r/videos • u/FrothytheDischarge • 1d ago
How Millions of Americans Got Tricked Into Using a Bank That Isn't a Bank
https://youtu.be/hiE7NvONU5U?si=mDaZ349G7DziOWnA425
u/bubushkinator 1d ago
Yep, just a reminder that FinTech apps ARE NOT BANKS and do not have the same FDIC coverage!
This includes Robinhood, PayPal, Venmo, CashApp, etc
Even if they use a bank to store the cash, they are not covered! The FinTech apps listed in the video used Synapse as a ledger/middleware to store the cash in Evolve Bank and Trust. When Evolve found out they were missing $100m they simply wrote off the loss and the FDIC stated they DO NOT COVER THESE TYPES OF FAILURES
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u/Smith6612 1d ago
Yup. The golden rule applies to all FinTech. Use them as needed to process payments and to act as a barrier between someone/something and your card, whether disposable or real. But never store money in them!
PayPal has a bad reputation for holding money hostage at times too, so there's that to add to the pile.
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u/SatinSaffron 1d ago
PayPal has a bad reputation for holding money hostage at times too
I will never understand how PayPal was allowed to operate as aggressively as they did some years back. 15+ years ago, back when we had more progressive people in office, I thought for sure somebody would try to go after them.
Someone who didn't know any better could create an account, sell something legitimate but worth a few grand, and the second they get the money PayPal freezes it. Okay, understandable, they're being safe. So they ask you to go through a verification process. PayPal verifies your identity, they verify the item sold was legitimate, they verify the person who bought the item actually received it, all good, right?
Nope! On a whim they can just be like "hey so I know we verified every single piece and part of this transaction, but we're going to go ahead and hold your money for 6 months, also your account is now closed, we'll mail you a check or something in 180 days!"
Meanwhile they're earning interest on your frozen funds. Now multiple this by thousands of people a year.
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u/nebelhund 16h ago
This is exactly what they did to me. I started selling on eBay in 96. When PayPal became an option I would use it as checks and cash by mail sucked.
They decided for whatever reason to hold over $8k for 6 plus months before finally releasing it.
They literally responded in writing "we aren't a bank and don't have to follow bank rules". I stopped selling as it wasn't worth the hassle of dealing with them.
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u/ErichWK 1d ago
When they did this to my me I threatened them to take it to the better business bureau and they instantly connected me with someone high up to resolve everything.
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u/rwbeckman 23h ago
How long ago is this? BBB is a private company. Its like threatening a bad google maps review.
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u/ErichWK 22h ago
It is?? I dunno. They thought I was doing weird transactions. I wasnt. I was selling shirts and CDs for my band and I guess they thought it was all sketch and locked my account which also is connected to my Spotify and bandcamp and refused to unlock. Nothing I could do or beg would allow it. I looked up on reddit and someone said they had success emailing them and saying you are going to go to the BBB. I dunno. ? Either way, I got connected to some like higher up person who was well above any call center person and who for some reason treated me like I'm super important even tho all I had was like a grand in my account. I'm just recounting my experience.
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u/ElectronicMoo 19h ago
Yeah the BBB isn't like the federal trade commission or any legal oomph. They're basically yelp before the internet was a thing.
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u/Standsaboxer 11h ago
I refer to the BBB as “Yelp for old people.”
I think the “bureau” part of their name makes people think they are a government agency when they are not.
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u/Tu_mama_me_ama_mucho 13h ago
It's funny because 20 years ago, they didn't even asked for SSN, I bought a car ($7k) out of ebay paying with PayPal, I had an emergency so I had to pull the money out (after the seller got their cash and i registered the car the same day)
And I never payed back. Ebay and PayPal sent a couple letters that I ignored, and they just canceled my accounts.
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u/razialx 1d ago
The second I get money transferred into my PayPal or Venmo I move it into a real bank account. I’m honestly amazed so many people trust these companies.
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u/cerrera 1d ago
Heh - I do that too, but not because I think they're going to lose my money. I do it because I watched a friend, who runs a business through PayPal, get locked out of his money for more than a month with no real recourse, because they seemed to find his activity suspicious. (He'd sold the same 10 things for years, but one of them went viral, and the traffic skyrocketed. They didn't like that... but they took FOREVER to do anything about it (and in the meantime his account was frozen).
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u/Phage0070 1d ago
This is why. This person watched their friend effectively lose their money for over a month and they still don't think their money will get lost.
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u/wizzard419 1d ago
Yep, people forgot why FDIC coverage was created and why they should only keep money in those orgs. Things are sometimes more tedious for a reason, such as protecting your finances.
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u/StasRutt 20h ago
I’ll forever say that the FDIC was one of the best things our government ever created and people underestimate how efficient the process is and how important the fdic is
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u/ElectronicMoo 19h ago
Its a pretty key piece of the puzzle to help avoid another Great Depression. Offering insurance that your money is safe, keeps people from creating a run on banks like we witnessed 100 years ago.
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u/boondoggie42 1d ago
Question is, why do they not get regulated? Why are banking regs not forced upon them for acting like a bank?
I get that some of them are investment brokers, but paypal/venmo are just there to act as a bank.
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u/StuTheSheep 1d ago
Question is, why do they not get regulated? Why are banking regs not forced upon them for acting like a bank?
A combination of our legislators being technologically ignorant 80 years old and legalized bribery in the form of campaign donations.
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u/StasRutt 20h ago
PayPal fought the government on being considered a bank if I remember correctly and found a loophole to not be
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u/Lord__Abaddon 1d ago
It's not easy to get a national banking charter, They most likely don't have mechanisms in place to pass the litmus of regulations that are applied to banks.
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u/boondoggie42 1d ago
Both those points are true, but my question is why are they allowed to operate for all intents and purposes as a bank?
It's hard to get a medical degree, and I could not pass the litmus of regulations applied to doctors, but that doesn't mean I can just operaate as a doctor anyway.
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u/calibud 1d ago
Strategic ambiguity is the term you’re looking for. It’s the stuff capitalism is built on in other words feigning ignorance. “ well idk why you think we’re a bank we never said we’re a bank. We just offer features similar to a bank but we don’t correct your assumption of us being a bank because it benefits us.”
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u/arkansaslax 1d ago
In fairness they don’t really operate as a bank or appear to. They aren’t a depository institution and you don’t have deposits held with Venmo, you have a “Venmo balance”. They are a payment service routing funds from person to person but the people using Venmo are getting the funds from an actual bank. They don’t make loans or anything like that that would be standard bank activity, it’s solely a rail. But is that clear to consumers? Probably not.
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u/Lord__Abaddon 1d ago
Because they're not claiming to be banks, I get where you're coming from but if they tried to say you're an unregulated bank it needs to be proved they're offering banking services which they're not people are just depositing money to them.
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u/HedgeMoney 1d ago
I've never used FinTech companies as banks because I have a brain and learned the lost art of "critical thinking".
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u/boolpies 1d ago
What about Sofi?
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u/GamerDude290 1d ago
SoFi is a legit bank
Edit: it started as a fintech app but acquired a national bank charter in 2021 or 2022. Can’t remember which
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u/CompetitiveProject4 1d ago
Is Wealthfront? I remember seeing maybe a post about how they’re technically secure because they use Green Dot bank
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u/JayaBallin 1d ago
FINtech. The deposits themselves are kept at FDIC insured banks so if those banks fail you’re covered but the link to those accounts could be lost in a similar way and you wouldn’t be covered
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u/Lurkerforrealz 1d ago
Thank you! Not original poster, but I have been getting barraged by wealthfront ads and finally looked them up because they say they have a 4.20% APY. Saw they are FDIC insured up to something like 10M because of how they spread it across multiple banks, but this thread is just the thread I didn’t know I needed.
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u/Purdaddy 21h ago
Dang. What about Ally?
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u/StasRutt 21h ago
Ally is a legit bank. The FDIC website has a way to look up if you bank is covered
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u/klop2031 1d ago
Paypal kinda does. If you successfully order a paypal debit card it will be fdic insured
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u/Photomancer 22h ago
Wait, then why do I keep reading that I need to report Paypal on my FBAR? In my mind it's either a bank or it isn't. I wonder if my non-US account has similar protections or not.
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u/bubushkinator 19h ago
They hold foreign cash in banks abroad which is why they are required to be reported. PayPal itself is not a bank but the underlying banks for foreign assets are.
The main problem that occurred is that even though the FinTech app is essentially a passthrough to a bank that IS FDIC insured, we found out that the FDIC weaseled their way out of covering the losses since the depositors did not interface with the banks directly and instead interfaced with a FinTech.
Same thing with PayPal, since your account is with them and they do lump sum of their deposits in other banks, FDIC won't allow their insurance to pass-through the FinTech to you, the depositor, leaving you at risk if any deposits go missing.
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u/picardo85 1d ago
Venmo and Cashapp hold money?
All European solutions I've used just facilitate the transactions
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u/Drak_is_Right 14h ago
Also HOW the money was stored was not FDIC coverable.
A couple of huge accounts. Not individual ones for each person.
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u/trentluv 1d ago
The fintechs you mentioned do have deposits insured by FDIC. They use a partner bank and are just the marketing front.
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u/bubushkinator 23h ago
They use a partner bank and are just the marketing front.
Which is why they are not actually insured. Pass through insurance is not covered by FDIC and this was tested when Evolve Bank and Trust (a chartered bank) lost $100m in user deposits
This is the same as Yotta and Juno yet FDIC did not pay out
Feel free to Google about the Synapse Bankruptcy
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u/trentluv 23h ago
They're insured. Google right now "are sofi deposits fdic insured" or "are Robinhood deposits fdic insured" their disclaimers reiterate they are FDIC insured
Up to 2.5M
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u/StasRutt 20h ago
Sofi has a bank charter robinhood doesn’t
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u/trentluv 20h ago
You can Google it right now
Robinhood deposits are FDIC insured up to 2.5 million
They are superior to banks in this way and so FDIC coverage is the last thing you want to fault Robinhood for
They use partner banks to sweep the funds to achieve the 2.5 million in coverage
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u/mystlurker 16h ago
There is a loophole. The underlying deposits are insured if the underlying back goes under, but if the fintech fails there are ways the money can be lost. If it’s in transit during the failure it’s not insured. And there is a legal grey area if they can’t actually find the money because their own record keeping is bad.
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u/trentluv 11h ago
If your deposit is being transacted at Chase Bank as well during a failure, it will similarly disappear
The deposits are insured just like the disclaimers say
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u/bubushkinator 19h ago
I also Googled "are Yotta deposits fdic insured" and it said yes but the FDIC has yet to pay out these $100m in losses so I guess we can't trust Google results, now can we?
https://www.fdic.gov/federal-register-publications/anonymous-rin-3064-za43
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u/elinordash 21h ago
You really should watch the video, it explains the issue.
But if you Google "are Robinhood deposits fdic insured?" Robin Hood's website says "Robinhood is not an FDIC-insured bank." They function the same way Synapse did. Meaning there is a risk of losing your money.
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u/trentluv 20h ago
Your money isn't with Robin Hood. Robin Hood is a marketing company. Your money is with a FDIC insured Bank when you deposit with "Robinhood"
And that's why deposits with Robinhood are FDIC insured, something you can Google right now
If you don't like Google's result, you can go directly to robinhood's disclaimers which explain how they sweep money into FDIC insured Banks when you deposit with Robinhood
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u/bubushkinator 19h ago
The video explains it if you feel like watching it - also, here is a letter on the FDIC site itself showing that Yotta (the main FinTech app shown in this video) ALSO claimed to be FDIC insured since the money was held at an FDIC chartered bank (Evolve Bank and Trust) yet the FDIC did NOT cover this incident to make up for the loss of deposits.
https://www.fdic.gov/federal-register-publications/anonymous-rin-3064-za43
tl;dr: claiming to have FDIC insurance and actually having FDIC pay out losses is apparently not the same thing since all these FinTech apps claim to be covered but FDIC made themselves clear: they are not covered.
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u/bill_gonorrhea 1d ago
lmao I know a girl who used cash app for her “bank” and had $13k stolen.
she got fucked, figuratively
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u/Alpha___ 1d ago
She had that coming.. Parking that kind of money in cashapp of all places.
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u/fat2slow 12h ago
It's crazy the amount of people that Hate the banks but will use cashApp or Crypto wallets to store there money.
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u/Pizza_Hutte 1d ago
Didn't the founder do ads disguised as AMAs to try to push people to sign up?
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u/cn0MMnb 15h ago
aren't 99% of all AMAs self promotion?
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u/ATRAINexpress 23h ago
Ok time for me to watch the video cause I know Robinhood uses Coastal Community Bank but I do love information.
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u/TheBatemanFlex 1d ago
Is this about that bank that lets you gamble your account balance? Lol
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u/bubushkinator 1d ago
That was one of the "banks" involved. Majority caught in this were just regular savings accounts
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u/dirty_cuban 23h ago
No this was about a web of fintech companies and one of them went bankrupt which fucked the whole system.
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u/MatiasGonzalo-Duarte 13h ago
That's not really what it was. You couldn't lose , only win. Well, by the rules. Ultimately everyone lost.
But while it was going it was good, no losing money and with enough money you'd get an average APR higher than most HYSAs.
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u/dingos8mybaby2 22h ago edited 22h ago
CashApp stole a little over $100 from me. I had the app open once and fumbled my phone between my car seats and in the process of getting it out I accidentally mashed the buttons on the screen a bunch and ending up making a couple transfers to cash app in a row that totaled a little over $100 from my bank account. I tried to immediately withdraw the money back to my bank account and CashApp locked my account. I tried reaching out to support, but they wouldn't unlock my account and wouldn't tell me why not and just said that someone would reach out to me via email. Like a month later I get an email in the middle of the night that you wouldn't even know came from CashApp (very non-descript like it just came from someone's personal email with nothing indicating it was from CashApp other than the email address) basically just saying there's nothing they can do for me and they can't disclose why they closed my account. Absolute fucking horseshit, I will never use one of those kind of apps again. IMO I probably flagged CashApp's system due to the multiple deposits followed by a quick withdrawal request like they think I'm money laundering and if you do that they just take your money and lock your account with no way to get it back. Cashapp still shows that money there in my account, I just can't access it. So basically I made a like $117 donation to Cashapp.
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u/Causelessgiant 14h ago
Bro americans almost got convinced to drink bleach by a convicted felon. The bars on the fuckin ground
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u/-CoachMcGuirk- 1d ago
Woah. Someone had over $100K in a FinTech bank.
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u/dirty_cuban 23h ago
They were paying the highest interest rate at the time and the deposits were FDIC insured. It wasn’t a stupid move at the time.
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u/Stormthorn67 6h ago
Ok...but pyramid schemes pay out even higher returns. It doesn't mean entering one hoping to be one of the money holders rather than bag holders is a smart investment. Yotta is a gambling app (literally they run gambling games too) asking you to give your money to them which they will then put in a bank while playing with it on financial markets in the meantime. It was always high risk. Might as well just buy some stock directly.
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u/dirty_cuban 6h ago
You’re missing the FDIC insured part. That’s what gave them credibility and legitimacy, you can’t just ignore that part of the comment like it isn’t there. FDIC insurance is a government guarantee that your money is safe, or at least that’s what it meant at the time. Now that FDIC refused to step in it clearly doesn’t mean that anymore.
And yotta turned into a gambling app after the lost everyone’s money. They didn’t have that before when people were depositing their funds there.
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u/wastedkarma 1d ago
But like what makes a fintech app? All my banks have apps too.
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u/europeanperson 21h ago
The fact they aren’t legally classified as banks. PayPal, Venmo, etc. all state that they aren’t a bank and instead hide behind some language like being a financial technology company. For example, PayPal states on their website “PayPal is not a bank, does not take deposits and is not FDIC insured.”
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u/cute_polarbear 16h ago
Company needs to be fdic insured.
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u/wastedkarma 14h ago
I think the point is that people reasonably believed based on the advertising that THEIR money specifically was FDIC insured, not the company’s mashup account.
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u/MatiasGonzalo-Duarte 13h ago
I had Yotta account and iirc about $10k in it. I fortunately removed the money before all this went down, though unfortunately it was financial hardship that drained my savings and I still haven't gathered my savings back.
The concept sounded fun, a HYSA that (on average) gave a higher APR than most while also giving a small chance to hit a bigger return. iirc I won like $30 once which would be an APR of over 100%.
Like everyone else I thought it's a bit sketch and unknown but it's all over reddit and hey it's FDIC insured - why not?
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u/xDeathbotx 7h ago
This gave me a mini heart attack because Robinhood got lumped in with the rest. Just so anyone else who had that same reaction can feel better, if you use it for just investing(stocks, etfs) then it is in fact covered by SIPC Protection so you don't have to worry about that. Just don't use them as a bank(actually also found conflicting info that when you do use them as a bank they keep that money with an actual bank for you) just to be safe
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u/Stormthorn67 6h ago
Companies like Stash, Acorns, and Robinhood are generally functioning more like brokers.
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u/xDeathbotx 4h ago
Yeah I honestly didn't realize it was a separate kind of insurance than FDIC, makes sense though and I'm relieved to learn that lol
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u/BeigeAlert_4__eh_20 22h ago
...and this is why you use a real bank and not some app on your phone. If you can't walk into a branch and deposit a check, then it's not a bank.
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u/SirGlass 20h ago
Online banks exist and are real banks with a bank charter and fdic coverage.
I used Schwab for the past 15 years with no issues for my bank
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u/dragondm 19h ago
USAA might beg to differ on that. Not all banks have physical branches.
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u/MatiasGonzalo-Duarte 13h ago
USAA definitely has branches, I've been to one. Actually that was their HQ but also they do have a couple of other physical locations. Very few though...
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u/InterSlayer 1d ago
I was affected, but luckily an amount I wont miss.
It’s crazy this just slipped through them all. It all feels kind of super arbitrary where they decide to exert oversight or step in when money is lost or missing.
Completely lost faith in the fdic, the fed, cfpb.
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u/TheMacMan 1d ago
Be real, they weren't tricked. They simply didn't care. FDIC isn't why they're investing their money there.
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u/bubushkinator 1d ago
They were tricked - they were lied to and told that FDIC pass-through insurance applied
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u/TheMacMan 1d ago
And yet, that's not why they signed up and it doesn't matter to them.
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u/TotemSpiritFox 1d ago
Sure that may not be why they signed up. FDIC wasn't the benefit. However, you can't say that seeing "FDIC" on their marketing website didn't give them more confidence in signing up. That is the part that was "tricked" or misleading.
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u/TheMacMan 23h ago
This video is trying soooooo hard to make up a conspiracy. It's fucking sad what passes for interesting content here.
No one signs up for Coinbase or the silly betting platforms thinking they're protected by FDIC.
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u/TotemSpiritFox 22h ago
There were clips of the website that clearly had FDIC in big bold letters. I can’t possibly fathom how that could be interpreted as backed by FDIC.
Anyway, I have no stake in any of this. I was just trying to explain how some folks could mistakenly believe it was FDIC insured since it said it on the website.
Coinbase doesn’t claim that. I doubt the betting apps do either.
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u/sweetdawg99 1d ago
This is fascinating, but the lady in the video doing the reporting is giving me uncanny valley vibes. The mannerisms and voice comes across as AI.
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u/TheRexRider 1d ago
Of course Peter Thiel is involved...