Morning Scan

Venmo's hard line on overdrawn customers; Square pledges $100M to fight racism

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Wall Street Journal

No leeway

Venmo, the popular payments app owned by PayPal, “has taken a hard line against users who end up overdrawing their accounts. In some cases, it has threatened to dispatch debt collectors against victims of scams, [which] can leave victims with negative balances. In some cases, Venmo has told customers they owe it that money. Venmo’s tactic of referring users to debt collectors isn’t new, but those wrangling with the company face a choice: possibly having their credit score damaged for years or paying debts they say they don’t owe.”

“Venmo acknowledges that it uses collection agencies, but a spokeswoman said it has taken measures to ‘address situations where customers are experiencing any type of hardship related to the pandemic.’ That includes suspending for 30 days collections-related calls to customers who say they were affected by the economic fallout from the coronavirus. Venmo also agreed not to take funds from customers with negative balances who had their stimulus checks deposited directly into the app.”

Financial Times

Hidden dangers

The next financial crisis may be coming soon,” an FT op-ed warns. “Fears of a credit crunch have already hit business confidence and worried banks.”

“Banks are not the source of this year’s economic shock. They are also much better capitalized in the U.S. and most of Europe than in 2008. However, there is a rub: a financial crisis does not always materialize in the same way it did with the Lehman Brothers’ collapse. Sometimes financial stress emerges in a more insidious manner. Added to this is that it remains impossible to calculate the scale of eventual credit losses from Covid-19 while the pandemic continues to rage, especially as the widespread policy of credit forbearance conceals much of the damage.”

Bad omen

“Debt collectors for U.S. property loans have been on a hiring spree to deal with a deluge of defaults and prepare for lenders to assume control of shops and hotels — an alarming omen for owners of billions of dollars’ worth of commercial mortgage-backed securities.”

An FT op-ed piece says the defaults in the CMBS market may be the “trigger” for the “coming financial crisis” because they are “the least legally flexible credit securities that can move the fastest from low risk to visibly defaulted.”

New York Times

Taking the pledge

Square, the financial company “known for its credit-card readers, Cash payments app and Square Capital lending program,” was expected to announce Thursday that it will invest $100 million, or about 3% of its cash, in “an array of funds and lenders focused on underserved communities of color, joining a growing number of big businesses taking on racial economic inequality.”

Square promises to invest the money in three $25 million chunks, with the rest reserved for future programs: deposits at community development financial institutions and minority depository institutions; the Keepers Fund, a vehicle sponsored by the National Bankers Association designed to invest in MDIs; and the Black Economic Development Fund, “which was created by the Local Initiatives Support Corporation to support Black-led banks and businesses.”

Washington Post

Pushing the envelope

“Some publicly traded companies that received taxpayer-backed small business loans to pay their employees during the early weeks of the pandemic paid out millions to Wall Street investors in dividends and share buybacks,” the Post said. “The findings reinforce long-standing concerns that the Paycheck Protection Program was accessed by financially healthy companies that could have gone without a bailout.”

“Some advocacy groups believe companies that had enough cash on hand to pay millions in dividends and stock purchases were unlikely to qualify for the PPP program.”

Elsewhere

Culture shock

Working remotely may be a necessary measure during the pandemic, but not a long-term panacea for banks, a Bloomberg op-ed says. “Across their businesses, from mergers to wealth management, they’re having a hard time luring new clients over Zoom. More important still, being away from the office is bound to have an impact on how employees behave. The informal norms modeled by managers and reinforced through social interactions are what shape a culture, not the rules and regulations written in company handbooks.”

Baltic laundry

Danske Bank helped Deutsche Bank “facilitate suspicious trades worth over $600 million through its branch in Lithuania between 2012 and 2015,” according to several Danish media outlets. “The documents appear to show that Deutsche Bank moved around 4 billion Danish crowns ($627 million) in so-called mirror trades through Danske Bank in Lithuania,” Reuters said.

“In 2017, Deutsche paid a $425 million fine in the U.S. over a mirror trading scheme, which moved $10 billion out of Russia between 2011 and 2015. Authorities in the U.S. and other countries are currently investigating Deutsche Bank’s role in a money laundering scandal in neighboring Estonia, where 200 billion euros in suspicious payments were made through Danske Bank’s branch.”

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