Billions stored on digital payment apps may be unprotected, CFPB warns

WASHINGTON – The Consumer Financial Protection Bureau has published a consumer advisory on digital payment apps heavily used by consumers and businesses.

A CFPB analysis found that funds stored on popular apps may not be safe in the event of financial distress because the funds may not be held in accounts with federal deposit insurance coverage.

“Popular digital payment apps are increasingly used as substitutes for a traditional bank or a 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.”

Use of nonbank payment apps such as PayPal, Venmo and Cash App have rapidly grown in the past few years. These apps allow people to quickly pay retailers and others, while providing the option to store funds. Unlike traditional bank and credit union accounts, which have deposit insurance, funds stored in these nonbank payment companies may be unprotected.

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In recent months, many Americans were reminded that funds deposited with banks and credit unions enjoy the safety afforded by federal deposit insurance through the Federal Deposit Insurance Corp. or National Credit Union Administration.

Americans witnessed the failure of large systemically important banks such as Silicon Valley Bank, Signature Bank and First Republic Bank. These banks experienced a run, but insured depositors could have confidence their money was safe. However, similar protection would not be guaranteed to customers that store money on nonbank payment apps.