The Consumer Financial Protection Bureau (“CFPB”) continues focus its forces on the payment processing space. In June 2023, we published an article foretelling the next regulatory frontier: nonbank payment systems. In July 2023, we wrote about the CFPB’s exposure of illegal practices in consumer financial practices, including warnings about potential violations in the realm of remittances.
The CFPB continues to crack down on nonbank payment systems companies, including Chime, Inc. (“Chime”), doing business as Sendwave, for apparently illegal remittances practices and policies among other allegations.
On October 17, 2023, the CFPB announced it had entered into a Consent Order with Chime. Prior to entering into a Consent Order, the CFPB had issued an extensive enforcement action against Chime specifically for misleading consumers about the speed and cost of remittance transfers through its mobile app.
Chime was found to have violated several consumer protection laws, resulting in a $1.5 million penalty and the requirement to refund affected consumers nearly $1.5 million in fees.
According to the CFPB, Chime's Sendwave mobile app allows consumers to send money internationally, primarily to countries in Africa and Asia, with recipients receiving funds through mobile wallets, bank accounts, or in-person cash pick-up. Remittance transfers are considered “essential services” that facilitate the flow of resources to families living abroad, and the United States sends billions of dollars in remittances each year.
Key Violations Uncovered by the CFPB
The CFPB identified several violations by Chime in its operation of the Sendwave app, including forced waivers of legal consumer protections. Sendwave users were compelled to sign a "remittance services agreement," which essentially required them to waive certain legal rights. These agreements protected Chime from being held responsible for losses incurred by consumers when using the Sendwave app. The agreement also imposed an illegal limit on Chime's liability for damages, capping it at $1,000, thereby restricting consumer rights granted under the Electronic Fund Transfer Act.
Among other violations, the CFPB found that Chime had made false promises about the speed and cost of its services. Chime's marketing materials on various social media platforms apparently contained deceptive claims, promising that Sendwave remittance transfers would be delivered "instantly," within "30 seconds," or "within seconds." In many cases, these transfers took much longer than advertised, apparently one or more business days according to the CFPB. Chime also misrepresented the cost of sending money from the United States to Nigeria, falsely stating that there were "no fees" when, in reality, consumers were charged fees.
The Bureau also found that Chime failed to provide required disclosures, implemented inadequate internal procedures for error resolution procedures, and was delayed in issuing receipts. The Remittance Transfer Rule stipulates that providers offering remittance transfers solely through a mobile app must provide consumers with a receipt within one business day of payment. Chime, however, often waited until funds were electronically delivered to the recipient before providing a receipt, which sometimes exceeded the stipulated timeframe.
Chime's Required Actions
As a result of the enforcement action, pursuant to the Consent Order, Chime is mandated to refund fees to affected consumers, and pay a $1.5 million penalty. Regarding refunds, Chime must refund charges to consumers who sent certain remittance transfers during the time Chime was deceptively marketing its transfers as fee-free. Additionally, Chime must reimburse any fees that consumers paid when the Sendwave app failed to deliver funds by the promised date. Chime’s $1.5 million penalty will be deposited into the CFPB victim relief fund.
As we previously discussed in our article entitled CFPB Warns Consumers to Be Cautious of High-Yield Savings Accounts with FinTech Companies: Perhaps a New Focus for the CFPB, the CFPB has shifted its focus to nonbank payment systems, circling back to past frontiers. The Bureau’s recent warnings mentioned above, including its Issue Spotlight: Analysis of Deposit Insurance Coverage on Funds Stored Through Payment Apps, continue to echo the sentiment of former CFPB’s Director, Richard Cordray, focusing heavily on FinTechs and nonbank payment systems. Previously, the CFPB’s focus had been primarily on consumer lending and debt collection space. However, this recent Consent Order against Chime demonstrates the full shift of the tide back to certain spaces within the FinTech industry, including remittances.
