On June 1, 2023, the CFPB published an issue spotlight on digital payment apps heavily used by consumers and businesses. The CFPB also issued a consumer advisory for customers holding funds in these apps and how they can make sure their funds remain safe.
The CFPB’s analysis found that funds stored on digital payment apps may not be safe in the event of financial distress, since the funds may not be held in accounts with federal deposit insurance coverage. According to the CFPB, the use of nonbank payment apps such as PayPal, Venmo, and Cash App have rapidly increased in the past few years. However, unlike traditional bank and credit union accounts which have deposit insurance, funds stored in these nonbank payment companies may be unprotected.
The CFPB’s issue spotlight finds that:
More than three quarters of adults in the United States have used a payment app;
Nonbanks can earn money when users store funds on their platforms.;
Funds sitting in payment app accounts often lack deposit insurance; and
User agreements often lack specific information.
Through a Consumer advisory, the CFPB warned that holding money in payment apps without moving it to an account with deposit insurance carries greater risk. The advisory cautions that consumers should be aware of the risks associated with storing funds in payment apps and take steps to mitigate those risks. One recommendation is to immediately transfer funds from payment apps to a bank account insured by the FDIC or the NCUA.
Read the CFPB’s press release here.
The Issue Spotlight can be found here.
The Consumer Advisory can be found here.
