CFPB Warns: Billions of Dollars Stored on Payment Apps May Lack Federal Insurance

CFPB | Release | Jun 1, 2023

Agency issues notice to consumers advising them to transfer balances to insured banks and credit unions

• Safety Concerns for Funds Stored on Payment Apps: The Consumer Financial Protection Bureau (CFPB) has highlighted the potential risk associated with funds stored on popular digital payment apps. These apps, including PayPal, Venmo, and Cash App, lack federal deposit insurance coverage, leaving customers vulnerable to financial distress.

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• Growing Usage:
  • The usage of nonbank payment apps has surged, with over 75% of U.S. adults and 85% of consumers aged 18 to 29 utilizing these services.
  • Transaction volumes have reached approximately $893 billion in 2022 and are projected to rise to around $1.6 trillion by 2027.
  • Nonbank payment companies profit from holding and investing customer funds, along with earning fees from merchants and offering additional financial services.
• Lack of Transparency:
  • User agreements for payment apps often lack crucial information about the storage and investment of funds, insurance coverage, and contingency plans in case of company failure.
  • While some states are enacting policies to address these concerns, the CFPB advises consumers to transfer their balances to insured banks and credit unions until payment apps implement automatic sweeping into insured accounts.

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Rohit Chopra, CFPB Director:

opular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe. As tech companies expand into banking and payments, the CFPB is sharpening its focus on those that sidestep the safeguards that local banks and credit unions have long adhered to.

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