The Consumer Financial Protection Bureau is examining how Venmo, the digital money transfer service operated by PayPal Holdings Inc., treats customers the company says owe it money for transactions gone wrong. On Friday, in a regulatory filing, PayPal said it received a “Civil Inquiry Request” from the CFPB “relating to Venmo’s unauthorized funds transfer and recovery processes, and related matters.” The company said the CFPB had requested documents and answers to written questions, and was cooperating with regulators. Venmo’s debt collection tactics were the subject of articles in the Wall Street Journal in 2019 and 2020. The company threatened to send debt collectors on users who overdraw their accounts, even when these users are victims of scams, the Journal previously reported. Venmo continued its aggressive collection 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,” said a spokesperson for PayPal in an email. Already one of the nation’s most popular digital finance apps, Venmo has received a boost over the past year as new services, including allowing customers to deposit their stimulus checks directly into their Venmo accounts. , which more than offset the decline in the number of people using to split bills in bars and restaurants. Venmo’s user base grew 32% in 2020 to nearly 70 million active accounts, PayPal CEO Dan Schulman said on a earnings conference call on Wednesday. About $ 47 billion was transferred through Venmo in the fourth quarter, an increase of about 60% from the previous year. PayPal expects Venmo to generate nearly $ 900 million in revenue in 2021.
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Transactions appear instantaneous in the Venmo app, but it can actually take a day or more for the money to leave the sender’s bank account. Venmo often makes 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.
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If a user sends money through Venmo to a scammer who immediately withdraws it, or if a sender’s bank stops a transaction before it is settled, Venmo can end up with the bag. PayPal does not disclose how many Venmo users have a negative balance or how much it says it owes. Through PayPal, however, as of Dec.31, there were $ 270 million in negative customer balances that the company did not expect to be refunded, up from $ 221 million on June 30, according to a securities filing. PayPal recognizes as a loss any negative balance in the month it becomes unpaid for 120 days.
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The CFPB’s request arrived on Jan.21, PayPal said in the filing. President Biden was invested the day before. The office, which in many ways has become less forceful under the Trump administration, is expected to enforce consumer protection more strictly under the Biden administration. In a separate case, PayPal received a favorable ruling in December in a 2019 lawsuit the company brought against the CFPB in federal court in Washington. That year, the CFPB instituted a new rule on prepaid card issuers that required them to disclose fees and other terms of service, while limiting their ability to offer credit products. The CFPB has determined the rule applied to certain digital wallets, including PayPal and Venmo.
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PayPal argued in its complaint that the CFPB rule hampered its ability to lend to customers and created confusion. In a December 30 opinion, Judge Richard Leon ruled that the CFPB had exceeded its authority by requiring the form of disclosure and limiting the use of credit by customers in prepaid accounts.