The Consumer Financial Protection Bureau (CFPB) has advised consumers to transfer money stored on payment apps to insured banks and credit unions.
“Your money is at greater risk when you hold it in a payment app, instead of moving it to an account with deposit insurance,” the regulator said in a Thursday (June 1) consumer advisory.
PYMNTS research has found that nearly 60% of consumers now use money-storing apps for everything from peer-to-peer (P2P) transfers to retail purchases.
The CFPB said in its advisory that money stored in nonbank payment apps often is not protected by federal deposit insurance because it might not be held in an account at a Federal Deposit Insurance Corporation (FDIC) member bank or National Credit Union Administration (NCUA) member credit union.
The regulator also said in the advisory that if a payment app’s business fails, it’s unclear what happens next because apps can have different business models and their user agreements may not be clear on the matter.
It also said that while some apps offer pass-through insurance, this protects the consumer in the case of the failure of the bank or credit union at which the app holds their money, but not from failure of the payment app company.
“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,” CFPB Director Rohit Chopra said in a separate Thursday press release. “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.”
Together with the consumer advisory, the CFPB also released an Issue Spotlight that summarizes the deposit insurance coverage that may or may not be offered on funds stored through different payment apps.
In its consumer advisory, the CFPB advised consumers to move their money from payment apps to linked accounts and tell their friends and family to do the same.