CFPB Report Warns Mobile App Users: Funds May Lack Deposit Protection in Bankruptcy
A recently published report by the Consumer Financial Protection Bureau (CFPB) highlights that funds and assets stored on mobile apps may not be eligible for deposit protection in the event of bankruptcy.
The report emphasizes that the rise of payment services like PayPal and Venmo has led consumers to believe that their funds would be reimbursed by the government if the platform were to go bankrupt. However, this is not the case, as FDIC or NCUA insurance applies to deposits held at insured banks, and many payment services do not hold user funds in such banks. Instead, they invest the funds in stocks and bonds to generate profits and maintain low-cost or free services.
The report notes that this important distinction is often hidden within the terms of use of these payment platforms.
Additionally, while banks are required by federal law to report detailed information on customer deposits to regulatory bodies like the FDIC, payment services do not have the same obligation.
"The core service of nonbank payment platforms is to provide a mechanism to send funds from one person to another, but these apps also offer various financial products and services. However, unlike banks and credit unions, these entities are currently not required by federal law to provide detailed information on their total deposits," the report states.
The CFPB's report serves as a reminder to consumers, especially in the crypto community, to prioritize self-custody of their assets. The failure of FTX, explicitly mentioned in the report, highlights the potential risks involved if users do not secure their own assets.
While certain services may offer attractive deals for purchasing cryptocurrencies, it is crucial to practice self-custody to ensure the security of your crypto holdings.
