The Consumer Financial Protection Bureau on Thursday issued a consumer advisory warning that many popular nonbank payment apps lack deposit insurance and therefore the protection of keeping money in a bank account. The agency noted in an accompanying statement that potentially billions of dollars are stored in payment apps, but those customers could lose that money should the app company fail. By contrast, the FDIC and NCUA protect deposits up to $250,000 under the same owner or owners, it said.
“When users of these digital apps receive payments, the funds are not usually swept automatically to the recipient’s linked bank or credit union account. Instead, companies hold and invest the funds,” CFPB said. “These activities are not typically subjected to the same oversight that an insured bank or credit union faces.” The agency suggested that until payment apps are designed to automatically sweep balances into users’ insured accounts, “consumers may need to take action to move their balances stored in payment apps.”