4 ms·

Correct, then you effectively become a holder of someone else’s money, which creates all kinds of legal trouble (you need to put that money into a separate, thi

Correct, then you effectively become a holder of someone else’s money, which creates all kinds of legal trouble (you need to put that money into a separate, third party’s account that shields it from bankruptcy etc). What they could do is automatically refund the credits to the original account as soon as they expire, but that would mean it’s not the deposit but every API request that would be counted as revenue, which creates a whole lot of other complications. Let alone the fact that refunding after a year is problematic as the original payment methods may have expired, changed, and that you’re still the holder of someone else’s money until the credits are used. Bottom line: this is industry practice, but given how much flack Anthropic has been getting about the lack of transparency lately, this just adds more fuel to the fire and could be defused by some additional explanation from Anthropic’s side.

backprop1989 1y ago
Exactly, now you’re a bank (or maybe selling unlicensed securities, either way it’s jeopardy). We ended up revising the contract so that the credits expired after three years. That opened up its own suboptimal outcomes. It was a lesson that was very much learned by us. On the topic itself - agreed that Anthropic should take a step back and review its policy around comms and good will in general. They’re supposed to be the “good guys” in the AI game - being up front about this stuff is table stakes for them at this point.
- jkaplowitz 1y ago
  > Exactly, now you’re a bank (or maybe selling unlicensed securities, either way it’s jeopardy). This seems unlikely - after all, a US federal law (the Credit CARD Act of 2009) requires closed-loop (store/brand-specific) gift cards to be valid for at least 5 years after activation and some states like Florida and California don't allow them to expire at all, so for simplicity national companies don't usually let them expire at all regardless of state. But neither a 5-year expiration nor indefinite validity turns the seller into a bank or an unlicensed securities seller or otherwise puts them in jeopardy. Naturally, service credits and gift cards are probably treated differently by the CARD Act, but service credits are still not a source of legal jeopardy in the sense you were describing of being an unauthorized participant in the regulated financial world, any more than gift cards are. I can completely believe, however, that an approach similar to how gift cards must be handled is financially worse on the company's accounting statements than quickly expiring credits. That worse financial accounting consequence would be a completely sufficient explanation for why the company switched approaches.
  - yial 1y ago
    With gift cards you end up creating a liabilities account and tracking the outstanding value of your issued gift cards. This is almost easier if you have a gift card processor who holds the funds for you, but most I’ve worked with either just facilitate transferring money (as in franchises ) or simply processing the initial payment. This means you then have to track your outstanding. Depending on the state, if you cease operations you may need to escheat the value of the liability account or pay the purchasers of the gift cards if you know who they are. (Newer POS systems make this possible at times ). Gift cards on a financial statement are nearly always a negative or neutral, as while the money is in a liability account, I’ve seen companies in trouble not actually have the funds to cover the liability.
    - jkaplowitz 1y ago
      Yeah, having to track (and under certain circumstances resolve) the liability is what I meant by financially worse on the accounting statements. An entirely real downside that’s valid to choose to avoid, but which is also not the kind of jeopardy that compares to operating a bank or selling securities without the proper regulatory approvals. That was my main point to the other commenter.
    - thaumasiotes 1y ago
      > while the money is in a liability account, I’ve seen companies in trouble not actually have the funds to cover the liability. That's a weird edge case. As long as the company is operating, it isn't even possible for it to be unable to cover the liability of outstanding gift cards no matter how many there are. It has to honor the cards, but it has total freedom to set its own prices! Given that the company is free to pay off the cards in kind while it's operating, it's not obvious why it should have to pay them off in cash as it ceases operating.
- htrp 1y ago
  "you either die a hero or live long enough to see yourself become the villain"
blindriver 1y ago
> you need to put that money into a separate, third party’s account that shields it from bankruptcy This is wrong. You don’t need to do any of that. They paid for a service and it becomes a liability, but there’s no duty to segregate those funds. You do not turn into a money transfer agent just because you sell pre-paid credits to your service.
- hn_throwaway_99 1y ago
  Thank you. As someone who used to work for a health fintech, it was amazing how often you'd hear loads of confidently wrong opinions on stuff like HIPAA (no, saying that Lisa couldn't make the meeting because she's out with the flu doesn't make it a HIPAA violation) and money transferring/KYC/AML/etc. laws. Like you said, selling prepaid credits to your service doesn't mean you're covered by money transmitter service regs.
  - andrewmcwatters 1y ago
    I just ignore anyone who doesn't actually own a business or administrate compliance on HN, because half the people here don't know what they're talking about with basic technologies, let alone law or finance.
  - renewiltord 1y ago
    Did you know it's okay to give bad health information advice if you spell it HIPPA instead?
    - kstrauser 1y ago
      My eye just twitched so hard I might have sprained it.
    - bravesoul2 1y ago
      No. HIPPAs are the most dangerous animals in Africa.
  - bravesoul2 1y ago
tom_m 1y ago
If they're non-refundable?
muzani 1y ago
Refunding could violate money laundering laws in some countries, and they're in a lot of countries.
- dv_dt 1y ago
  Maybe if they had access to an AI they could have figured out which countries customers could be refunded
OutOfHere 1y ago
That's complete nonsense and lies because Uber, Lyft, and some cloud service providers do not have any trouble holding on to user credit indefinitely. I absolutely can let my credit sit in them indefinitely. As such, expiring my credit is deception and theft, plain and simple. It is a practice done by lazy robber accountants. The services that do it right may not always offer a refund, but at least my credit doesn't expire.
Spooky23 1y ago
It’s not that, it’s a revenue recognition issue. And there are lots of tricks around it.
theshrike79 1y ago
Fun fact: Starbucks is holding 2 BILLION of people's money in the form of unused gift cards and pre-paid store credit: https://alltrades.substack.com/p/the-bank-of-starbucks https://alltrades.substack.com/p/the-bank-of-starbucks
- kldg 1y ago
  with proper paternal laws, we could put that money toward useful projects or return the money back to individuals. (just kidding; we'd divert it to subsidize billionaires) https://local12.com/news/local/ohio-allocates-billions-from-unclaimed-residents-funds-stadium-projects-sports-sport-athletes-cincinnati-bengals-cleveland-browns-reds-cavaliers-concert-venues-facilities-money-cash-projects-revenue-repay-tax-taxes-claims https://local12.com/news/local/ohio-allocates-billions-from-...
- beaugunderson 1y ago
  and luckily due to Washington state's consumer protection laws (https://app.leg.wa.gov/rcw/default.aspx?cite=19.240&full=true#19.240.020 https://app.leg.wa.gov/rcw/default.aspx?cite=19.240&full=tru...) they can't add an expiration or a monthly fee to draw those balances down to zero here. would love if there was similar law for credit expiry.
bravesoul2 1y ago
Every API request? Can't they just get an invoice at the end of each month to turn that to $ amount. Like a phone bill.

backprop1989 1y ago

Exactly, now you’re a bank (or maybe selling unlicensed securities, either way it’s jeopardy). We ended up revising the contract so that the credits expired after three years. That opened up its own suboptimal outcomes. It was a lesson that was very much learned by us. On the topic itself - agreed that Anthropic should take a step back and review its policy around comms and good will in general. They’re supposed to be the “good guys” in the AI game - being up front about this stuff is table stakes for them at this point.

jkaplowitz 1y ago
> Exactly, now you’re a bank (or maybe selling unlicensed securities, either way it’s jeopardy). This seems unlikely - after all, a US federal law (the Credit CARD Act of 2009) requires closed-loop (store/brand-specific) gift cards to be valid for at least 5 years after activation and some states like Florida and California don't allow them to expire at all, so for simplicity national companies don't usually let them expire at all regardless of state. But neither a 5-year expiration nor indefinite validity turns the seller into a bank or an unlicensed securities seller or otherwise puts them in jeopardy. Naturally, service credits and gift cards are probably treated differently by the CARD Act, but service credits are still not a source of legal jeopardy in the sense you were describing of being an unauthorized participant in the regulated financial world, any more than gift cards are. I can completely believe, however, that an approach similar to how gift cards must be handled is financially worse on the company's accounting statements than quickly expiring credits. That worse financial accounting consequence would be a completely sufficient explanation for why the company switched approaches.
- yial 1y ago
  With gift cards you end up creating a liabilities account and tracking the outstanding value of your issued gift cards. This is almost easier if you have a gift card processor who holds the funds for you, but most I’ve worked with either just facilitate transferring money (as in franchises ) or simply processing the initial payment. This means you then have to track your outstanding. Depending on the state, if you cease operations you may need to escheat the value of the liability account or pay the purchasers of the gift cards if you know who they are. (Newer POS systems make this possible at times ). Gift cards on a financial statement are nearly always a negative or neutral, as while the money is in a liability account, I’ve seen companies in trouble not actually have the funds to cover the liability.
  - jkaplowitz 1y ago
    Yeah, having to track (and under certain circumstances resolve) the liability is what I meant by financially worse on the accounting statements. An entirely real downside that’s valid to choose to avoid, but which is also not the kind of jeopardy that compares to operating a bank or selling securities without the proper regulatory approvals. That was my main point to the other commenter.
  - thaumasiotes 1y ago
    > while the money is in a liability account, I’ve seen companies in trouble not actually have the funds to cover the liability. That's a weird edge case. As long as the company is operating, it isn't even possible for it to be unable to cover the liability of outstanding gift cards no matter how many there are. It has to honor the cards, but it has total freedom to set its own prices! Given that the company is free to pay off the cards in kind while it's operating, it's not obvious why it should have to pay them off in cash as it ceases operating.
htrp 1y ago
"you either die a hero or live long enough to see yourself become the villain"

blindriver 1y ago

> you need to put that money into a separate, third party’s account that shields it from bankruptcy This is wrong. You don’t need to do any of that. They paid for a service and it becomes a liability, but there’s no duty to segregate those funds. You do not turn into a money transfer agent just because you sell pre-paid credits to your service.

hn_throwaway_99 1y ago
Thank you. As someone who used to work for a health fintech, it was amazing how often you'd hear loads of confidently wrong opinions on stuff like HIPAA (no, saying that Lisa couldn't make the meeting because she's out with the flu doesn't make it a HIPAA violation) and money transferring/KYC/AML/etc. laws. Like you said, selling prepaid credits to your service doesn't mean you're covered by money transmitter service regs.
- andrewmcwatters 1y ago
  I just ignore anyone who doesn't actually own a business or administrate compliance on HN, because half the people here don't know what they're talking about with basic technologies, let alone law or finance.
- renewiltord 1y ago
  Did you know it's okay to give bad health information advice if you spell it HIPPA instead?
  - kstrauser 1y ago
    My eye just twitched so hard I might have sprained it.
  - bravesoul2 1y ago
    No. HIPPAs are the most dangerous animals in Africa.
- bravesoul2 1y ago

tom_m 1y ago

If they're non-refundable?

muzani 1y ago

Refunding could violate money laundering laws in some countries, and they're in a lot of countries.

dv_dt 1y ago
Maybe if they had access to an AI they could have figured out which countries customers could be refunded

OutOfHere 1y ago

That's complete nonsense and lies because Uber, Lyft, and some cloud service providers do not have any trouble holding on to user credit indefinitely. I absolutely can let my credit sit in them indefinitely. As such, expiring my credit is deception and theft, plain and simple. It is a practice done by lazy robber accountants. The services that do it right may not always offer a refund, but at least my credit doesn't expire.

Spooky23 1y ago

It’s not that, it’s a revenue recognition issue. And there are lots of tricks around it.

theshrike79 1y ago

Fun fact: Starbucks is holding 2 BILLION of people's money in the form of unused gift cards and pre-paid store credit: https://alltrades.substack.com/p/the-bank-of-starbucks https://alltrades.substack.com/p/the-bank-of-starbucks

kldg 1y ago
with proper paternal laws, we could put that money toward useful projects or return the money back to individuals. (just kidding; we'd divert it to subsidize billionaires) https://local12.com/news/local/ohio-allocates-billions-from-unclaimed-residents-funds-stadium-projects-sports-sport-athletes-cincinnati-bengals-cleveland-browns-reds-cavaliers-concert-venues-facilities-money-cash-projects-revenue-repay-tax-taxes-claims https://local12.com/news/local/ohio-allocates-billions-from-...
beaugunderson 1y ago
and luckily due to Washington state's consumer protection laws (https://app.leg.wa.gov/rcw/default.aspx?cite=19.240&full=true#19.240.020 https://app.leg.wa.gov/rcw/default.aspx?cite=19.240&full=tru...) they can't add an expiration or a monthly fee to draw those balances down to zero here. would love if there was similar law for credit expiry.

bravesoul2 1y ago

Every API request? Can't they just get an invoice at the end of each month to turn that to $ amount. Like a phone bill.