Comment by tptacek
1 year ago
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.
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As long as we agree that it's a basic feature of the US financial system I don't think there's much for us to argue about.
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.
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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.
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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.
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> the explanation I was given off-record was my citizenship
That seems fishy and can’t be right. The only way this would work is if you don’t have residence but not because you have the wrong citizenship.
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.
[1] https://www.lepoint.fr/societe/comptes-bancaires-bloques-en-...
[2] https://www.nouvelobs.com/entreprises/20220726.OBS61366/des-...
[3] https://www.lesechos.fr/finance-marches/banque-assurances/en...
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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)
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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.
A debit bank account is a line of credit. It effectively is a loan.
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.
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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.
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