In a June 1 report, the Consumer Financial Protection Bureau (CFPB) warned Americans to keep their money in insured accounts rather than uninsured payment apps. The growing popularity and utility of non-bank peer-to-peer (P2P) payments, applications, Including those for trading crypto-assets, make the risk of loss all the more worry in the event of a crisis, the regulator said.
Public awareness of Federal Deposit Insurance Corporation (FDIC) insurance coverage has increased since the bankruptcy of crypto platforms such as FTX and Voyager last year, and this year's banking crisis cost customers hundreds of millions of dollars, the CFPB said . Still, billions of dollars are being stored in payment service apps without FDIC insurance.
Many P2P apps the CFPB cites PayPal, Venmo, Cash App, Apple Pay and Google Pay as examples offer stored value “much like a deposit account.” Meta Pay does not provide such services. Payment service providers have an incentive to encourage customers to deposit funds with them, as these funds can be used by the provider for investment purposes, subject to legal constraints, and these services rarely pay interest on deposited funds. Suppliers run the risk of these investments losing value. Even if customer funds are held in FDIC -insured accounts, the CFPB said that customers' eligibility for pass-through deposit insurance cannot be determined until a failure occurs. Also, insurance protects against bank failures, not payment services, which are typically regulated at the state level, not federally.Most state regulations are designed for sending money, not storing it.
Therefore, funds held by PayPal or Venmo in their program banks may be eligible for pass-through insurance, but funds invested by the provider are not. Customers may not know where their deposits are held. Mobile payment services are increasingly supporting crypto asset trans actions. Crypto assets are not insured, although services such as PayPal and Venmo allow customers to hold cryptocurrencies in their accounts.
The Financial Technology Association responded to the report with a statement provided to Cointelegraph, saying that “tens of millions of US consumers and small businesses rely on payment apps to better spend, manage, and send money. These accounts are secure and transparent, and users "Receive FDIC insurance on their account based on the products they use. FTA members provide clear and understandable terms across all their products and prioritize consumer protection every step of the way."
