The CFPB looks into fintech complaints

Culture of (unhandled) complaints

The Consumer Financial Protection Bureau has taken Block to court for allegedly “slow-moving” an investigation into how it handles Cash App complaints. The action highlights an issue that both state and federal regulators are grappling with: how quickly and effectively fintech firms respond to customer disputes.

This investigation stretches back years. A motion filed Aug. 18 in California federal court is just the latest step. It seeks enforcement of separate civil investigative claims the CFPB made in August 2020 and August 2021.

• Block disclosed in an SEC filing in March that the CFPB and state attorneys general were investigating Cash App’s handling of customer complaints and disputes, among other things. The Aug. 18 filing said the CFPB’s request is part of an investigation into whether financial technology companies have “deprived consumers of access to their money or failed to address customers’ concerns about fraud and error in a manner that is unfair.”
• The CFPB’s filing said other third parties provided documents more quickly than Block, but the agency declined to comment when asked about other firms subject to the investigation. The agency is seeking documents about Cash App’s policy for handling disputes, among other requests, according to the filing.
• A spokesperson responded in an email that Block is “disappointed that the CFPB has decided to file this petition despite our regular communications with the Bureau and our cooperation throughout the CID process,” adding that the firm had provided a timeline to produce more documents but had not heard from the agency.

Fintech complaints have increased. The CFPB received 20,900 complaints last year involving money transfer services (including mobile and digital wallets) and virtual currency companies, the category most closely associated with fintech. That marked a 63% increase from a year earlier, although they make up only a small portion of the nearly 1 million complaints to the agency, most of which involve credit reporting companies.

• In response to complaints about fraud on peer-to-peer money transfer services, the CFPB has promised new guidance “that ensures financial institutions live up to their investigative and error resolution obligations,” a CFPB spokesperson told the Wall Street Journal recently. month. That could include requiring refunds for fraudulent transfers, according to the Journal, which the industry warns could lead to higher costs or even encourage more fraud.
• The guidance may address a common complaint flagged by the CFPB’s 2021 annual report. Customers who tried to report issues such as fraudulent activity to money transfer services “described no response to support tickets — and no way to contact the company by phone.”
• Some fintechs have promised to improve responsiveness to customers. Both Coinbase and Robinhood added live phone support last fall. Block offers a phone line for the Cash App and told Bloomberg in March that it is committed to “expanding our customer support and operational infrastructure.”

Watch California Build Its Own “Mini-CFPB.” The state’s Department of Financial Protection and Innovation is reviewing comments on a proposed rulemaking that would dictate how some of the financial and fintech companies under its jurisdiction, such as lenders and debt collectors, respond to customer complaints.

• While acknowledging the importance of companies responding to complaints, some in the industry have called out requirements such as quarterly reporting and responding to phone-based complaints within 24 hours as particularly burdensome, and beyond what is required by other regulators.
• The DFPI declined to comment beyond noting that it is reviewing the responses, due on July 5. Documents published about the rule noted that DFPI was required to set new rules for companies to handle complaints and disputes as part of new authority granted under the 2020 California Consumer Financial Protection Law.

It’s just another sign of an aggressive consumer protection regime taking shape in Washington. The CFPB recently ended a request for information about the level of customer service at major banks, saying it has authority under consumer protection laws to ensure that banks “comply with customer requests for information in a timely manner.” It’s a point contested by banking trade groups. , but lawyers who follow the agency closely called the move the latest example of how the agency is using “every tool in the toolbox” to push its priorities. “Even smaller fintechs should be aware of the CFPB’s interests and priorities with respect to customer service,” said Michael Gordon, an attorney with Ballard Spahr and former top CFPB official.

– Ryan Deffenbaugh (e-mail | twitter)

Sponsored content from Cisco

How cybercrime goes short: Cybercrime is often thought of on a relatively large scale. Massive breaches lead to painful financial losses, bankrupt companies and cause countless embarrassments, splashed across the front pages of news websites around the world.

Read more from Cisco

On the money

The S&P 500 fell 3.4 percent Friday after Federal Reserve Chairman Jerome Powell warned that continued efforts to curb inflation “will also cause some pain for households and businesses.” Checking in on fintech stocks: Block ended Friday down around 8%; Robinhood fell about 4.4% on the day; PayPal fell 4% and Coinbase fell 6.5%.

The Monetary Authority of Singapore digs into crypto risk. Some companies have received a questionnaire asking about their token holdings and counterparty exposure, Bloomberg reported.

The Federal Reserve plans to launch its faster payment system next year. Fed Deputy Chairman Lael Brainard, who has led the Fed’s payments work, will give a speech on FedNow this afternoon.

Better.com plans another round of layoffs. At least 250 employees will be laid off, according to TechCrunch, as the online lender continues to experience a downturn in the mortgage market.

Bitcoin mining could send Texas’ energy use skyrocketing. Miners have applied to use 33 gigawatts from Texas’ electrical grid, enough to power all of New York State.

The assets of bankrupt Voyager Digital are attracting interest from crypto exchanges. CoinDesk reports that Binance and FTX are considering bidding on the crypto lender’s assets.

Overheard

“I ask everyone to explain to me what problem [a CBDC] solves” Federal Reserve Bank of Minneapolis president Neel Kashkari told Jackson Hole Conference Friday. This is not the first time Kashkari has criticized CBDCs.