Chime Agrees To CFPB Consent Order Over Refund Delays
CFPB Shines "Spotlight" On Card Rewards; FIS Announces BaaS Platform Atelio
Hey all, Jason here.
Happy Mother’s Day to all my fintech moms out there (including my own!)
Fun fact, I was actually born on Mother’s Day, making me likely one of the longest-lasting gifts ever 😂
For those that didn’t catch Thursday’s breaking news analysis of Synapse’s ongoing bankruptcy, full details on last week’s hearing, in which the proposed asset acquisition by TabaPay fell apart, and details on Synapse CEO Sankaet Pathak’s claims against one-time client Mercury is available here.
Last but not least, I’m excited to join Richard Rosenthal (Deloitte), Paul Sanford (former OCC & CFPB), and Jason Cabral (Gibson Dunn & Crutcher) for this Deloitte webinar on “Achieving Banking-as-a-Service Compliance: Practical Considerations” — RSVP to reserve your spot today!
If you enjoy reading this newsletter each Sunday and find value in it, please consider supporting me (and finhealth non-profits!) by signing up for a paid subscription. It wouldn’t be possible to do what I do without the support of readers like you!Chime Agrees To CFPB Consent Order Over Refund Delays
Chime, which recently made headlines in disclosing some impressive metrics about its business, is in the news again, only not for a positive reason this time.
The neobank, which partners with The Bancorp Bank and Stride Bank, entered into a consent order with the Consumer Financial Protection Bureau last week.
The order arises from how Chime, together with its bank partners and processor, Galileo, handled processing refunds when customer accounts were closed but still had a positive balance.
While Chime’s terms and conditions call for a check to be mailed after 14 days, according to the consent order, in numerous cases, the company took more than 14 days to return users’ funds, including “thousands” of cases where it took more than 90 days to issue refunds.
The CFPB argues the failure to return funds in a timely manner caused or was likely to cause users injury, which they could not reasonably avoid — which, the Bureau says, constituted “unfair” act or practices, in violation of the CFPA’s prohibition of unfair, deceptive, and abusive acts and practices (UDAAPs).
Chime must pay $1.3 million in redress to impacted consumers and a civil monetary penalty of $3.25 million.
Though relatively narrow in scope, the order is notable, as there are relatively few examples of the CFPB pursuing enforcement actions against fintechs that operate via partner banks.
The order is also notable as it classified Chime as both itself a “covered person” under CFPA, as it “engage[s] in deposit taking activities” and “provide[s] payments or other financial data processing products or services to [consumers]” and as a service provider, “because its servicing of the accounts is a ‘material service’ to the partner banks, which are covered persons because they engage in deposit-taking activities.”
Neither of Chime’s partner banks, Bancorp and Stride, are named in the consent order.
In statement on the matter, Chime said in part:
“Our settlement agreement with the CFPB reflects our belief that the timely handling of customer matters is critical, even amid the pandemic’s unique challenges. In this case, the majority of the delayed refunds were caused by a configuration error with a third-party vendor during 2020 and 2021. When Chime discovered the issue, we worked with our vendor to resolve the error and issued refunds to impacted consumers.”
FIS Announces Banking-as-a-Service Platform Atelio
Nearly a year ago, incumbent core banking player FIS acquired banking-as-a-service platform Bond, as reporting from Fintech Business Weekly first revealed.
Now, the behind-the-scenes work to incorporate the acquisition have culminated in the announcement of FIS’s own BaaS platform, re-christened Atelio — though its marketing materials studiously avoid using the phrase “banking-as-a-service.”
The announcement describes Atelio as providing “the building blocks for financial institutions, businesses and software developers to embed financial services into their offerings.”
Capabilities Atelio offers include accounts, ledgering, money movement, card issuing, KYC/KYB, fraud risk management, and financial analysis and automation tools.
In the announcement, Atelio highlighted three marquee clients: KeyBank, non-bank student lender College Ave, and RoyalPay — though NerdWallet, arguably the most significant client Bond landed before its acquisition by FIS, was curiously absent from the news release.
Atelio’s launch, taking place against the backdrop of Synapse’s bankruptcy and failed asset sale, draw into sharp relief a critical question for banking-as-a-service: what is a sustainable business and operating model?
CFPB Shines Spotlight on Credit Card Rewards
In an “issue spotlight” last week, the Consumer Financial Protection Bureau took aim at one of the most American of institutions: credit card rewards programs.
The topic of card rewards programs is deeply intertwined with the perpetual battle over interchange, an issue with has returned to the forefront with the ongoing debate around the Credit Card Competition Act (which some refer to as “Durbin 2.0”), the proposed Visa/Mastercard settlement, and Capital One’s proposed acquisition of Discover.
The CFPB’s issue spotlight laments that, in at least partial response to card issuers heavy emphasis on rewards in their marketing, consumers choose cards based on rewards incentives, rather than attributes like annual fee or interest rate.
Given most of the economic benefits of reward programs accrue to higher-income and higher-credit score “transactors,” or cardholders that do not typically revolve a balance, some have argued they effect a transfer of wealth from lower- to upper-income users.
According to the CFPB (emphasis added), “rewards programs distort the true costs of credit cards, create a barrier to entry for would-be competitors, and make it harder for smaller issuers with often lower pricing to compete with sizeable rewards offerings by the largest banks.”
The number of complaints to the Bureau in 2023 regarding card rewards programs spiked some 70% compared to pre-pandemic levels, with consumers filing about 1,200 complaints on the topic that year.
The report highlights four areas of concern: that issuers impose vague or hidden conditions, which the Bureau refers to as a potential “bait and switch”; that companies may devalue rewards; that consumers may experience challenges when trying to redeem rewards; and that consumers may lose access to already-earned rewards when closing accounts.
In expanding on its “bait and switch” argument, the report gives examples of users believing they were getting a specific sign up bonus offer, only to realize the specific channel they applied through didn’t qualify for such an offer; that limitations on sign up bonuses were hidden or vague; and issuer prohibitions on “churning,” leading to some users being required to pay back sign up bonuses if they canceled their accounts too soon after opening them.
For “point” rewards programs, the CFPB raises an issue any frequent flier is likely familiar with: the devaluing of such points, by increasing the number of points necessary to obtain the same services. The report also highlights barriers to actually using points, like minimum redemption requirements or travel blackout dates. The Bureau also highlighted the issue of removal of card-related benefits, like, for example, when Delta proposed limiting lounge access for those holding its popular American Express co-brand card.
The report also provides anecdotal examples of users struggling to get rewards-related customer service issues resolved, particularly when they involved third-party merchants or rewards programs, like airlines and hotels.
Finally, the Bureau report flags the issue of consumers losing earned rewards benefits, through mechanisms like arbitrary expiration dates or the forfeiture of rewards upon account closure, even in cases where the account was involuntarily closed.
Other Good Reads
Synapse-TabaPay Deal Collapses As Questions About Missing User Funds Persist (Fintech Business Weekly)
Listen: The Story Behind the Synapse Story (Breaking Banks: Killing It)
As Banks Cut Off Risky Fintechs, a Tiny Lender Leans In (The Information)
Top 10 Fintech Innovations; Chime IPO Ready? (Fintech Brainfood)
Independent Report on FDIC Workplace Misconduct and Culture (FDIC)
The Role of Core Banking Services Providers in Facilitating Instant Payments (Kansas City Fed)
May 2024 Supervision and Regulation Report (The Federal Reserve Board)
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