Thread by @patio11

Interesting and not unpredictable update on Zelle:

wsj.com/articles/small…

This is one of the periodic times where people have a lot of preferences for how financial services work and those preferences are difficult to satisfy for all people simultaneously at all times.

I think that banks have been feckless in how they've operated on Zelle vis their Reg E obligations, which include the bank (brief but directionally accurate version) taking liability for fraudulent use of basically any form of electronic payment.

They wanted to offer real-time payments, because they were watching Venmo and Cash App and Paypal and etc etc etc eat their collective lunch with that as a differentiating product feature, and so Zelle was born.

But everyone knew real-time payments greatly increase fraud risk.

"And so they either accepted that risk which is their duty under the law to accept or they decided not to do real-time payments."

No, how about we just do the other thing, where we #%*((%#ing ignore that law.

As a professional financial commentator, the vast majority of the time when people say "Ahh banks piss me off so much", I think it is because of poor understanding of incentives.

This, this decision, it pisses me off.

Now saying "Look if you want nice things there is a price for nice things, and that price here is renegotiating another nice thing which you want from us" seems like fair play to me! If I owned a community bank, I would also want to make this argument.

And if I were a bank, community or otherwise, I would follow the #*(%(#% law in advance of my advocacy to change it.

Previously from me re: Zelle news:

https://twitter.com/patio11/status/1500993875627761666?s=20&t=UzMkIbXp-bL7_d8z8ZN2dA

One of the fundamental tensions in society's desire for financial services, btw:

"We think Regular People should basically not pay for Basic Financial Services."
"Everyone is Regular People."
"Basic Financial Services include, um, all of them that are things I understand."

"Banks *must not discriminate* in offering Basic Financial Services; they're to be offered on a public utility basis."
"Because Regular People are not good at finance and banks are, banks should take all risk for Basic Financial Services."

"Asking Regular People about their use of Basic Financial Services is per se scuzzy behavior. Why would you have to know, you #*%(#%(ing bankers. Don't Regular People have a right to privacy anymore?!?"

There are solutions to these complex preferences of society (and different actors in society) which exist in tension with each other.

And those solutions are...mostly attached to every product you can buy from a bank today.

"Do you think a good-faith case can be made for the types of fraud which hit Zelle being out-of-scope for Reg E protection?

I do not believe one can make a good-faith case for this. Your argument would have to start from "It would be *extremely inconvenient* if..."

(Normally I'd put the "Not a lawyer and I don't interpret laws as part of my job" disclaimer here but this was *fundamentally a policy decision* and *the policy was utterly unambiguous* and *the entire banking industry largely followed it until Zelle.*)

Like if you actually read the text of Reg E it says in the legal equivalent of giant letters carved into a hillside To Be Absolutely #*%(#%( Clear This Applies To Everything In God's Creation.

The very thin reed the banks have been saying with regards to Zelle fraud is "Oh you authorized those fraudulent transactions", in the face of decades of our understanding about what "authorized" was supposed to mean.

"Did I 'authorize' a transaction with a skimming device attached to an ATM in Italy when I tried to swipe my card to get out dollars?"
"LOL no we're not stupid that was clearly fraudulent."
"How about if grandma defrauded over Zelle?"
"You mean she AUTHORIZED TRANSACTIONS."

There are many, many different mechanisms to convince someone to Zelle in a way that transfers value from them to a fraudster, similar to there being many mechanisms to extract value from a credit card.

That's why Reg E was intentionally written *very broadly.*

You could make a fun song about it:

Did he punch you in your face and steal your card doesn't matter that's Reg E.
Did she call from the bank except it was a lie doesn't matter that's Reg E.
Did he copy your magstripe onto blank plastic doesn't mattre that's Reg E.

Did your computer catch a virus doesn't matter that's Reg E.
Did your computer with a privileged session join a botnet doesn't matter that's Reg E.
Did cosmic rays corrupt a database doesn't matter that's Reg E.
Did an inattentive banker make a typo doesn't matter that's Reg E.

OK it's only a fun song if you enjoy banking regulation but it is extremely important that someone in society enjoy banking regulation.

(I mean, except the explicitly enumerated exceptions. Wire transfers: not beloved in the eyes of God, c.f. also carved in very large letters on the mountain.)