Chime, the largest digital bank in America, was fined $3.25 million by the Consumer Financial Protection Bureau (CFPB) for long delays in issuing refunds to customers whose accounts were closed. The San Francisco-based fintech, which partners with Bancorp Bank and Stride Bank, must also pay $1.3 million in compensation to affected customers. The CFPB found that Chime took longer than 90 days to issue refund checks in thousands of instances, causing financial hardship for customers who rely on their accounts for day-to-day expenses.
The consent order requires Chime to develop a comprehensive compliance plan to ensure that its post-closure refund practices comply with consumer protection laws. Customers who waited more than 14 days for a refund check after their accounts were closed will receive compensation, with those who had $10 or less in their accounts receiving $25 and those with more than $10 receiving at least $150. Chime must also provide a progress report to the CFPB in a year and will be under the consent order for five years.
Chime attributed the delays in issuing refunds to a configuration error with a third-party vendor during 2020 and 2021. The company stated that it believes timely handling of customer matters is critical, even during the challenges of the pandemic. During the pandemic, Chime experienced a surge in new customers, leading to an increase in fraud. To combat fraud, Chime closed numerous accounts, including those of legitimate customers. Complaints to the CFPB about wrongly closed Chime accounts peaked in the first half of 2023, but the rate of closing accounts due to fraud has decreased by more than 50% since 2021.
In addition to the CFPB settlement, 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. Chime claims to have proactively improved its processes to address the issues identified by the DFPI and is pleased to have resolved the matter. The DFPI settlement and the CFPB fine are part of Chime’s efforts to address issues related to customer complaints, account closures, and refund delays.
Overall, Chime’s recent regulatory settlements highlight the challenges faced by fintechs as they navigate an increasingly regulated industry. As digital banks like Chime attract more customers and grow their customer base, issues related to fraud, account closures, and refund delays are likely to continue. Companies like Chime must prioritize compliance with consumer protection laws and develop robust processes to address customer complaints and ensure timely refunds to avoid future regulatory actions and maintain trust with their customers.
