- Sen. Sherrod Brown urged Americans to be wary of fintech banking apps.
- He says that consumers are vulnerable to losing access to their money through the services.
- Fintech banking services have surged in popularity since the beginning of the pandemic.
Americans should beware of using banking services offered by fintech companies, US 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 to losing their money.
"Fintech companies that want to act like banks – but without the consumer protections and safeguards that actual banks must adhere to – put people's hard earned money at risk," he said. "Consumers shouldn't be getting locked out of their accounts, leaving them with no way to access their money to buy groceries, pay their bills, or make rent."
Brown's warning comes on the heels of a recent investigation by Click2Houston.com's Amy Davis, which found that some users lost thousands of dollars through Chime, the most popular neobanking app in the US 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 a refusal to reimburse some people 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. Thus, 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 CFPB, the FTC and the DOJ."
Brown also said that privacy breaches, fraud, and hidden fees are also threats to be wary of when using these services.
Neobanks are growing in popularity, but operate under limited regulations
Although neo-banks offer checking and savings accounts, they aren't necessarily chartered like traditional banks. Chartered banks are insured by the Federal Deposit Insurance Corporation, which provide a guarantee to depositors that they won't lose their money if their bank fails.
Neo-banks have surged in popularity during the pandemic. Bankrate.com estimates that there are about 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 no matter how much cash they have, and complete digital access.
Brown's statement this week isn't the first time that he's urged caution about fintech banking. Last July, he wrote a letter to the Consumer Financial Protection Bureau on behalf of the Committee on Banking, Housing, and Urban Affairs, asking them to investigate the neo-banking companies, which they did.
Several state regulators have been investigating neo-banking services in the last few years as well. In 2019, for instance, the California Department of Financial Protection and Innovation began investigating Chime, and concluded that the company was violating state law by describing itself as a bank. Chime later agreed to stop using the word to describe its services.