CFPB report and consumer advisory highlight consumer risk resulting from lack of deposit insurance coverage for funds stored on payment apps

The CFPB has issued an "Issue Spotlight" titled "Analysis of Deposit Insurance Coverage on Funds Stored Through Payment Apps." The report was accompanied by a consumer advisory on payment apps.

Issue Spotlight. To explain its focus on deposit insurance coverage of funds stored on payment apps (or P2P platforms), the CFPB points to the recent crypto asset platform collapses and bank failures and the growth of non-traditional financial services platforms. According to the CFPB, "[t]hese events have spurred renewed attention on the varied types of financial institutions consumers use and the extent to which consumers’ funds at those financial institutions are protected from losses." The CFPB reports that many payment apps offer stored value accounts that consumers can use as another payment method, and as a place to hold funds received from a payment or loaded into the account. The CFPB estimates that U.S. consumers have billions of dollars stored on non-bank payment apps.

Key findings in the report include:

The CFPB concludes the report by stating that it will continue coordinating with other state and federal regulators to monitor the evolution of this segment of the payments ecosystem and consider whether further steps should be taken to protect consumers.

Consumer Advisory. The advisory is intended to make consumers aware that funds stored on a payment app are at significantly higher risk of loss than if they were deposited in an insured bank or credit union. In the advisory, the CFPB warns consumers that funds stored on a payment app are often not protected by deposit insurance and discusses the potential consequences for consumers when their funds are uninsured and the payment app's business fails. It also discusses the potential availability of pass-through insurance and what protection such insurance provides. The CFPB provides a "tip" to consumers that they should send themselves reminders to move their balances from their payment apps to their linked insured accounts.