He added that his agency is closely examining payment app companies that “shirk the safeguards” imposed on traditional banks and credit unions.
This scrutiny comes as more and more Americans They prefer to pay without cash And they rely on payment applications. According to a October 2022 Pew Research Center survey, 76 percent of adults in the United States have used a payment app at least once, although 34 percent of users say they are not confident that payment app companies can keep their personal information safe. One in 10 users said they have fallen victim to a scam, according to the survey.
In its advisory, the CFPB recommended that users transfer funds from their payment apps to their bank accounts.
The agency said that this growth in popularity came without adequate measures being taken to keep users’ funds safe. For example, money kept in payment app accounts is often unsecured – meaning that if the money is stolen in some way, or if the payment app company fails, customers may not be compensated.
Moreover, payment companies have less oversight than traditional banks over how they store and invest users’ funds, allowing payment companies to invest in risky assets, the agency said. “The company can make money from these investments, while generally paying you no interest,” the agency wrote. in consumer advisoryadding that an unregulated company could be exposed to risks that are not clearly communicated to its customers.
If one of these companies fails, the CFPB writes, “your money is likely missing or locked up in a lengthy bankruptcy process.”
Accounts with payment apps are “secure and transparent,” said Miranda Margoski, a spokeswoman for the Financial Technology Association, whose members include PayPal and Cash App parent Block.
“FTA members provide clear, easy-to-understand terms across all of their products and prioritize consumer protection every step of the way,” she said.
PayPal, which owns Venmo, did not immediately respond to a request for comment. Block also did not respond to a request for comment.
In August 2022, the CFPB wrote in federal court documents that he was Block investigation on the Cash App’s handling of customer complaints, though it’s unclear if Thursday’s report is directly related. The agency said Thursday it would not confirm or deny “any ongoing investigative or oversight work.”
The agency’s new report comes on the heels of several failures of traditional and non-traditional financial institutions, in which consumers and businesses have lost control of their assets or come too close to them. In November, cryptocurrency exchange FTX filed for bankruptcy after investors rushed to empty their accounts, which totaled nearly 9 million. These assets have not been insured by the government, and many investors are still trying to recover their money in bankruptcy court. The collapse of FTX followed the failure of other crypto institutions in 2022 as investors lost money.
But traditional financial institutions — such as Silicon Valley Bank and First Republic Bank, which both failed this year — are also vulnerable to banking threats. The CFPB noted that these incidents highlighted “the importance of Federal Deposit Insurance coverage,” even though the vast majority of Silicon Valley Bank deposits were uninsured because they exceeded Federal Deposit Insurance Corp.’s $250,000 limit. The bank’s depositors were only covered because the government took the unusual step of getting involved.
However, the Consumer Protection Council noted, these events have “spurred renewed attention on the diverse types of financial institutions that consumers use and the extent to which consumer funds at those financial institutions are protected from losses.”
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