> A proper value comparison would be 'cost of all audits caused by this regulation' vs 'benefits gained from mistakes found by it'

I don't think accurately captures it and is certainly not fair to the customers. The cost is not from the same source.

Let's say audit cost per year is $100, and savings per year is $100:

If they choose to forgo auditing:

Citi: $200

Customers: -$100

If they do auditing:

Citi: -$100

Customers: $100

It's apples and oranges. Regulation is about the customer and societal protections, not the protection of the company's profits. If a regulation is sound in terms of need but too expensive for a business, we shouldn't do away with the regulation altogether.

As with your post, this isn't defending all regulations or that specific parent argument, just pointing out that the cost on the company being regulated versus money saved is not a valid metric for deciding if a regulation is needed. The regulation accounts for many more intangibles such as fair customer protections, and again, is not aimed at the value of the regulation for the company being regulated, though a regulation that causes a needed private business to be unprofitable is likely not sound.

I think those numbers don't add up?

Starting situation(note there are only 100 bucks): Citi: $0 Customer: $100

Without audit: Citi: $100 Customer: $0

With audit(a): Citi: $0 Customer: $0 Government: $100

Alternate with audit(b): Citi: -$100 Customer: $100 Government: $100

But citi can't run negative as a whole. Its a business, if it didnt make money, it would shut down. So A is whats actually happening with the numbers provided.

I think the math could be corrected slightly for clarity, but the general point still holds I think: the money is not apples and oranges here.

Where does the government get the $100 from? The audit isn't conducted by the government as far as I'm aware, just mandated by them. Correct me if I'm wrong there of course.

> note there are only 100 bucks

That's my whole point: there isn't. The money they accidentally stole from customers (and eventually are now giving back) is different from the money they spent to conduct the audit, regardless of if for any given audit they find money that was misplaced.

> But citi can't run negative as a whole. Its a business, if it didnt make money, it would shut down.

People are acting as if this audit's cost will run Citi out of business, which I would find very hard to believe to be the case. If you actually read my post carefully, I too believe a regulation that causes that is likely flawed.

My whole point is being missed here: some good regulations can cut into profits of businesses and still be worth it from the perspective of the society as a whole. Only once a regulation is so strong of a profit cut that a needed business cannot exist is a regulation likely flawed. Of course, there are many other ways for a regulation to be flawed as well.

> Where does the government get the $100 from? The audit isn't conducted by the government as far as I'm aware, just mandated by them. Correct me if I'm wrong there of course.

Well the bank is not keeping it, and the consumer is not keeping it. So whoever got that money got it because government said they should. They could be independent accountants but for any purposes, the government gave the money to the auditors, being their own or someone elses.

> That's my whole point: there isn't. The money they accidentally stole from customers (and eventually are now giving back) is different from the money they spent to conduct the audit, regardless of if for any given audit they find money that was misplaced.

Thats what you want to believe, but the money they get to spend on the audit all came from customers, they didnt come from the pockets of management. So if you want to believe the money was not taken from customers in this instance, it was in another instance, and now the problem of analysis expands into other areas.

> My whole point is being missed here: some good regulations can cut into profits of businesses and still be worth it from the perspective of the society as a whole. Only once a regulation is so strong of a profit cut that a needed business cannot exist is a regulation likely flawed

Regulations affect company profits in a different variety of circumstances: it depends on the elasticity of the supply. If you put a regulation on ALL banks, then there is no chance in supply, meaning that the consumer bears the entire cost of regulation.

Regulation affects profits of companies, generally by increasing the margin and decreasing the amount, because small companies cannot compete on regulations, the supply decreases, giving big players an advantage.

Remember how they just made it costly to have an account with little money with the bank? That's because it costs money in regulatory compliance. And the bank quickly wants to get their money back or they don't provide the service.

Banks are a special case of market for many reasons, for their capacity to destroy, for their leverage, for their relationship to the government. They have better cases for regulation than most markets. But the original thread made a claim it cannot sustain and i called it out on it.

> Thats what you want to believe, but the money they get to spend on the audit all came from customers, they didnt come from the pockets of management. So if you want to believe the money was not taken from customers in this instance, it was in another instance, and now the problem of analysis expands into other areas.

> Regulations affect company profits in a different variety of circumstances: it depends on the elasticity of the supply. If you put a regulation on ALL banks, then there is no chance in supply, meaning that the consumer bears the entire cost of regulation.

I think that's a fair expansion of scope, but something unmentioned here is that customers are not uniform in benefits received. Paying for the regulation ends up a bit like paying for insurance here - you may pay more this year, but it can save you against anything catastrophic.

> Remember how they just made it costly to have an account with little money with the bank?

Not at all banks by any means. Different banks offer different perks and spread around the cost differently, turning knobs like interest, fees, service quality, etc. There are still a good deal of options in the sector.

> But the original thread made a claim it cannot sustain and i called it out on it.

This has divulged a bit, though in interesting ways, so not without reason, but which claim is false specifically?

>I think that's a fair expansion of scope, but something unmentioned here is that customers are not uniform in benefits received. Paying for the regulation ends up a bit like paying for insurance here - you may pay more this year, but it can save you against anything catastrophic.

That was my point - you need to assess this and then add it to cost benefit analysis. Saying that it's worth it just because caught a random error that amounts to 300M$ is very bad reasoning that can be used to justify very bad legislation. And unfortunately people accept this kind of reasoning from politicians. I expect more from HN.

I never made that argument though. My original post was simply stating that there are regulations that can cost more to the companies than it saves consumers that are still good. A simple "is this profitable to the company" test is not a good measure for a regulation.

> As with your post, this isn't defending all regulations or that specific parent argument, just pointing out that the cost on the company being regulated versus money saved is not a valid metric for deciding if a regulation is needed. The regulation accounts for many more intangibles such as fair customer protections, and again, is not aimed at the value of the regulation for the company being regulated, though a regulation that causes a needed private business to be unprofitable is likely not sound.

Is it profitable to company is irrelevant, is it profitable to the consumer is what matters (including value of risk mitigation)

Companies don't make money out of thin air. In general, if something costs the company money they will pass those costs onto the consumer (or cease to exist).

If your regulation costs more than it saves consumers, then it'll need extraordinary justification, i.e. all of the costs are carried by only few consumers.

Nope there is competition so Citi can’t just increase interest rates across the board and add a bunch of new fees. The shareholders will take most of the loss.

If Citi tries to increase prices, Amex and Chase will laugh and scoop up their customers. Very few people are “stuck” with Citi

If all the banks have the same regulation, then there is no elasticity. Taxes that affect every supplier the same typically fall on the consumer.

They are welcome to reduce cash back given on their credit cards or other means of increasing profits. Something tells me that the banks and credit card companies will do just fine here with the additional cost of the audit. It's a tiny fraction of their budget, and should absolutely be done, even if it costs double what it saves consumers, as that money is much more valuable to the consumers and the companies can still very much exist, pay employees, and even make a nice profit, despite losing money by auditing regularly to comply with a regulation.

> It's a tiny fraction of their budget, and should absolutely be done, even if it costs double what it saves consumers

This is mind boggling. Its the equivalent to arguing in favor of burning assets. Why would you make people work on things that reduce value?

To ensure people are charged what they should be? I'm mind boggled that people are so centered on the business that they can't fathom a reason for anything beyond profit or other purely economic factors.

To take this to ridiculousness, we wouldn't stop chasing murderers if we found out that it cost more to chase them than clean up the bodies after. It's because we care about murder beyond its net economic value. And no, I don't care about the specifics of "oh maybe people being more scared of getting murdered will decrease GDP". My point here is that this is a clear case where value is brought beyond economic value. Regulations are often too in this category, though obviously a bit less than law enforcement.

> To ensure people are charged what they should be? I'm mind boggled that people are so centered on the business that they can't fathom a reason for anything beyond profit or other purely economic factors.

If you pay more than you would have, you wouldn't be paying what you have to, you are paying more. Its like putting an inspector on a bus to check tickets, but he gets the money from all the bus tickets collected.

Missing the forest for the righteousness.

> To take this to ridiculousness, we wouldn't stop chasing murderers if we found out that it cost more to chase them than clean up the bodies after. It's because we care about murder beyond its net economic value. And no, I don't care about the specifics of "oh maybe people being more scared of getting murdered will decrease GDP". My point here is that this is a clear case where value is brought beyond economic value. Regulations are often too in this category, though obviously a bit less than law enforcement.

The comparison to murder would be for the state to kill everyone suspected of a crime so crime murders go really down.

Yep and if they reduce cashback then more people will get a superior cashback card from someone else leaving Citi worse off

As mentioned by others, all of these companies have to spend on this regulation it seems, so it should be an even playing field.

It is true that money doesn't come out of thin air, but it doesn't always get passed on. I worked at a place that had some billing issues. It wasn't cheap to correct, but it was the correct thing to do. Where did the money come from? Out of the next few months of profits. Things were tight, but customers were happy.

If there were regulations forcing an expensive audit, I'm sure we would have built that into the cost of business and passed it on - but not the results of our mistakes.

That's different, though. That's a one-time cost. One time costs don't necessarily get passed on, but ongoing costs do, otherwise the company will simply go out of business.

I guess a company shouldn't regularly defraud its customers beyond its ability to pay if it wants to stay in business.

Seems simple enough.

Wouldn't the pressures of the market also dictate the price?

The market may dictate they reduce profit or other incentives over increasing the cost of their product.

> ...if something costs the company money they will pass those costs onto the consumer...

They don’t have to do that, though.

Honestly if Citi stole $1000 from me but now everyone has to pay $0.01 towards an audit so everyone can get their stolen money back, it’s worth it. They stole the money and they should pay it back with interest. I don’t care if it’s expensive for them because they didn’t build in basic mathematical safeguards when their business is literally charging interest on numbers.

I’m not sure where this idea comes from that companies pass all costs on to customers. Citi does have profitable quarters and unprofitable quarters. If they have to take a $350 million charge off for overcharging people, then they will have a less profitable quarter and their shareholders will have to deal with it. If they try to jack prices way up to cover for it, then many people will just switch to Chase or Amex since they have better deals anyway. It’s like saying we shouldn’t charge Volkswagen for the emissions scandal because our cars will get too expensive. In reality, VWs will stay at basically the same price. If they got more expensive right after they got caught cheating everyone, then they simply won’t sell.

I just bought a Volkswagen, not only are they not more expensive, they’re substantially cheaper than they were a few years ago.

The whole value comparison thing is weird because rules are not always made to gain net positive value. Because if they did then stuff like Universal healthcare will never happen.

Secondly, businesses are a complex beast. It's not a simple debit/credit and there are tons of different schedules which run simultaneously. It is easy to get lost - whether it is customer's or the business' own money. So, every business run audits and reviews. Banks more so because they have other people's money. The only difference is whether they have legally mandated to share the findings and take corrective action.

I don't disagree with you - I just wanted to point out that "see this caught 300m$ error therefore it's worth it, and it also validates other regulations" (which is how I read OP and a common line of reasoning I see in public debates) is dangerously wrong because it ignores costs completely.