RSSMoney held in nonbank, peer-to-peer digital payment apps often lack the deposit insurance protections at traditional banks and are more susceptible to losses, according to a Consumer Financial Protection Bureau report.
According to the agency, user agreements for digital payment apps frequently don’t provide customers with information on whether the funds are being held or invested, or if they are insured. Customer funds stored in non-bank apps are sometimes invested in loans and bonds and not swept into a linked bank, which leaves users open to the risk of insolvency if the investment value declines.
The report came amid the rapid growth of nonbank payment apps such as PayPal, Venmo and Cash App.The CFPB noted that 75 percent of U.S. adults have used a payment app. Approximately 85 percent of consumers aged 18 to 29 have used such a service. Transaction volumes across all service providers is expected to reach approximately $1.6 trillion by 2027, nearly doubling the $893 billion in volume last year.
Last year, consumers lost hundreds of millions of dollars following the collapse of crypto asset platforms FTX and Voyager. This spring, FDIC insurance protected depositors at the failed banks Silicon Valley Bank, Signature Bank and First Republic Bank.
“Popular 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,” said CFPB Director Rohit Chopra. “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.”
