Venmo debt collection practices surveyed by the CFPB

The Consumer Financial Protection Bureau is investigating how Venmo, the digital money transfer service operated by PayPal Holdings Inc., treats customers that the company says are owed money for transactions that went wrong. In a regulatory document on Friday, PayPal said it received a “Civil Investigation Demand” from the CFPB “related to Venmo’s unauthorized fund transfer and collection processes and related issues”. The company stated that the CFPB requested documents and answers to written questions and that it is 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 dispatch debt collectors to users who withdraw their accounts, even when those users are victims of scams, The Journal reported previously. Venmo continued his aggressive collection efforts during the coronavirus pandemic.

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The company “remains deeply committed to its compliance obligations and works closely with regulators around the world to comply with all rules and regulations applicable in the markets in which we operate,” said a PayPal spokeswoman by email. . Already one of the most popular digital finance apps in the country, Venmo gained momentum last year as new services, including allowing customers to directly deposit their stimulus checks into their Venmo accounts, more than made up for the decline in number of people who use to share bills in bars and restaurants. Venmo’s user base increased 32% in 2020 to nearly 70 million active accounts, PayPal CEO Dan Schulman said in a earnings conference call on Wednesday. About $ 47 billion was transferred via Venmo in the fourth quarter, an increase of approximately 60% over the previous year. PayPal expects Venmo to generate nearly $ 900 million in revenue in 2021.

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Transactions appear instantly in the Venmo app, but it can take a day or more for the money to come out of the sender’s account. Venmo usually provides payment to the recipient, who can then send the money to other people on Venmo or pay a small fee to transfer it to their bank account in a few minutes.

If a user sends money through Venmo to a scammer who withdraws it immediately, or if the sender’s bank interrupts a transaction before it is settled, Venmo can be left in hand. PayPal does not disclose the number of Venmo users who have a negative balance or the amount they should be owed. Across PayPal, however, as of December 31, there were $ 270 million in negative customer balances that the company did not expect to be reimbursed, compared to $ 221 million on June 30, according to a securities filing. PayPal writes off all negative balances in the month they are pending for 120 days as a loss.

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The CFPB order came on January 21, PayPal said in the process. President Biden was sworn in the day before. The bureau, which in many ways has become less vigorous under the Trump administration, is expected to apply consumer protection under the Biden government more strictly. In a separate issue, PayPal received a favorable decision in December in a lawsuit the company filed against the CFPB in 2019 in Washington’s federal court. That year, the CFPB instituted a new rule on prepaid card issuers that required them to disclose fees and other terms of services, while imposing limits on their ability to offer credit products. The CFPB determined the rule applied to some 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 determined that the CFPB exceeded its authority when determining the form of disclosures and placing limits on the use of credit by customers in prepaid accounts.