That doesn't make any sense. As the article points out, it's akin to saying that a lender must loan to you unless they've been barred by a court. The accounts you are thinking about are all, under the hood, lines of credit, even though they don't look like that.
> The accounts you are thinking about are all, under the hood, lines of credit, even though they don't look like that.
You present this statement as though it's an immutable law of nature, rather than a design feature of the US banking system that allows them to offer an excuse for closing accounts that's convenient for those banks. (The fact that someone on HN can read about it and feel smart because they think they understood the deep reality that lesser people don't get is also a convenient design feature).
You can't make a bank account where there is no possible chance a transaction can be reversed. That's what you're asking for.
(Crypto doesn't do this. You can be taken to court and they don't care that it's decentralized and immutable and all that. That's much of the point of his writing.)
If account has insufficient funds to do a reversal the bank is not always obliged to step in, only in a few specific circumstances. Avoiding such circumstances is possible.
There's an example in the article. If the account is owned by a company and it goes bankrupt, the account no longer contains money even though your computer says it does. So if anyone reverses a deposit quickly enough your computer is going to let it through and you're paying for it.
Your example is interesting but I don't see how a bank can be held liable if the bankruptcy wasn't communicated to it properly, is there any proof it's a real thing?
The example in the article is different if I read it right: bankruptcy was already known to all parties, account frozen, but the debtor asked court if some operations can be resumed except for chargebacks.
I don't think it's a "basic" feature. I suspect it's one of those things that, like the ACH upgrade mentioned in the article, would be changed swiftly if the relevant parties were sufficiently motivated.
That is absolutely not true of Patrick's writing. Whatever else you might say about it, "lacking in testable claims" is not a reasonable argument to make about this post.
I haven't seen any proof that it's a basic feature of bank accounts.
Some specific services (checkbooks, embossed and offline-chip cards, visa/mc acquiring) can require a credit-worthy account, but these services can be denied without denying the account itself.
Does your envisioned product allow someone to direct deposit a paycheck? Then congratulations, it is a credit account, because a) we expect to spend paychecks including very soon after receiving them but b) payroll companies sometimes screw up payroll and can in some cases pull the money back.
Can you reference a law saying that the bank is obligated to force an overdraft on a non-overdraft account when the transaction is reversed? This was a screw up by neither the bank nor their client, I see all reasons to bounce it back and let the wrong party figure it out. Furthermore I saw that exact case IRL in another country and the payroll company had to settle it with the employee (not with the bank) in court.
I understand that US banking can be very different here but neither googling nor chatgpt was able to provide any specific proofs.
Some people claim online that a bank can never refuse an ACH transaction but it's obviously false, they do it easily when the account is closed, blocked or overdrawn beyond a certain limit.
I read that. It's an inverse of what you describe above: bankruptcy is ongoing, all accounts are already frozen. However the debtor asks the court to unfreeze them, resume the normal operation, resume all ACH operations except for chargebacks because they suspect fraud. It never says the bank was obliged to honor reversals with insufficient funds out of pocket, it's not even close. Accounts in question have sufficient funds.
Now here's a legally binding document that actually controls reversals and returns of ACH entries: NACHA: A Complete Guide to the Rules Governing the ACH Network [1] All newer versions are paywalled but for a question you claim is essential to the US banking the 2005 version should suffice. Here's what I see after reading it for two hours.
> Except as otherwise provided for in subsection 6.1.3 (Restrictions on Right to Return), an RDFI may return an entry for any reason.
I didn't find any restrictions that disallow immediate return of the REVERSAL entry with reason code "R01 Insufficient Funds". Reversal entry of a credit entry is a normal debit entry with a word "REVERSAL" in it.
Now the originator can potentially dishonor the return:
> An ODFI may dishonor a return entry (1) if it can substantiate that the RDFI failed to return the entry within the time limits established by these rules, thus causing either the ODFI or Originator to suffer a loss, or (2) if the return entry contains incorrect information, does not
include all information required by Appendix Five (Return Entries), or otherwise fails to comply with the
requirements of Appendix Five. To dishonor a return entry, the ODFI must transmit a dishonored return entry complying with Appendix Five to its ACH Operator within five banking days after the Settlement Date of the return entry.
However the possible reasons for dishonoring is very limited and doesn't include "we really need that money" reason. Besides filling errors the only real reason is the time limit that doesn't apply here.
So, I can't find any concrete proof that the receiving bank must always honor the reversal ACH entry, especially at loss. The topic of losses from erroneous entries is mentioned multiple times but never in such context.
It maybe a confusion of ACH network rules with Visa/MC rules that do have this requirement in some cases, don't know.
Allowing payroll companies to pull money back is a design choice, not an immutable fact of nature, as is pretending to clear instantly. Other choices are possible. (Obviously not crypto nonsense; RTGS settling in <3 days is boring, mainstream bank plumbing in many countries. You know this)
It is the design choice of the system we have now. The post doesn't claim that it is the only possible design choice. The post doesn't even claim that the banking system was never weaponized for political reasons; it makes clear that has in fact happened. What it is at pains to point out is that the complaints of crypto-magnates about the system being recently weaponized against them are dubious, because their complaints center around longstanding properties of our system that other businesses routinely trip over.
> The post doesn't claim that it is the only possible design choice.
Not explicitly. But it's set up to mislead you into thinking that, by pretending to be a deep dive into the causes of something, while spending great effort on some of the (minor) causes and quickly skating over other, more significant causes that reflect more negatively on the author's industry.
> The post doesn't even claim that the banking system was never weaponized for political reasons; it makes clear that has in fact happened. What it is at pains to point out is that the complaints of crypto-magnates about the system being recently weaponized against them are dubious, because their complaints center around longstanding properties of our system that other businesses routinely trip over.
The post is at pains to make it all sound normal and inevitable and unintentional. Of course when the bank sends a letter saying that its decision is final this is a bald-faced lie, everyone in the banking system knows that sending bald-faced lies to your customers is normal and expected, how deceptive it is of the crypto folks to pretend to believe that the letter they were sent meant what it said. Of course people should be cut off from the financial system and told vague lies and evasions about why, that happens to everyone, why would anyone complain about that?
The post acknowledges that the financial system is set up to secretly cut people off without review or recourse, that this ability is weaponised for political reasons, and then glosses over and misdirects around the fact that this is a deliberate setup that serves that financial system's interests. It may not be malicious targeting of crypto folks in a narrow sense, but it's indistinguishable from it, by design. "Look, it really doesn't matter that our system silently cuts off people who work with our competitors and lies about the reasons, because that's just our system behaving as normal and it does exactly the same thing to bodega owners" is not, once you strip away the flourishes, a compelling defense.
No, it isn't set up to mislead; no, the causes it's discussing aren't "minor" (they've blown up banks), no, the post doesn't write approvingly of US banking practices, referring to them at points as kafkaesque, not, the post doesn't skate over the "lie" that account closure notices aren't final (it spends a whole section on that), and it seems plain what parts of the system crypto companies are running aground against; they're the same parts that bodega cash transfer businesses have run into for decades.
> no, the post doesn't write approvingly of US banking practices, referring to them at points as kafkaesque
And yet almost everyone in this thread has somehow understood it to be a post against the crypto folks and in favour of the banks. And it's too skillfully written for that to be accidental.
> no, the causes it's discussing aren't "minor"
A company going bankrupt is flashy, but can only ever be a small part of an explanation of a bank failure. A description of a shell company with a vague name that does international money transfers is a "look at these clowns" anecdote when you tell it one way and completely routine when you tell it another way. And what actual money laundering exists is, as described elsewhere in this thread, far too small to explain anti money laundering laws.
> they've blown up banks
Only if you buy into his choices about which causes to dig into and which to skate over. Big flashy graph of how many wires were getting reversed (and, in a post that otherwise goes into great detail to excuse people saying things that are manifestly untrue, complete incuriosity about any reason for the bank to say what it did that might not just be gross incompetence), but a one-line dismissal of why banks were reversing them - and no questioning why the setup is like that in the first place. Detailed explanation that a bank's business model fundamentally relied on serving a large number of crypto companies, one-line dismissal of any question as to whether it's reasonable for a regulator to make up an ad-hoc rule, and not drawing the connection between these two statements and asking whether an ad-hoc rule that intentionally puts a single entity out of business might be a little different from an arbitrary rule in other contexts. Extended point and laugh at the bank that expected to be able to regard its portfolio of New York commercial property loans as being worth something, one-line shrugging off that it's completely routine for banks to have large portfolios of essentially worthless New York commercial property loans...
> the "lie" that account closure notices aren't final (it spends a whole section on that)
It does, running bloodlessly over the mechanics, making it all sound so routine and normal and reasonable that you almost forget that we're talking about financial institutions telling blatant lies in writing (and not just about the finality, but about the reasons for the closure and its consequences) to their customers.
> it seems plain what parts of the system crypto companies are running aground against; they're the same parts that bodega cash transfer businesses have run into for decades.
That's not an explanation, it's a curiosity-stopper. I agree that there's a certain amount of kabuki to the crypto companies purporting to believe the things the banks are telling them, but on an institutional level that's really the only reasonable response to a lie you can't yet prove. And again, fundamentally, having been screwing with bodega cash transfers for decades does not make it any better.
None of this is responsive to anything I've written, or, really, anything Patrick's written. You want to explore your curiosity about possible alternate banking systems, that's fine, but you've been writing here and elsewhere that Patrick was disingenuous to talk about the banking system we actually have, and no, you're wrong about that.
You cannot honestly explore the causes of a banking phenomenon (one that's distinct to a particular few banking systems, even!) while treating the "banking system" as fixed and immutable (or even wholly distinct from the banks), and to do so is to attempt to pull the wool over the reader's eyes. The choice of which contributing factors to write about and which to ignore is not a neutral one and not an accident. (And similar things apply to the choice to describe outrages in mechanistic, normalising terms)
You are off on your own thing here. You are free to be off on your own thing. But your thing is unrelated to the article, and you should stop trying to frame your thing as if it was a trenchant comment on the article; it is not.
No, it's not akin to that. You can live without loans but you can't leave without a debit bank account.
As the parent points out there's indeed such a law in France but from personal experience I can tell that it doesn't prevent the bank from closing your account without an explanation (the explanation I was given off-record was my citizenship). The law merely forces the bank to open you an account which can later be closed. So definitely the right direction but IMO not far enough.
Given that about 10% of the US has no debit bank account and they aren't dying, that seems like an exaggeration. You can walk into a paycheck cashing service and walk out with a card that can be used anywhere a credit card is accepted without ever opening a bank account. You have to pay to do so, which seems rather regressive considering it's mostly the less affluent who end up in that situation, but it's not life-ending.
That previous comment is a "tell me you've never been declined for a financial service before without telling me" kind of thing; I had to shop for a week to find a bank that would give me a checking account.
Not sure what you mean, I got declined by a dozen of banks. And where I live (France) it's illegal for me to receive my salary in cash or to pay rent in cash: both are above the limit for cash transactions. Even if I personally was open to breaking the law,
my employer and my landlord obviously aren't.
To compensate for that there's a "right for an account" law but it doesn't work that well.
I think the US/EU distinction is the main disconnect. Anyone in the US can take a (paper) paycheck to a cashing service and, for about 2% of the value of the check, receive the cash for it. They can usually walk into the office of their landlord (or property manager) and pay in cash.
I sold an RV for nearly $10k and the buyer paid in cash.
Other than my mortgage payment, I have never paid for something via a bank transfer. Merchants take credit cards and services provided by individuals (e.g. piano teacher) take check or cash.
This article is about the US banking system, and that's where my experience is. Nobody in the US with any experience of financial precarity believes a checking account is a human right, because checking accounts are routinely denied to people without established credit. Which makes a kind of sense: they are credit products.
I have a multi-year titre de séjour, the problem is the Russian citizenship. I guess banks don't want to figure out who's sanctioned and who's not, refusing service is safer.
The first wave of account closures in 2022 was absurdly wide and even affected some French citizens. It was a scandal that got some coverage in the news [1][2][3]. I suspect the filter was the birthplace which is known to the bank, even though some media speculated it was about names. IMO names would be insane even for a bank, however I can imagine a name being one of the inputs for an opaque ML risk-scoring model.
French citizens that I know of got their accounts reinstantiated, but foreign nationals continue to struggle to this day. There's a collective lawsuit going on but it will take years to achieve anything withhin the french justice system.
Sounds like a case of being in the right is not enough. The law in theory prevents this kind of stuff, but it might not have done enough of a job here.
Since my wife is Russian and we have lots of Russian friends we're not blind to these checks, but in all cases they were resolved by submitting residence documents. Success rate was 100%.
Of folks that were not residents however or that did not manage to prove their residence, very few got their accounts re-instantiated. We also had a case of someone who was not able to keep their account until they stopped receiving a Russian salary.
Based on my network of ex-colleagues who are now scattered all across Europe the best banking experience for foreigners is in Netherlands and the worst is in France, Spain and Poland. Germany is somewhere in the middle, for other countries I don't have datapoints.
The best part about Europe is the common market that includes online banking. Revolut and Bunq seem to accept all legal residents and that's enough for 90% of basic services. Life would be much harder without them.
Austria, but we both made personal and indirect experiences through friends all over the place. For instance my wife has accounts also in the UK and Estonia (guess why) and it was all pretty much the same thing. I have no experience in the Netherlands but friends moved to Poland and Spain (among other countries) and it all was absolutely fine.
The only people that ran into issues had monetary transfers in and out of Russia or folks who did not manage to actually immigrate properly. With regards to monetary transfers in and out of Russia, I even have that as an Austrian citizen, that to me is largely an unrelated problem to citizenship.
patio11 himself has mentioned in many podcasts that the sanctions following the Russian invasion of Ukraine may have affected Ukrainian persons or businesses as they include territory currently occupied by Russia (perhaps more so than Russian persons or businesses themselves).
Many western financial institutions simply won't keep track of who holds Nikopol or Enerhodar and will close account held by Ukrainian people or business.
(and when you think about the possibility of the account holder lying, it gets worse)
> Does that apply to US citizens (legally residing in the EU) that routinely get denied bank accounts because the bank don’t want to deal with the IRS ?
Yes, it applies to every legal resident.
> Beyond that, I wonder if you really believe that the EU has no Anti-Money Laudering / Counter Finance Terrorism laws.
Because you don’t believe an EU bank can terminate an account because they’re worried it may trigger an AML/CTF regulation or similar without bothering to really check if it does.
*edit : AML/CTF and similar rules have to be exceptions to basic banking rights.
> Because you don’t believe an EU bank can terminate an account because they’re worried it may trigger an AML/CTF regulation or similar without bothering to really check if it does.
No, I questioned the particular situation given my personal experience with the Ukrainian war for account holders in Europe, the existing banking regulation around the basic account.
For the record, I have an official denial letter from LaPoste. Which, by the way, is very nice on their part: many banks refuse to put that in wringing and without a letter it's hard to exercise your droit au compte with the Bank of France.
No citizenship is a major factor. For example, Syrians are a very red flag in many countries and many banks outright denies them service. If you are from North Korea, you'd be delusional to think that you can just show up at a "western" bank and walk out with a bank card.
You're not participating in a good faith discussion. Yes, it is technically a line of credit but it's not the reason why you're being refused service. Overdraft risks for a personal account are small and can easily be accounted-for in the service fee or via insurance (which is the same in the end).
The reason for account closure is the fear of anti-AML laws and sanctions that have nothing to do with loans. Banks in fact love offering small loans and it's not uncommon to have your account closed while having a pre-approved loan at the same time — these are different bank divisions in action.
And in any case, turning personal debit accounts into credit accounts is not something that was asked for. I lived long enough to have used Visa Electron and Maestro cards that made most of overdraft scenarios impossible. It was the banking industry decision to get rid of them.
What exactly isn't true? That compliance is the reason why accounts get closed?
As far as I understood the article this is the main reason he gives. Loans or other objective reasons that can make the interaction with the client unprofitable are only drawn as (bad) analogies and not as the actual explanation.
To be charitable, I think tptacek was referring to a variant of "accounts aren't closed because of credit risk" as not being true. The credit risk talked about in the article was ACH reversals with a bankrupt account owner falling on the bank, rather than overdrafts.
Since the Fed is the provider of the liquidity and also sets the rules on what is a collateral and what is not, I say yes, the bank must loan you the money as long as you satisfy the conditions of the loan.
The bank is roughly a re-seller of the Fed liquidity. They shouldn't be an arbiter of who gets to access that liquidity but rather an administrative entity that follows the rules.
That doesn't make sense. When your business account stiffs a bunch of customers who get their ACH transactions reversed, and you're insolvent, your bank has to pay off those transactions. It can't just go to the Fed and say "give me money to cover for this insolvent business".
Your bank is not in fact literally just a front end for the Fed.
It makes perfect sense because of the very bloody obvious point that your account isn't really a line of credit since you gave a full deposit equal to the funds you have available. If the bank wants to lend your money around as part of its fractional reserve process, that's their business, but opening an account with funds you expect to have access to at any time is not the same as asking for a loan. Please.
No, that's not even a little bit how a checking account works. Assume nothing moves instantaneously, everything has a settlement period, everything is reversible, and, apart from the bank's willingness to decline you for an account, none of that mechanism is ever exposed to you. You'll be much closer to the true nature of the system than your belief that, having "fully deposited" money into an account, the bank can safely assume it has custody of that sum of money.
This is the challenge Patrick is up against with a piece like this: most of his readers share the deeply broken assumption you've brought to it.
It doesn't matter how it works in the background. A checking account is marketed as a bank account in which your balance matches what you put into it and unlike a formal, named loan, it's necessary for many very basic transactions of daily living for even ordinary people who participate in no business banking. Thus, being frozen out by some bullshit regulatory "compliance" nonsense or some brainless, fearful risk assessment is at a whole different level than it would be if you ere denied a loan for similar reasons.
Banks that fear risk so much should organize their checking account system better for the full range of their customers, but that requires more effort than simply unbanking people and then communicating with them through grudging hostility about the reasons why as their lives take a major hit, and then being defended for this conduct by someone who gets mealy mouthed about how checking accounts are actually loans, as if they involved a major financial favor by the bank to you as a customer.
It does matter, because it is in fact how the system works, and that system constrains banks. You can be mad at the system and prefer a different system; that's fine. But once you recognize it as the system we do in fact have, you've conceded Patrick's point.
As the article points out, when you scale this problem up to business bank accounts, losses from bad credit decisions to customers can erase all the gains from the entire commercial account line of business at a bank; in other words: to factor risk and credit out of business bank accounts, you're essentially demanding that banks be insolvent.
Yes, I can easily imagine the tears of frustration and loss that bank CEOs and Boards would have to wipe with 100 dollar bills at having to deliver a simple enough product that it doesn't "require" them to debank people arbitrarily.
Why you defend this is beyond me, but it's obvious enough as to barely be worth noting that banks can structure, package and name their checking accounts, and their customer service, in such a way that you as a user can be sure of their reliability, especially after you already fucking deposited the exact funds that you're later hoping to use into said accounts.
Call them credit products if you like, they're not the same as a loan that's given on evidence of solvency but nothing held by the bank directly.
I don't know why you think I'm "defending" anything. I'm discussing the world as it is; like Patrick, I'm making positive claims, not normative ones. That those claims happen to falsify things crypto magnates are saying is a happy accident.
>I don't know why you think I'm "defending" anything.
I don't think so. Your statements about the nature of checking accounts as created by banks (at least in the U.S) paint the entire construct as if it were an inescapable part of how these banks operate, when it could be differentiated in certain ways, and could in either case involve not arbitrarily blocking people from access to their accounts or even funds. In no explanation of checking accounts is that defensible.
