Senator Sherrod Brown warns Americans against ‘neo-banks’ like Chime

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  • Senator Sherrod Brown has urged Americans to be wary of fintech banking apps.
  • He says consumers are likely to lose access to their money through the services.
  • Fintech banking services have grown in popularity since the start of the pandemic.

Americans should beware of using banking services offered by


fintech companies

U.S. Senator Sherrod Brown told Insider.

Brown, who is the chairman of the US Senate Committee on Banking, Housing and Urban Affairs, warned that fintech companies that provide online banking services – sometimes called “neo-banks” – are potentially dangerous and make users vulnerable losing their money. .

“Fintech companies that want to act like banks — but without the consumer protections and safeguards that real banks must adhere to — put people’s hard-earned money at risk,” he said. “Consumers shouldn’t be locked out of their accounts, leaving them with no way to access their money to buy groceries, pay bills or make rent.”

Brown’s warning follows a recent investigation by Amy Davis of Click2Houston.com, who found that some users had lost thousands of dollars to Chime, the the most popular neobanking application in the United States by far. Users lost their money through suspensions due to deposits marked as “unusual activity” that locked them out of the app, as well as people being refused reimbursement for hacking. Click2Houston also reported that the Consumer Financial Protection Bureau has received more than 2,267 complaints about Chime since 2020, with many users complaining about frozen accounts and fraudulent transactions that Chime refused to reverse.

“Given the important role we play in helping our members manage their money, we take our responsibility in the areas of regulation and compliance very seriously,” a Chime spokesperson told Insider in a statement. . “Chime products are designed and delivered in close partnership with our partner banks, The Bancorp Bank and Stride Bank. So, unlike some fintechs, Chime member deposits are held in FDIC-insured accounts at our partner institutions, which are subject to oversight by the FDIC and the OCC. Chime is also subject to the jurisdiction of the CFPB, FTC and DOJ.”

Brown also said that privacy breaches, fraud and hidden charges are also threats to watch out for when using these services.

Neobanks are growing in popularity, but operate under limited regulations

Although neo-banks offer current and savings accounts, they are not necessarily licensed like traditional banks. Chartered banks are insured by the Federal Deposit Insurance Corporation, which guarantees depositors that they will not lose their money if their bank fails.

Neo-banks have grown in popularity during the pandemic. Bankrate.com estimates that there are approximately 23 million


neobank

customers, a number that is expected to more than double, to 50 million, by 2025. The appeal of neo-banks is that they offer low or no fee structures, early deposit access to consumers regardless of either the amount of money they have, and digital access.

Brown’s statement this week isn’t the first time he’s urged caution on the fintech bank. Last July, he wrote a letter to the Consumer Financial Protection Bureau on behalf of the Banking, Housing and Urban Affairs Committee, asking them to investigate the neo-


banking companies

that they have did.

Several state regulators have also investigated neo-banking services in recent years. In 2019, for example, the California Department of Financial Protection and Innovation began investigating Chime and found the company violated state law by describing itself as a bank. chime later OK to stop using the word to describe its services.

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