The CFPB has a complaint about complaints
Good morning, and welcome to Protocol Fintech. This Monday: the CFPB’s complaint about complaints, Singapore’s next regulatory move against crypto, and Better.com layoffs.
Off the chain
History doesn’t repeat itself, but it does rhyme, Mark Twain probably never said. The most Web3 thing about Web3 is how much more it looks like Web 1.0 than Web 2.0. FWB Fest, an event dubbed “crypto Woodstock,” wasn’t just a bunch of blockchain bros, Taylor Lorenz reported in the Washington Post: It was a utopian gathering of aspirants to a decentralized future that is not, as one put it, “hyper-financialized.” Which reminds me of nothing as much as First Tuesday, the monthly cocktail party for dot-com workers that somehow turned into a startup of its own and got sold for $50 million before the market completely crashed in 2000. FWB, by the way, raised $10 million from Andreessen Horowitz last fall. It’s already worth twice as much as First Tuesday.— Owen Thomas (email | twitter)
Culture of (inadequately handled) complaint
The Consumer Financial Protection Bureau has taken Block to court for allegedly “slow-walking” an investigation into how it handles Cash App complaints. The action highlights an issue that both state and federal regulators are homing in on: how quickly and effectively fintech firms respond to customer disputes.
This investigation stretches back years. A petition filed on Aug. 18 in California federal court is just the latest step. It seeks enforcement of separate civil investigative demands the CFPB made in August 2020 and August 2021.
- Block disclosed in a March SEC filing that the CFPB and state attorneys general were investigating Cash App’s handling of customer complaints and disputes, among other issues. The Aug. 18 petition said the CFPB’s request is part of an investigation into whether financial technology companies have “deprived consumers of access to their funds or failed to adequately address customer concerns regarding fraud and errors in a manner that is unfair."
- The CFPB’s petition said other third parties provided documents more quickly than Block, but the agency declined to comment when asked about other firms subject to the investigation. The agency is seeking documents about Cash App’s policy for handling disputes, among other requests, according to the filing.
- A spokesperson responded in an email that Block is "disappointed that the CFPB has decided to file this petition despite our regular communication with the Bureau and our cooperation throughout the CID process," adding that the firm had provided a timeline for producing more documents but had not heard back from the agency.
Fintech complaints have been rising. The CFPB received 20,900 complaints last year involving money transfer services (including mobile and digital wallets) and virtual currency companies, the category most closely associated with fintech. That marked a 63% increase from a year earlier, even if they amount to just a small part of the nearly 1 million complaints to the agency, the majority of which involve credit-reporting companies.
- In response to complaints of fraud on peer-to-peer money-transfer services, the CFPB has promised new guidance "ensuring that financial institutions are living up to their investigation and error-resolution obligations," a CFPB spokesperson told the Wall Street Journal last month. That could include requiring refunds for fraudulent transfers, according to the Journal, which the industry warns could lead to higher costs or even encourage more fraud.
- The guidance could address a common complaint flagged by the CFPB’s 2021 annual report. Customers trying to report issues such as fraudulent activity to money-transfer services "described no response to support tickets — and no way of contacting the company by phone.”
- Some fintechs have promised to improve their responsiveness to customers. Both Coinbase and Robinhood added live phone support last fall. Block offers a phone line for Cash App and told Bloomberg in March that it is committed to “expanding our customer support and operations infrastructure.”
Watch California as it builds its own "mini CFPB." The state's Department of Financial Protection and Innovation is reviewing comments on a rule-making proposal that would dictate how some of the financial and fintech companies under its jurisdiction, such as lenders and debt collectors, respond to customer complaints.
- While acknowledging the importance that companies respond to complaints, some within the industry have called out requirements such as quarterly reporting and responding to telephone-based complaints within 24 hours as particularly onerous, and beyond what is required by other regulators.
- The DFPI declined to comment beyond noting it is reviewing the responses, which were due on July 5. Documents published about the rule noted that the DFPI was required to set new rules for companies to handle complaints and disputes as part of new authority granted under the 2020 California Consumer Financial Protection Law.
It’s just one more sign of an aggressive consumer-protection regime taking shape in Washington. The CFPB recently ended a request for information on the level of customer service at big banks, saying it has authority under consumer protection laws to ensure banks “comply with customer requests for information in a timely manner." That's a point disputed by banking trade groups, but lawyers who follow the agency closely called the move the latest example of how the agency is using “every tool in its toolbox” to push its priorities. "Even smaller fintechs should be aware of the CFPB’s interests and priorities with regard to customer service," said Michael Gordon, an attorney with Ballard Spahr and former top CFPB official.— Ryan Deffenbaugh (email | twitter)
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How cybercrime is going small time: Cybercrime is often thought of on a relatively large scale. Massive breaches lead to painful financial losses, bankrupting companies and causing untold embarrassment, splashed across the front pages of news websites worldwide.
On the money
The S&P 500 dropped 3.4% Friday after Federal Reserve chairman Jerome Powell warned that continued efforts to slow inflation "will also bring some pain to households and businesses.” Checking in on fintech stocks: Block ended Friday down about 8%; Robinhood fell about 4.4% on the day; PayPal was down 4% and Coinbase was down 6.5%.
The Monetary Authority of Singapore is digging into crypto risks. Some companies have received a questionnaire asking about their token holdings and counterparty exposure, Bloomberg reported.
The Federal Reserve is planning to launch its faster payments system next year. Fed vice chair Lael Brainard, who has led the Fed’s payments work, is set to deliver a speech on FedNow this afternoon.
Better.com is planning a new round of layoffs. At least 250 employees will be laid off, according to TechCrunch, as the online lender continues to reel from a slowdown in the mortgage market.
Bitcoin mining could send Texas energy usage skyrocketing. Miners have applied to use 33 gigawatts from Texas’ electric grid, enough to power all of New York State.
The assets of bankrupt Voyager Digital are attracting interest from crypto exchanges. CoinDesk reports that Binance and FTX are considering bidding for the crypto lender's assets.
“I keep asking anybody to explain to me what problem [a CBDC] is solving,” Federal Reserve Bank of Minneapolis president Neel Kashkari told the Jackson Hole conference Friday. This isn’t the first time Kashkari has criticized CBDCs.
“The debate we Salvadorans are having is not bitcoin versus dollars,” economist Carmen Tatiana Marroquin told Rolling Stone in a critical examination of the Central American country’s embrace of cryptocurrency. “It is how our government is involving us in this situation with our eyes closed.”
Protocol’s Tomio Geron is moderating a panel on modernizing payments. On Sept. 8 at 10 a.m. PT/1 p.m. ET, tune in to hear from him and industry experts about the big changes in America’s payments infrastructure and the challenge of catching up with innovation overseas. Save your spot now.
Fintech Nexus is holding Dealmakers West Tuesday and Wednesday in Laguna Niguel, California. The event boasts a “no keynotes, no panels” format heavy on networking.
VersaBank reports earnings Wednesday. The Canadian digital bank, which recently expanded into the U.S., earned 25 cents a share in the year-ago quarter.
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How cybercrime is going small time: People have been swindled since before man created monetary systems. These aren’t new crimes; just new ways to commit them. But as cybercrime increasingly goes small-time, those on the front lines will need new and more effective ways to fight it.
Thanks for reading — see you tomorrow!