After three years of investigation, the Consumer Financial Protection Bureau officially closed its probe into PayPal and its subsidiary Venmo this week. According to PayPal, the investigation centered around Venmo’s unauthorized funds transfers and collections processes, along with related issues such as the handling of consumer payments when mistakenly directed to unintended recipients.
PayPal states it has been cooperating with the CFPB’s requests for documents and responses to written questions. The probe began on January 21, 2021, the day after President Biden took office and appointed new leadership at the CFPB.
Analysts view the outcome as beneficial for both parties. The CFPB has wrestled for a long time with differentiating the various types of payment providers, and this closure could mark a strong step forward for both providers and consumers.
“I believe this action creates final separation between P2P payments and true prepaid payments, said Jordan Hirschfield, Director of Prepaid Advisory Services at Javelin Strategy & Research. “The clarity allows the CFPB to create better focus on issues of each sector without unnecessary regulatory hurdles on the P2P side.”
A History of Antagonism
There has been a string of federal investigations into PayPal as the government grapples with how to regulate this emerging payments sector. In 2015, the CFPB fined the company $10 million and ordered it to refund $15 million to customers after alleging that PayPal had enrolled and billed thousands of consumers for credit services without their consent.
Then, in 2018, the FTC claimed that Venmo customers were being misled about their balances’ availability and transaction privacy. PayPal agreed to make certain user disclosures and undergo ongoing privacy audits, but was not fined.
The CFPB has also issued warnings to consumers about the risks associated with using payment apps. Last December, the agency advised consumers against keeping funds in nonbank P2P apps, including Venmo and PayPal. The reasoning was that very little exists within the user agreements to show where those funds are held, and what might happen if the money was lost.
Despite these disputes, there seems to be a more congenial path forward between the CFPB and PayPal, even as the CFPB continues to seek more oversight of payment apps.