Nonbank Backtracks on ‘Checking and Savings’ Account After Outcry

Nonbank fintech company Robinhood, an online brokerage firm, has backtracked on plans to offer what it called a “checking and savings” account that would have paid 3 percent interest with no fees. The new account, announced on Thursday, appeared to be a brokerage account insured by the Securities Investor Protection Corporation, rather than by the FDIC.

Late on Friday, Robinhood removed references on its website to “checking and savings” and replaced them with “cash management.” “We realize the announcement may have caused some confusion,” the company’s founders wrote in a blog post. “We plan to work closely with regulators as we prepare to launch our cash management program, and we’re revamping our marketing materials, including the name.”

Robinhood’s actions came after an outcry on Friday over its claims that “[e]very Robinhood account is SIPC insured up to $250,000 in cash.” However, SIPC President and CEO Stephen Harbeck told media outlets that the SIPC had not been contacted by Robinhood. “I disagree with the statement that these funds are protected by SIPC,” he told Bloomberg. “Had they called us, I would have told them what I just told you in that I have serious concerns about this.” Harbeck added that SIPC protection is intended for cash held in a brokerage account for the purposes of purchasing securities, not for banking purposes. He also told CNBC that the SIPC had referred the matter to the Securities and Exchange Commission.

American Bankers Association staff were in contact with media outlets, the SIPC and with member banks as the issue developed late last week. “Consumer trust is critical to the safety and soundness of the banking system, and that is why it is so important that consumers have clear and accurate information about deposit insurance,” said ABA VP Sarah Grano. “Given the stakes to our customers, we appreciate any effort by regulators to clarify when deposits are fully insured and when they are not, and the need to respond quickly to misrepresentations.”

Editor’s note: This story was extensively updated on Dec. 15 following Robinhood’s blog post.