Chime, the largest digital bank in America, was fined $3.25 million by the Consumer Financial Protection Bureau (CFPB) for long delays in getting customers their refunds after their accounts were closed, sometimes involuntarily. Chime doesn’t have a bank charter–it partners with Bancorp Bank and Stride Bank to offer banking products like checking accounts, savings accounts, a secured credit card and personal loans. But the CFPB, a federal agency, has fined multiple fintechs over the years for violations of consumer protection laws.
The 12-year-old San Francisco-based Chime needs to pay at least $1.3 million to compensate affected customers, in addition to a fine of $3.25 million to the CFPB’s victims relief fund, according to a CFPB press release. Chime took longer than 90 days to issue refund checks in “thousands of instances,” according to the consent order that Chime has entered into with the CFPB. (As is common in such enforcement actions, Chime agreed to the order without admitting or denying specific facts.)
The consent order notes that Chime’s customers often use their accounts to pay for “day-to-day necessities such as groceries, gas, and housing.” When those customers lose access to their money, “they are likely to be unable to pay for these necessities or have to search for alternative sources to cover the gap. Those alternative sources, such as credit cards and payday loans, can be expensive.”
In a statement, Chime said the majority of the delays “were caused by a configuration error with a third-party vendor during 2020 and 2021.” The settlement agreement “reflects our belief that the timely handling of customer matters is critical, even amid the pandemic’s unique challenges,” Chime added.
During the pandemic, as Chime and many other fintechs attracted a flood of new customers, fraud spiked. Chime abruptly closed so many accounts to fight fraud that it closed legitimate users’ accounts too. Cofounder Ryan King recently told Forbes that some of the fraud was committed not by crooks, but regular customers who fell on hard times or became opportunistic. A Chime spokesperson says its rate of closing accounts due to fraud is down more than 50% from 2021; complaints to the CFPB about wrongly closed Chime accounts appear to have peaked in the first half of 2023.
Chime agreed to make payments to customers if it took more than 14 days after their accounts were closed to process a refund check, provided the accounts hadn’t been opened using stolen or synthetic identities. Customers who had $10 or less in their accounts when they were closed will receive $25. Those who had more than $10 will get at least $150. According to the consent order, which Chime will be under for five years, Chime needs to develop a “comprehensive compliance plan designed to ensure that [Chime’s] post-closure account-refund practices comply with all applicable laws that the Bureau enforces,” and Chime must provide a progress report to the CFPB in a year.
In February 2024, Chime also reached a $2.5 million settlement with the California Department of Financial Protection and Innovation (DFPI) regarding its responsiveness to customer complaints between January 2021 and March 2021.
“We proactively improved our processes to remedy this at the time, and had already implemented the reforms identified by the DFPI. This matter has been resolved, and we’re pleased to put it behind us,” a Chime spokesperson says regarding the DFPI settlement.
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