The mobile finance app Venmo recently drew attention due to a recent regulatory filing that takes a closer look at the company’s collection practices. The Consumer Finance Protection Bureau filed a Civil Investigative Demand against Venmo’s owner, PayPal, on Jan. 21. The filing states that its intent to take an extended look at Venmo’s practices is “related to Venmo’s unauthorized funds’ transfers and collection processes, and related matters.”
The process in question involves the app’s handling of collections. Suppose an account overdraws too much money. In that case, Venmo would hand it over to the bank’s collections account. This overdrawing of funds can happen, particularly in large purchases. The funds transferring may require a day to move from the user’s bank account to the other party. That means that Venmo has to cover the specific money transferred between accounts until the bank can transfer the funds to the account. If the bank account does not have the funds in question, Venmo will try to recoup the financial quantity taken in the first place.
While Venmo has historically struggled to make a significant profit off of the fees it charges for money transfers, its attempts to help consolidate those losses have come at the expense of its customer base.
In 2019, the Wall Street Journal revealed that Venmo revamped its contract with customers to recover money from users with negative balances. It also threatened several customers with hiring debt collectors to acquire the pay demanded of them when customers were scammed or unable to pay it off. Many cases receiving potential collection threats only accounted for small amounts, ranging from $7 to somewhat more significant totals of $3,000. Many of these cases ended up with negative balances due either to scammers or account thefts. Despite extensive coverage of these events, Venmo appears not to have changed its approach.
It appears the CFPB has begun the process of pushing Venmo to amend the process. The CID filing is only the beginning of the process, said Brad Rustin, partner and chairman of the Financial Services Regulatory Practice at Nelson Mullins, a law firm and lobby group in South Carolina. Rustin told the Washington Examiner that this particular case resembles a situation in which the Fair Debt Collection Practices Act would apply. The act was created in 2010 to combat abusive or harmful debt collection practices and is one of the few legal areas in which the CFPB’s jurisdiction applies.
It will allow the CFPB to gather documents and testimonies that may certify or delegitimize any unethical or contemptible conduct claims. Once it’s collected, the organization will take time to process it before responding with an enforcement action against Venmo.
It’s difficult to predict how these investigations will end, and Rustin himself was unwilling to guess. But what he said he anticipates would occur in a case of the inquiry into Venmo finding sufficient evidence occurs in three stages. First would be corrective action that compensates the consumer for whatever redresses may be required. Second is an injunction from Venmo stating it would no longer engage in these practices. Finally, Venmo would face civil monetary penalties based on the degree of harm to consumers.
When reached for comment, a PayPal spokesperson said: “Venmo remains deeply committed to its compliance obligations, and the company works closely with regulators around the world to adhere to all applicable rules and regulations in the markets in which we operate. Venmo will continue to work productively with the CFPB to provide information, as requested, on our practices and processes.”
