Venmo’s debt collection practices investigated by CFPB

The Consumer Financial Protection Bureau is investigating the way in which Venmo, the digital money transfer service provided by PayPal Holdings Inc. operated, treats customers who, according to the company, owe money for transactions that went wrong. In a regulatory submission on Friday, PayPal said it had received a ‘civil investigation request’ from the CFPB, related to Venmo’s unauthorized transfer and collection processes, and related matters. “The company said that the CFPB requested documents and answers to written questions and that it cooperated with the regulators. Venmo’s debt collection tactics were the subject of articles in The Wall Street Journal in 2019 and 2020. The company threatened to evict debt collectors. send to users who overdraw their accounts, even if the users are the victim of scam, The Journal reported earlier, Venmo continued its aggressive fundraising efforts during the coronavirus pandemic.

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The company “remains deeply committed to its compliance obligations and the company works closely with regulators around the world to comply with all applicable rules and regulations in the markets in which we operate,” a PayPal spokesman said in an email. . Venmo has already been one of the most popular digital finance programs in the country and has been boosted in recent years by new services, including allowing customers to deposit their stimulus checks directly into their Venmo accounts, more than a decrease in people using it to split bills at pubs and restaurants. Venmo’s user base has grown by 32% in 2020 to nearly 70 million active accounts, PayPal CEO Dan Schulman said in a conference call on Wednesday. About $ 47 billion was transferred via Venmo in the fourth quarter, an increase of about 60% from the previous year. PayPal expects Venmo to earn nearly $ 900 million in revenue by 2021.

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Transactions appear immediately in the Venmo app, but it can actually take a day or longer before the money leaves the sender’s bank account. Venmo often sends the payment to the recipient, who can then send the money to others on Venmo or pay a small fee to transfer it to their bank account within minutes.

If a user sends money via Venmo to a fraudster who immediately withdraws it, or if the bank of a sender stops a transaction before it is completed, Venmo can hold the bag. PayPal does not disclose the number of Venmo users who have a negative balance or the amount it says they owe. Across PayPal, however, on December 31, there were $ 270 million in negative customer balances that the company did not expect to be repaid, compared to $ 221 million on June 30, according to a security dossier. PayPal writes off negative balances in the month it has been outstanding for 120 days as a loss.

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The CFPB’s request came on January 21, PayPal said in the submission. President Biden was inaugurated the previous day. The bureau, which in many ways has become less powerful under the Trump administration, is expected to tighten consumer protection under the Biden administration. In a separate case, PayPal got a favorable ruling in December in a lawsuit the company filed against the CFPB in 2019 in federal court in Washington. In that year, the CFPB introduced a new rule on the issuers of prepaid cards requiring them to disclose fees and other terms of service, while placing restrictions on their ability to offer credit products. The CFPB has determined the rule that applies to some digital wallets, including PayPal and Venmo.

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PayPal argued in its complaint that the CFPB rule impedes its ability to lend to customers and creates confusion. In a December 30 opinion, Judge Richard Leon ruled that the CFPB had exceeded its authority when it ordered the form of disclosures and placed limits on customers’ use of credit in prepaid accounts.