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wangotango68
wangotango68 Posts: 1,056
edited February 28 in Clubhouse Archives
Fed Rules PayPal Is Not a Bank


Last month, in an advisory letter sent PayPal concerning the company's use of customers' funds, the Federal Deposit Insurance Corporation said it does not consider the company to be a bank or savings association because it does not accept deposits as defined by federal law, which requires institutions to have a banking charter. PayPal doesn't have a charter, thus it is not a bank, the FDIC wrote.

"PayPal does not physically handle or hold funds placed into the PayPal service," News.com cites the FDIC as saying in its letter. PayPal representatives told News.com that the FDIC opinion should help the company stave off attempts by state and federal officials to regulate its business.

"As long as we continue doing what we are doing today, we won't be subject to Federal banking laws," PayPal Chief Executive Peter Thiel told News.com. An FDIC official told News.com that state officials may still conclude that the company is acting as an unauthorized bank.

"It's really a state issue," the FDIC official told News.com. "I've been on the phone with several state regulators. I've indicated that federal law is not going to help them. They are going to have to come to their own determination under state law" about whether PayPal is acting as a bank.

More recently, PayPal has come under increasing scrutiny from states such as New York and California. Those states have raised questions about whether the Palo Alto, Calif.-based company is operating an illegal banking service.

According News.com, state regulators have also begun to question whether PayPal is operating an unauthorized money transmitting service. Last month, Louisiana asked PayPal to cease offering its service to state residents until it secured a license from the state to transmit money. PayPal is in the process of applying for such a license, Thiel added.

While PayPal acknowledged that the FDIC opinion is not binding on state regulators, the company argued that it could have a positive effect. The opinion "could be considered relevant by some state authorities in their review of whether PayPal is engaged in the business of banking under state law. Notwithstanding the opinion, PayPal will continue its applications for state money services licenses where appropriate," the company told News.com in statement.

The FDIC's decision on PayPal's banking status comes as part of an advisory opinion on balances left in PayPal customer accounts. As of this quarter, PayPal began depositing customer balances into FDIC-insured bank accounts. The company had asked for an opinion from the FDIC on whether it could pass the insurance protection on to its customers.

In the advisory letter, the FDIC said the insurance protections, up to $100,000 per customer per bank, would extend to PayPal customers, even when PayPal deposited the funds for them, PayPal told News.com.

Source: News.com

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Comments

  • wodom1
    wodom1 Posts: 1,054
    edited March 2002
    they must not have cut their service to Louisiana yet, because i just paid for 2 ebay auctions via paypal within the last 2 weeks.

    -josh
    "I got into the music business thinking it was really radical, that it wasn't really a business at all, that it was a lot of people being artistic and creative. Not true, and it made me very depressed."

    Thom Yorke of Radiohead

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