US Consumer Protection Agency Warns about Payment Apps

CFPB highlighted that the majority of payment apps don’t have FDIC safeguards.

The United States Consumer Financial Protection Bureau (CFPB), an agency of the United States government responsible for consumer protection in the financial sector, raised alarms over the security of funds stored in nonbank peer-to-peer (P2P) payment apps.

In a report published on June 1st, the agency underlined the growing risks posed by the lack of insurance, especially given the surging popularity of such platforms, including those used for crypto transactions.

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In the aftermath of major failures involving crypto platforms like FTX, Voyager, and others in the preceding year, the CFPB cited that the public’s understanding of Federal Deposit Insurance Corporation (FDIC) coverage has increased significantly.

Despite the awareness, the watchdog expressed concern that billions of dollars are still being housed in payment apps that do not have FDIC safeguards. The CFPB report stated:

<…> Many payment apps—including PayPal, Venmo, Cash App, Apple Pay, and Google Pay—also offer stored value accounts that consumers can use as another payment method, and as a place to hold funds received from a payment or loaded into the account.

Moreover, in its report, CFPB highlighted that while credit unions and banks “are required to provide detailed information on their total deposits on a regular basis,” digital financial institutions “have no such requirement under federal law.”

The report concluded with a note on crypto assets, observing the uptick in mobile payment services facilitating transactions involving these.

It highlighted the lack of insurance for crypto assets, despite services like PayPal and Venmo allowing customers to store crypto in their accounts. It emphasizes the pressing need for customers to be aware and cautious of the risks associated with uninsured payment apps.