How Safe Are Digital Payment Apps? Warning from Federal Agency
Following the collapse of several financial institutions, including the Silicon Valley Bank and Signature Bank, a Federal agency is reminding consumers to be careful with digital payment apps. Information was released Thursday to consumers.
Federal Agency warns that not all funds 'stored' in digital payment apps are protected
The Federal Consumer Financial Protection Agency's purpose, according to its website, is "dedicated to making sure you are treated fairly by banks, lenders and other financial institutions"
Thursday, CFPA Head Rohit Chopra released information urging consumers to be careful with such digital payment apps including Venmo, PayPal, and Cash App.
Millions of consumers utilize these to make rapid, or instant digital transfers of money from a bank or credit union account linked to the app. Both banks and credit unions have multiple layers of Federal protection, such as the FDIC, which guarantees depositors' money to be 'insured' up to $250K in case of any collapse by that institution.
Some payment apps have the option to store money with them
Chopra said while many transactions are instant, the money is 'swept' from one home account to another via the app, these digital payment apps have the option to "store" the funds outside of the accounts. According to The CFPA release:
"These apps allow people to quickly pay retailers and others while providing the option to store funds. Unlike traditional bank and credit union accounts which have deposit insurance, funds stored in these nonbank payment companies may be unprotected."
So if consumers choose to store the funds outside of their regular account, they may not be Federally protected. Chopra said:
“As tech companies expand into banking and payments, the CFPB is sharpening its focus on those that sidestep the safeguards that local banks and credit unions have long adhered to."
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