Loyola University Chicago School of Law, JD 2022
“Can I Venmo you?” is a phrase that many of us find ourselves saying on a weekly basis. Venmo has become not just a money-transfer application, but also a verb. In some ways, Venmo has also become a social media platform among friend groups using funny captions and sending your friends some coffee funds. At its core, Venmo strives to be the convenient way to pay back your friends without dealing with cash. With over 60-million users, there is no doubt that Venmo has become a norm for many. But how are payment services like Venmo regulated? And what happens when users owe money to Venmo? The Consumer Financial Protection Bureau has some questions about Venmo’s tactics when it comes to debt-collection, and a plan to regain their strength under the Biden Administration.
Money for Millennials
In 2009, two University of Pennsylvania classmates, Iqram Magdon-Ismail and Andrew Kortina, launched Venmo as a fee-free, digital way to transfer money between friends. Their idea blossomed as they realized that they could turn this into a social platform among millennials by publishing transactions between friends who would send money with emojis or short messages attached. In 2012, Bill Ready, the current COO of PayPal, was drawn to this “crazy genius” application and immediately took interest. At the time, Bill Ready was the CEO of Braintree, which provided mobile services to companies such as Uber and Airbnb. In 2013, Braintree acquired Venmo for $26 million before it was bought by PayPal for $800 million, turning two college buddies’ idea into a multimillion dollar company. This booming company then came to realize that widespread popularity comes with a plethora of added stress, including fraudulent activity and federal regulation.
Fame then Fraud
The biggest concerns facing payment services are fraudulent activity and money laundering. From its inception however, Venmo had little to no regulatory compliance built into the platform. On its site, Venmo clearly states that it does not offer buyer or seller protection. Early on, Venmo did not even require users to verify their identities. Venmo saw a range of issues arise, such as accounts created with stolen credit cards, hacked accounts and withdrawal of funds for purchases without sending products. Luckily, once Venmo was acquired by PayPal, they were able to tap into PayPal’s expansive compliance framework to regulate their application and protect users. Although it seemed like things were smooth sailing once Venmo received some compliance support, that didn’t mean it was completely off the hook for its own suspicious actions.
Consumer Financial Protection Bureau to the Rescue
On January 21, 2021, PayPal received a civil investigative demand from the Consumer Financial Protection Bureau (“CFPB”) as indicated by its most recent regulatory filing. This demand requested various documents and answers to questions related to Venmo’s debt collection processes and is likely a result of the heat Venmo received for its conflicting statements and actions amid the COVID-19 pandemic. While Venmo promoted a heartwarming public image of using its platform to tip essential workers and struggling businesses, it also openly reported users with negative balances to debt collection agencies, even when those users may have been victims of a scam. This is striking, considering Venmo’s biggest competitor, Cash App, claims that it does not report users to debt collection agencies under any circumstances. The CFPB took an interest into Venmo’s debt-collection practices because the agency is tasked with regulating consumer financial products and services. In fact, the CFPB site states that “consumer redress” is a top priority of the agency through enforcement actions. As of December 10, 2020, CFPB enforcement actions resulted in over $12.9 billion in consumer relief and over $1.5 billion in civil penalties. In 2020 alone, the CFPB took 48 enforcement actions against companies such as Discover and Fifth Third Bank.
The CFPB demand regarding Venmo was tendered just one day after President Biden named Dave Uejio as the CFPB’s director. It is important to note that the CFPB was in fact created during Biden’s first term as Vice President as a part of the Dodd Frank Act. The CFPB had a strong start under the Obama Administration, and immediately began investigating consumer complaints while also handing out large fines to companies who violated federal financial regulations. It is no surprise however, that the CFPB was neglected and even stripped of powers under the Trump Administration, which emphasized deregulation as opposed to consumer protection. CFPB’s recent demand to Venmo is just a small fraction of the focus the Biden Administration intends to have on consumer financial services, but a glimpse into what the next four years may look like under a vastly different administration. Less than a month into the new administration, the CFPB has already indicated that it intends to closely monitor payment service companies such as Venmo. While Venmo’s 60+ million users will likely find comfort in the CFPB’s reenergized regulatory efforts, compliance offers are officially on notice of the need to revamp compliance efforts to mitigate investigation.