In a statement on Thursday, the Consumer Financial Protection Bureau (CFPB) cautioned users of P2P payment apps such as Venmo, PayPal, and CashApp, about the potential risks associated with long-term storage of funds on these platforms.
The advisory follows recent bank runs at Silicon Valley Bank, Signature Bank, and First Republic Bank, where customers withdrew uninsured deposits en masse due to fear of losing their funds.
The CFPB clarified that money kept in these payment apps is not held in traditional bank accounts and, hence, may not be insured under the Federal Deposit Insurance Corporation, which covers up to $250,000 per account.
Certain funds within these apps might be eligible for pass-through insurance coverage, depending on user activities, but generally, these apps do not default to deposit insurance coverage, the CFPB explained.
The announcement comes as P2P payment apps and non-banks providing bank-like services see soaring popularity, with Venmo boasting over 90 million customers and Apple’s recent launch of a Goldman Sachs-operated savings account tied to the Apple Card. In response, the Financial Technology Association, representing PayPal and Cash App’s owner Block, asserted the safety of these accounts, stressing that FDIC Insurance applies based on the products used.
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