CashApp, Venmo users urged to move money into insured bank accounts
Cash App, Venmo, PayPal not required to be insured, why you need to move your money
If you use payment apps to store money like Cash App, Venmo, or PayPal, consumer watchdogs urger you to move your funds to an insured bank account because these apps are not required to be insured. FOX 26 Consumer Reporter Heather Sullivan tells us more about why that is.
HOUSTON - If you use payment apps to send and store money, such as Cash App, Venmo, or PayPal, consumer watchdogs urge you to move your funds to an insured bank account.
That's because the apps are not required to be insured like banks and credit unions.
The Consumer Financial Protect Bureau says three-quarters of adults have used these apps, including Cash App, Venmo, or PayPal, to pay businesses or other people, transferring $983 billion last year alone.
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It says when users receive payments, the money is not usually swept into a linked bank account. If you leave your money in the app, the app holds and invests your money.
But these apps are not banks, so they are not required to be FDIC insured.
The CFPB is especially concerned after three banks, Silicon Valley Bank, Signature Bank, and First Republic Bank, failed this year. In those cases, customers were protected through FDIC insurance.
Not only are the payment apps not required to be insured, but the CFPB also says their user agreements often lack information on whether your funds are insured or how the money is invested.
"If a bank fails, it's got the FDIC insurance that protects it. But that level of insurance doesn't apply to a non-bank, were it to fail. And we're trying to think through, strategically through, what a worst-case scenario might be. So what happens if this non-bank entity goes out of business? What am I going to do?" said Amy Zirkle, Senior Program Manager of Payments and Deposits Markets for the Consumer Financial Protection Bureau.
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Some states, including Texas, recently enacted laws to ensure these apps can meet their obligations.
The CFPB urges users to check whether the app they're using has a partner bank with insurance and to sweep money off the app into a federally insured bank or credit union accounts so that it will be protected if the app should suffer any financial distress.
The CFPB says consumers having issues with any financial entity can file complaints here.