the kind of high-paid sociopaths that we think of when we talk about "bankers", they probably process hundreds of these applications every day, it's just too routine for them to be involved in making it a political decision.

If it really was the kind of politically driven conspiracy that the article claims it would come from high up the chain. Arrests still work okay if you give a pass to the compliance people that point the finger higher up the chain. The problem is that you now have to prove that the employee was ordered by someone else so you're counting on their testimony which means that they're pretty much done working in banking.

Instead, when banks get react to getting fined by doing something else that's stupid, just fine them some more.
posted by VTX at 5:26 PM on April 8


From last night's Daily Show: interview with Matt Taibbi

Matt Taibbi Extended Interview Pt. 2
posted by homunculus at 7:24 PM on April 8


I genuinely though this was going to be some uninformed flame-fanning sour grapes rant about the EMV liability shift from someone who was miffed about having to buy new equipment or something.

Instead... holy shit. I don't know why i'm surprised, but how is this not against some kind of RICO act stuff? This is straight mafia tactics.
posted by emptythought at 8:55 PM on April 8


Compliance is absolutely powerless. At the end of the day, they can scream about something being illegal until the cows come home but have absolutely no power to stop it. And, frankly, many of the regs are written in such a way that reasonable and well intentioned people can read them differently. Which means that you have a whole lot of higher ups saying things along the lines of "this other reg you eventually changed your reading of it. Could this be the same situation?" And it gets vicious. And the compliance person does their best, but they're not the ones with the keys to the kingdom and nothing (NOTHING) hinges on them. Except at the good financial institutions that care about following the law. And even then, there are situations where they decide that they're going to skirt the absolute letter of the law because *they* aren't trying to take advantage of anyone. And besides - by the time it gets to compliance, most of the time, money, and work associated with the project is already sunk and there's very little hope of getting that ship to turn around.
posted by stoneweaver at 10:36 PM on April 8


Which is a strong argument for compliance officers to be paid for by the government.

In Canada, for example, food processing facilities have an office (usually looking right onto the production floor) for the CFIA.

I don't see why the SEC can't do the same with compliance officers. That would give them some teeth.
posted by feckless fecal fear mongering at 8:03 AM on April 9


5 Terrible Things I Learned as a Corporate Whistleblower, the experience of Linda Almonte.
posted by dirigibleman at 8:45 AM on April 9


In Canada, for example, food processing facilities have an office (usually looking right onto the production floor) for the CFIA.

I don't see why the SEC can't do the same with compliance officers. That would give them some teeth.


Canada has banks you know... but apparently it doesn't even have a "SEC." Securities regulation is at a provincial level and processing and payment is regulated by an industry association. And at the same time the Canadian banking industry is even larger, by capitalization wrt the size of the total economy, than the US one. People on the left have just as big a utopian view of Canada as they do of Sweden...

who knew that today would be the day that I read the 'Canadian securities regulation' wikipedia page
posted by ennui.bz at 10:50 AM on April 9


To be fair, there is a movement afoot--with some momentum--to create a federal securities regulator.

That doesn't answer my question, though.
posted by feckless fecal fear mongering at 11:38 AM on April 9


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