Payment processor PayPal Holdings (NYSE:PYPL) has indicated that it has received a civil investigative demand (CID) from the consumer Finance Protection Bureau regarding how its money transfer app Venmo handles collections. The company said that it received the CID on January 21, 2021, concerning unauthorized money transfers and collections related to Venmo.
CFPB investigating PayPal’s Venmo app regarding collections
Normally a CID is a request for documents and records or information related to an investigation. The company said that it is cooperating with the CFPB to provide requested information on the app’s processes and practices. PayPal also indicated that Venmo is committed to compliance obligations and will cooperate with regulators globally.
If a Venmo user account gets overdrawn it may be referred to collections. Although within app money transfers can occur immediately, often the money doesn’t leave the bank account of the user for almost 24 hours. As a result, Venmo will cover the payment amount in the interim and when the one’s account doesn’t have funds available when the bank processes the payment, Venmo will try to recoup the funds it covered.
In the past Venmo has been in the spotlight regarding its collecting practices. In 2019 a report by the Wall Street Journal indicated that the company was pursuing even co0llection against users that may have been scam victims. Equally, last year at the height of the pandemic the company was accused of pursuing collections at the same rate.
Venmo usage grew during the pandemic
However, according to Venmo, it is acting within its user agreements regarding collections and it complies with laws when it pursues collections. Over the pandemic, the app saw an increase in user activity as more people turned to use digital payment systems. PayPal posted a net income of $1.57 billion in its Q4 which is a $507 million increase from the previous year. Also, active user accounts increased 32T% in 2002 to almost 70 million. The company’s CEO indicated that they expect Venmo to generate $900 million in revenue this year.