Fintech
Digital Bank Chime has been fined $3.25 million for delays in returning customer funds
Chime works with traditional banks to offer banking products such as checking and savings accounts.
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Music box, the the largest digital bank in America, was fined $3.25 million by the Consumer Financial Protection Bureau (CFPB) for long delays in getting customers refunds after their accounts were closed, sometimes involuntarily. Chime does not have a banking charter: he collaborates with Bancorp Bank and Stride Bank to offer banking products such as checking accounts, savings accounts, secured credit cards and personal loans. But over the years the CFPB, a federal agency, has fined several fintechs for violations of consumer protection laws.
According to a report, 12-year-old San Francisco-based Chime will have to pay at least $1.3 million to compensate affected customers, as well as a $3.25 million fine to the CFPB’s Victim Relief Fund. CFPB press release. Chime took more than 90 days to issue refund checks in “thousands of cases,” according to the consent order that Chime entered into with the CFPB. (As is common in such enforcement actions, Chime accepted the order without admitting or denying specific facts.)
The consent order notes that Chime customers often use their accounts to pay for “everyday necessities such as groceries, gas and housing.” When these customers lose access to their money, “they are likely to be unable to pay for these needs or must look to alternative sources to fill the gap. These alternative sources, such as credit cards and payday loans, can be expensive.”
In a statement, Chime said the majority of delays “were caused by a configuration error with a third-party vendor during 2020 and 2021.” The settlement agreement “reflects our belief that timely management of customer matters is critical, even in the context of the unique challenges of the pandemic,” Chime added.
During the pandemic, when Chime and many other fintech companies attracted a wave of new customers, fraud has increased. Chime suddenly closed so many accounts to fight fraud that closed the accounts of legitimate users mashed potato. Co-founder Ryan King he recently told Forbes that some of the frauds were not committed by scammers, but by regular customers who have fallen on hard times or become opportunists. A Chime spokesperson says the rate of account closures due to fraud is down more than 50% compared to 2021; Complaints to the CFPB about improperly closed Chime accounts appear to have peaked in the first half of 2023.
Chime agreed to make payments to customers if it took more than 14 days after closing their accounts to process a refund check, as long as the accounts were not opened using stolen tools or synthetic identities. Customers who had $10 or less in their accounts at the time of closing will receive $25. Those who had more than $10 will receive at least $150. According to the consent order, which Chime will be under for five years, Chime must develop a “comprehensive compliance plan designed to ensure that [Chime’s] post-closing account reimbursement practices comply with all applicable laws enforced by the Bureau,” and Chime must provide a progress report to the CFPB within one year.
In February 2024, Chime also reached a $2.5 million settlement with the California Department of Financial Protection and Innovation (DFPI) regarding its response to customer complaints between January 2021 and March 2021.
“At the time we proactively improved our processes to remedy this issue and had already implemented the reforms identified by the DFPI. The matter has been resolved and we are happy to put it behind us,” says a Chime spokesperson regarding the agreement with DFPI.
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