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In hindsight the fact that these neobanks can advertise their customers' funds are FDIC-insured is crazy. If I run a ponzi scheme but deposit my victims' money

In hindsight the fact that these neobanks can advertise their customers' funds are FDIC-insured is crazy. If I run a ponzi scheme but deposit my victims' money at Chase, does that mean I can correctly claim the funds are FDIC-insured?

nradov 2y ago
There's generally nothing stopping scammers from lying in ads. Enforcement is only done afterwards.
hunter2_ 2y ago
The fact that any bank would advertise "FDIC insured" is silly, as it conditions potential customers to look to the banks for this information. It would be better if folks were conditioned to consult only the FDIC themselves for this information.
- cperciva 2y ago
  It serves the same purpose as asking customers "are you a terrorist" -- it creates an easily prosecutable offence.
  - stoperaticless 2y ago
    Could you expand on why is it easily prosecutable? I sense that it has something to do with lying in documents. But hypothetically: if I write “no”. Proof of lying requires proof of terrorism. (At which point you did all the job of proving terorism, despite the document)
    - rjsw 2y ago
      If you ask it online then I guess it counts as wire fraud which may be easier to prosecute.
  - dooglius 2y ago
    Is terrorism not already an easily prosecutable offense?
- teeray 2y ago
  It should be a protected term in advertising. As soon as you use it, you surrender yourself to FDIC auditors.
dougSF70 2y ago
I think the FDIC insurance is per account at a bank with a banking charter. Fintechs are typically given one account by a real bank and so funds are commingled but also it is a single account so only 85k insuran ce even though the account might have 1000s customer funds commingled.
- suzzer99 2y ago
  That's batshit insane.
- arpinum 2y ago
  This is not true for fiduciary accounts, which are covered per principal. So FDIC coverage should extend to all customers if the account was properly declared.
- blackeyeblitzar 2y ago
  This isn’t accurate. A fintech’s own money (as opposed to customer funds) may have low insurance. But if set up properly, those customer funds can have pass through FDIC insurance. See https://www.fdic.gov/financial-institution-employees-guide-deposit-insurance/pass-through-deposit-insurance-coverage https://www.fdic.gov/financial-institution-employees-guide-d... However this apparently doesn’t protect you from the failure of the third party, which is what is unexpected. If you look at this bulletin the FDIC put out after the Synapse incident, they’re basically claiming they aren’t stepping in because a bank hasn’t failed. A fintech that isn’t the bank, but has records of what’s at the bank, failed. https://www.fdic.gov/consumer-resource-center/2024-06/banking-third-party-apps https://www.fdic.gov/consumer-resource-center/2024-06/bankin... Personally, I find the explanation to be pretty weak - what does pass through insurance even mean then? Does every fintech startup need to also directly be a bank - if so that’s a huge barrier to entry and basically gifts incumbents with regulatory capture. If the money is in an FDIC protected account, it should be safe. It does not make sense to me that they would step in for Silicon Valley Bank’s failure, but not in this situation. One weird part of the situation is that it seems the underlying bank does not have records about each customer and their numbers. To me that seems negligent on the part of the underlying bank. Surely they knew about this arrangement of pass through insurance and the need to protect funds. They should have maintained separate accounts for each client of the third party service. Regardless of negligence it seems the FDIC is trying to make this record keeping a requirement: https://www.fdic.gov/news/press-releases/2024/fdic-proposes-deposit-insurance-recordkeeping-rule-banks-third-party https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
Yeul 2y ago
The whole point of banking that people have forgotten is trust.
- nikanj 2y ago
  Large banks have gone to great lengths to teach people that banks can never be trusted
  - JohnFen 2y ago
    I trust them a whole lot more than any random fintech company. At least with traditional banks, there is some amount of protection available.
    - PaulDavisThe1st 2y ago
      Put differently: Less than zero: trust to place in random fintech company Zero: trust to place in random bank Very low value: trust to place in a carefully selected bank Moderate value: trust to place in FDIC

nradov 2y ago

There's generally nothing stopping scammers from lying in ads. Enforcement is only done afterwards.

hunter2_ 2y ago

The fact that any bank would advertise "FDIC insured" is silly, as it conditions potential customers to look to the banks for this information. It would be better if folks were conditioned to consult only the FDIC themselves for this information.

cperciva 2y ago
It serves the same purpose as asking customers "are you a terrorist" -- it creates an easily prosecutable offence.
- stoperaticless 2y ago
  Could you expand on why is it easily prosecutable? I sense that it has something to do with lying in documents. But hypothetically: if I write “no”. Proof of lying requires proof of terrorism. (At which point you did all the job of proving terorism, despite the document)
  - rjsw 2y ago
    If you ask it online then I guess it counts as wire fraud which may be easier to prosecute.
- dooglius 2y ago
  Is terrorism not already an easily prosecutable offense?
teeray 2y ago
It should be a protected term in advertising. As soon as you use it, you surrender yourself to FDIC auditors.

dougSF70 2y ago

I think the FDIC insurance is per account at a bank with a banking charter. Fintechs are typically given one account by a real bank and so funds are commingled but also it is a single account so only 85k insuran ce even though the account might have 1000s customer funds commingled.

suzzer99 2y ago
That's batshit insane.
arpinum 2y ago
This is not true for fiduciary accounts, which are covered per principal. So FDIC coverage should extend to all customers if the account was properly declared.
blackeyeblitzar 2y ago
This isn’t accurate. A fintech’s own money (as opposed to customer funds) may have low insurance. But if set up properly, those customer funds can have pass through FDIC insurance. See https://www.fdic.gov/financial-institution-employees-guide-deposit-insurance/pass-through-deposit-insurance-coverage https://www.fdic.gov/financial-institution-employees-guide-d... However this apparently doesn’t protect you from the failure of the third party, which is what is unexpected. If you look at this bulletin the FDIC put out after the Synapse incident, they’re basically claiming they aren’t stepping in because a bank hasn’t failed. A fintech that isn’t the bank, but has records of what’s at the bank, failed. https://www.fdic.gov/consumer-resource-center/2024-06/banking-third-party-apps https://www.fdic.gov/consumer-resource-center/2024-06/bankin... Personally, I find the explanation to be pretty weak - what does pass through insurance even mean then? Does every fintech startup need to also directly be a bank - if so that’s a huge barrier to entry and basically gifts incumbents with regulatory capture. If the money is in an FDIC protected account, it should be safe. It does not make sense to me that they would step in for Silicon Valley Bank’s failure, but not in this situation. One weird part of the situation is that it seems the underlying bank does not have records about each customer and their numbers. To me that seems negligent on the part of the underlying bank. Surely they knew about this arrangement of pass through insurance and the need to protect funds. They should have maintained separate accounts for each client of the third party service. Regardless of negligence it seems the FDIC is trying to make this record keeping a requirement: https://www.fdic.gov/news/press-releases/2024/fdic-proposes-deposit-insurance-recordkeeping-rule-banks-third-party https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...

Yeul 2y ago

The whole point of banking that people have forgotten is trust.

nikanj 2y ago
Large banks have gone to great lengths to teach people that banks can never be trusted
- JohnFen 2y ago
  I trust them a whole lot more than any random fintech company. At least with traditional banks, there is some amount of protection available.
  - PaulDavisThe1st 2y ago
    Put differently: Less than zero: trust to place in random fintech company Zero: trust to place in random bank Very low value: trust to place in a carefully selected bank Moderate value: trust to place in FDIC