What do banks owe victims of romance scams?

Tainted love
Romance scams put banks in a bad spot, as our Kate Berry writes. She recounts the story of one victim who lost almost $350,000 over the course of several years. The scammers systematically took the man's money, having him drain several bank accounts over the course of a few years.

The question raised by the story is this: are the banks responsible for making the victim whole? In the case related in Kate's story, some banks reimbursed the victim, while others had their lawyers fight the case in court. Under the Electronic Funds Transfer Act, they are generally supposed to refund these kinds of scams. But there is some wiggle room in the law, as there always seems to be, and some banks are trying to wiggle through it. And while it's easy to be sympathetic to the victims, there is a legitimate question to be asked about who is responsible for restitution.

When I was a reporter covering crypto, I once talked to a victim of one of these scams. He was an older guy living in Ohio, and he thought he was being wooed by a woman in Florida. Who talked him into investing in some crypto trading thing that was supposedly easy money. Of course, right? And of course she wasn't real and he got robbed. And that's how I came to meet him. And yet…he still believed. Or, he wanted to believe. He kept holding out hope that she was real. We kept talking, long after I published my story. And he kept trying to prove to me – to himself really – that she was real. I'd ask him, have you ever seen her with your own eyes? Actually met her? Actually talked to her? He hadn't, of course. And he knew he'd been scammed. And yet, he still was desperate to believe in her. It was sad and painful to watch. We eventually stopped talking. I'm not sure I ever did convince him she wasn't real.

The reason romance scams are so successful isn't the technology. It's not the internet or the banking system or crypto. It's that very real, sometimes desperately real, human need for connection that can just overrun every single circuit in our brains. The scammers probably understand human psychology better than college professors (no offense intended). They know exactly what buttons to push, and when. They have built these scams into multinational organizations that, apart from the fact they're breaking the law, look every bit like a corporation. They are that well organized, and good at what they do. 

So I am actually sympathetic to the position some banks have taken that they should not be forced to reimburse the victims of these frauds. It's not the bank's fault that somebody fell for a romance scam and willingly – unwittingly but willingly – gave their money to criminals. On the other hand, arguing you shouldn't reimburse the victims requires a mistaken assumption about what money is. Those victims didn't lose some tangible, physical thing. They didn't send diamonds or gold bars or farm animals. The money that was stolen was just some notations in a digital ledger that represented some amount of accrued wealth. Money isn't "real," money is just an accounting system (I don't have the space here to debate this in depth, but it is something I believe). Seen from this perspective, the bank didn't "lose" anything, and doesn't "lose" anything by making the victims whole. It's all just an accounting exercise.

And the banks will spend more on lawyer fees fighting to not pay the victims back than on just paying them back, so why not help the victims? At the very least, there's a goodwill, public relations angle there to play. That's got to have some value, too, doesn't it?

Kraken cracks the door, but just a little (apparently)
Kraken got a lot of attention the other day when it announced that it received – "for the first time in U.S. history," the company breathlessly announced – a master account from the Federal Reserve. Today, the Fed's Michelle Bowman threw a little bit of cold water on that, our Maria Volkova reported.

Bowman, the Fed's vice chair for supervision, called the approval a "pilot program," a one-year trial to see how it worked and whether it could work. She said it's a test, and shouldn't be seen as a prelude to more crypto firms getting their trains on the Fed's rails. "I wouldn't say that it's opening the flood gates," she said.

Some people tried to make this seem like a pretty significant development. And who knows, maybe it is! But maybe it isn't. We'll find out in a year or so.

Load up the wagon, it's time to ride again
Wells Fargo can breathe the free air again. Yesterday, the Fed finally removed the last part of a regulatory blanket that was put on the company eight years ago in the wake of the cross-selling scandal. The Fed said the bank had met all its requirements for risk-management remediation and governance. Which means now Wells can just go out there and be a bank again.

The thing I wonder is, just how much did it cost Wells? Yes, four directors were ousted, people lost their jobs, the CEO was eventually replaced — Charlie Scharf has been in the top chair the last six years — and the company paid $5 billion in penalties. And all of that was justified. The bank had just gotten itself into a very irresponsible place. But I wonder, just on a math basis, how much business the bank lost over those eight years? 

A major plank of the enforcement action was to limit Wells' assets under management to $1.95 trillion. How much growth did it give up in those eight years? JPMorganChase's assets rose to $4.4 trillion last year from $2.6 trillion in 2018. Would Wells have had that kind of growth? For all the tangible penalties Wells did pay, the eight years of no growth is the biggest penalty it paid. How big? We'll never know.