On June 20, 2023, the Consumer Financial Protection Bureau (“CFPB”) issued its Office of Servicemember Affairs Annual Report, which analyzes consumer complaints received from servicemembers, veterans, and their families for the prior year.  This year’s report highlights an increasing number of complaints received from servicemembers regarding payment apps and the heightened risks associated with identity theft and unauthorized use for military consumers.

According to the report, the CFPB received 66,400 servicemember complaints in 2022, a 55% increase from 2021.  Last year’s report highlighted issues related to credit reporting, debt collection, and medical billing.  This year’s report also found credit reporting to be the top concern of servicemembers (54% of complaints), followed by debt collection (15%) and credit cards (8%). 

While complaints about payment apps only represented 2.2% of servicemember complaints received by the CFPB in 2022, the CFPB focused this year’s report on issues related to those complaints for a number of factors, including the increase in complaints about them from servicemembers (up from 1.5% from last year) and the broader adoption and usage by all consumers of payment apps offered by both banks and non-banks.  The report cites to the Federal Reserve’s 2021 annual Diary of Consumer Payment Choice, which found that 66.4% of all consumers had adopted one or more payment apps, a 2022 Pew Research Center poll that found that over three-quarters (76%) of adult consumers in the U.S. have used one of the four large common payment app providers, and a 2022 FDIC survey that found that almost half of all households (46.4%) used a non-bank payment app in 2021.   

Issues identified in the report include:

• Financial harm from fraud and scams when using digital payment apps. According to the CFPB, military consumers are often required to conduct more online transactions using digital payment apps due to duty-related relocations and the need to secure housing, a new automobile, or daycare in a short timeframe.  The report found that many military consumers reported being scammed online using payment apps, and these incidents affected their overall financial stability, including their ability to continue service or maintain a security clearance.
• Identity theft and unauthorized account access. The CFPB has received complaints where servicemembers had their identities stolen followed by unauthorized money transfers out of their digital payment app accounts.  According to the Bureau, servicemembers’ steady income may make them a target for identity thieves looking to tap into bank accounts that are often linked to a digital payment app.
• Failure of digital payment app providers to provide timely and substantive resolutions to servicemember complaints. The report concludes that complaints indicate servicemembers and veterans who lost money due to unauthorized transfers are still struggling to get their money back due to digital payment app providers failing to provide timely and substantive resolutions to their complaints.

To address these emerging risks, the report recommends digital payment app providers:

• Improve the safety and security of payment networks to prevent fraud. The CFPB wants digital payment app providers to improve the overall safety and security of their products by investing in privacy and security technology, and by preventing, identifying, and limiting fraudulent activity, including by detecting and removing repeat offenders from their systems.
• Improve responsiveness in the event fraud does occur. Where fraud involves multiple entities, the CFPB wants financial institutions and digital payment app providers to coordinate more closely to ensure that problems related to fraud are resolved quickly.  The report highlights the importance of quicker resolutions for military families, where accessing funds can be particularly critical during a permanent change of station or deployment.
• Tailor policies on refunds for fraud losses that recognize the unique experiences of military families. The CFPB wants digital payment app providers to recognize the challenges that are unique to military families and encourages them to take a comprehensive approach to reimbursement when fraud occurs.  Servicemembers experiencing fraud on digital payment apps may not be able to as quickly recognize or respond to fraud due to their deployment or active duty commitments.

The CFPB’s decision to highlight payment apps as the focus of this year’s report is notable, as complaint volume about them was low relative to other issues and products.  However, it is consistent with the Bureau’s recent focus, as it published an issue spotlight and consumer advisory earlier this month focused on the safety of funds stored in apps that may be held in accounts that are not FDIC-insured.  The CFPB has also been considering issuing new guidance that would require banks to make refunds to victims of scammers who defraud consumers into sending money to a third party using an online money-transfer platform, which we have previously discussed here, here, and here.

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