Plaid has reached a $58 million settlement this week in a class-action lawsuit to address privacy allegations against the company. Plaid admitted no wrongdoing in the settlement, but agreed to a number of terms on how it informs consumers on the data it collects.
The agreement comes as regulators are focusing on consumer financial data and working on changes to the Dodd-Frank Act's Rule 1033 which could change how consumers, banks and fintech companies can access financial data.
While that rule-making is in process and until it is complete, given Plaid's current reach in the industry, the terms of the settlement could become a kind of de facto standard for how fintech companies, banks and aggregators inform consumers about how they're using their financial data.
Plaid agreed to be acquired last year by Visa, but the deal fell through after regulatory opposition — and Plaid went on to raise new funding at a value of $13.4 billion, almost triple what the Visa deal was worth. More recently Plaid, facing legal and regulatory pressures, has been focusing on making itself more accessible to consumers so that they can manage and change their connections between financial companies.
The class action, which combined five different lawsuits, alleged that consumers didn't know they were giving Plaid their data when they signed up for fintech apps. Some of the claims had previously been dismissed. The judge in the case still needs to give final approval to the deal.
The settlement covers an estimated 98 million people in the U.S. who have used Plaid's services between 2013 and today. Of the total $58 million, $14.5 million will go to lawyers on the case. The remaining amount will be split up between the up to 98 million people — whoever files a claim. If everyone did, the settlement would be worth about 44 cents apiece. The named claimants will get $5,000 each. Any money left over will be donated to two nonprofits.
The larger issue for Plaid is the agreement on its policies going forward. In the agreement Plaid agreed to several things, including providing more details about financial information it collects and operating a portal for consumers to manage their data.
Plaid said that the claims in the suit are about things Plaid did years ago, and that it is already doing most if not all of the things it agreed to in the settlement.
"The claims raised in the lawsuit do not reflect our practices," a Plaid spokesperson said. "We help consumers safely connect their financial accounts to the apps and services they rely on. As Plaid has evolved from backend infrastructure for developers to also providing front-end solutions, we have become an industry leader in consumer privacy practices. We do not, nor have we ever, sold data."
Rachel Geman of Lieff Cabraser Heimann & Bernstein, one of the plaintiff's lawyers, said, "We look forward to presenting the settlement and its benefits to consumers to the court."
In the settlement, Plaid agreed to provide details of information it collects from people's financial accounts, including a "plain-language list" of information it collects, reasons for collecting it and to explain the source and use of the information and who it's being shared with.
Plaid also agreed to provide an explanation of its data deletion and retention policies, and to only store data that the user specifically requests or is needed.
The company said it will provide a section explaining privacy controls users have for their data and to include a "prominent" reference to its Plaid Portal on its homepage and a dedicated page with information about its data security — which is currently at this page.
Plaid has already been offering the Plaid Portal in beta form — which enables consumers to see and change what financial data it is sharing from which banks or fintechs — but will now add a prominent link to it on its homepage.
Finally, the settlement includes a detailed section of how Plaid informs consumers when they click to agree to link other financial accounts using Plaid Link. It includes specific language such as that the user's credentials are being "provided to Plaid" to clarify that Plaid is getting the data, not the bank or other financial institution. The settlement goes as far as to say that the color of the Plaid popup pane cannot be the same color as the financial institutions involved — an apparent nod to an allegation that Plaid's approval screens made consumers think they were giving approval to banks, not Plaid.
Plaid has previously said that it has been informing consumers of the data it collects on Plaid Link, which first launched in 2015 but has changed substantially since then.
The agreement only covers people who have given login credentials to Plaid, and doesn't include OAuth, a technology generally used with API connections.
The agreement doesn't stop Plaid from continuing to use login information from customers. Many smaller community banks don't have APIs for OAuth logins. But Plaid has said earlier this year that it has committed to making 75% of its traffic be done through APIs. Plaid has an API deal with Capital One and also has agreements with Wells Fargo and Chase.
