A Warning — The Consumer Financial Protection Bureau & Digital Payment Apps

The Federal Deposit Insurance Corporation insures deposits in most U.S. banks. When the Silicon Valley Bank, Signature Bank and First Republic Bank ended up in deep financial trouble a few months back lots of questions were aimed at the FDIC and the insurance it provides.

What people found out is that deposits are insured for up to $250,000 per depositor. It was a shock to people investing much more in those banks. However, the Biden administration stepped in and — so they say — all is well that ends well.

The Consumer Financial Protection Bureau (CFPB) says that may not be the case for people storing funds on digital payment applications like PayPal, Venmo and CashApp.

And the CFPB wants people to note that money kept in accounts on apps like these may be “unprotected” if those apps suffer from investment losses, interest rate changes, currency exchange rates and — a problem suffered from the aforementioned banks — liquidity problems.

CFPB director Rohit Chopra is advising people to put their funds in banks, credit unions and other FDIC-insured institutions.

“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,” Chopra said. “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.”

Another problem the CFPB noted is the lack of information on where these apps are holding money from those using their services.

“Americans witnessed the failure of large systemically important banks such as Silicon Valley Bank, Signature Bank, and First Republic Bank,” the CFPB said in a news release last week. “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.”

The CFPB estimates that, last year, these apps and others picked up $893 billion in transactions. That number is expected to double to $1.6 trillion by 2027.

Source link: Digital Insurance — https://bit.ly/43vEeZx

About PIA Western Alliance

The Professional Insurance Agents Western Alliance is a membership organization promoting and enhancing the success of independent agencies seeking to grow, learn and be heard within the industry.


More Industry News