NEW YORK — Customers of Venmo, PayPal and CashApp should not store their money for the long term with these apps because their funds might not be safe during a financial crisis, the Consumer Financial Protection Bureau warned on Thursday.
The alert comes several weeks after the failure of Silicon Valley Bank, Signature Bank and First Republic Bank, which all experienced bank runs after fearful customers with uninsured deposits pulled their money en masse.
The Federal Deposit Insurance Corporation insures bank accounts up to $250,000. But money stored in Venmo or CashApp or Apple Pay Cash is not being stored in a traditional bank account. So, if there was an event similar to a bank run with these payment apps, those funds may not be insured.
Some of these funds may be eligible for pass-through insurance coverage if the customers do certain activities with the apps, the CFPB says, but generally by default these apps are not covered by deposit insurance.
“We find that stored funds can be at risk of loss in the event of financial distress or failure of the entity operating the nonbank payment platform, and often are not placed in an account at a bank or credit union and lack individual deposit insurance coverage,” the CFPB said.
Sourse: abcnews.go.com
