For the longest time banks have relied on the law to protect the private property of their account holders. Ironically, those same banks increasingly find themselves in the unenviable position of protecting themselves from the law.
Consider Sen. Elizabeth Warren’s Protecting Consumers from Payment Scams Act, co-sponsored with Sen. Richard Blumenthal & Rep. Maxine Waters. Warren, Blumenthal and Waters are unwittingly redistributing wealth to criminals via banks. No stick-ups required.
With the mis-named Payment Scams Act, Warren et al plan to use the law to put banks on the hook for authorized payments made to scammers. Stop and think about that. If the holder of an account makes an authorized transfer of funds to a criminal scammer, banks will be required to pay for the mistake.
By the very description of the legislation, it’s easy to shoot fish in crowded barrels with questions and comments about why any bank account holder should be at all conscientious about account oversight if errors will be covered by others. There’s also the reductio ad absurdum whereby criminals could actively operate in concert with account holders in order to pull off persistent scams knowing full well that some sort of other (meaning banks) will be on the hook.
Except that neither scenario will reveal itself in any major way simply because unbeknownst to the sponsors of this most misguided of proposed laws is that price controls are but another word for scarcity. Ok, but what could that mean? Where’s the price control in legislation meant to protect bank account holders from scams?
The answer is that it’s implicitly built in. If opening accounts becomes too expensive for banks owing to the substantial liabilities associated with same, they quite simply won’t open accounts, they’ll charge princely sums for the “right” to open accounts, or both.
Or course, the rich irony within all of this is that banks and other financial institutions muscularly backed the addition of Zelle, Venmo, Square and other financial innovations to the suite of products offered customers precisely because all three (and more) existed (and exist) as a way for account holders to securely move money around. Translated, banks don’t require force to protect their customers.
Better yet, and with an eye on ensuring that monetary transfers lead to funds reaching their intended recipients, banks and person-to-person (P2P) services have built in all manner of prompts and halts meant to focus the mind of the account holder on whether or not the intended transfer reflects their true intent. In other words, financial institutions have embraced much more secure ways for their customers to move money around, only for them to go to ever greater lengths to ensure loans, payments and transfers that are even more secure. Which is the point, or should be. Banks aren’t in business to break even, or lose money, rather they’re in the business of making money by virtue of constantly enhancing customer outcomes so that they’re entrusted with more of the customer’s funds, and a greater number of customers more broadly.
For the longest time the lament has been about un-banked segments of the population, and the need for financial institutions to spread their services across greater numbers, but for the problem of price controls. As banks go to ever-greater lengths to service growing swaths of the population, all the while providing expanded services meant to protect the wealth of a growing part of the population, their efforts have been met with ever more legislation from Washington focused on raising the cost of opening accounts.
Stated simply once again, the Payment Scams Act is a price control. And as such, it will de-bank all too many, thus pushing their financial wellbeing well away from the safety and security of the banking system itself. To allegedly protect the most vulnerable, Senator Warren and friends are unwittingly legislating much greater vulnerability, all to the benefit of scammers.
