Chime, the largest digital bank in America, recently faced a $3.25 million fine from the Consumer Financial Protection Bureau (CFPB) for delays in issuing refunds to customers whose accounts were closed, sometimes involuntarily. The San Francisco-based fintech, founded 12 years ago, partners with Bancorp Bank and Stride Bank to offer various banking products such as checking accounts, savings accounts, secured credit cards, and personal loans. Despite not having a bank charter, Chime has been successful in attracting customers, but like other fintechs, it has faced scrutiny from regulatory bodies such as the CFPB for violations of consumer protection laws.
The CFPB’s investigation found that Chime had taken longer than 90 days to issue refund checks in thousands of instances, causing financial hardship for affected customers who rely on their accounts for day-to-day expenses like groceries, gas, and housing. As a result, Chime has agreed to compensate affected customers with at least $1.3 million in addition to paying a $3.25 million fine to the CFPB’s victims relief fund. Chime has emphasized that the delays were primarily caused by a configuration error with a third-party vendor during 2020 and 2021 and that ensuring timely handling of customer matters is a top priority, especially during the pandemic.
During the pandemic, fraud incidents spiked, prompting Chime and other fintechs to close numerous accounts to combat fraudulent activities. In some cases, legitimate users’ accounts were mistakenly closed, leading to complaints to the CFPB about wrongly closed Chime accounts. Chime co-founder Ryan King acknowledged that some of the fraud was committed by regular customers facing financial difficulties or acting opportunistically. However, Chime has reported a significant decrease in the rate of account closures due to fraud in 2023 compared to the previous year, indicating efforts to address the issue.
In response to the CFPB’s enforcement action, Chime has agreed to make payments to customers if it takes more than 14 days after their accounts are closed to process a refund check, with different compensation amounts based on the closing account balance. Chime is also required to develop a compliance plan over the next five years to ensure that its post-closure account refund practices align with applicable laws enforced by the CFPB. Additionally, Chime reached a separate $2.5 million settlement with the California Department of Financial Protection and Innovation (DFPI) regarding its handling of customer complaints in early 2021. The company has indicated that it has already implemented reforms identified by the DFPI and is committed to resolving regulatory issues.
Overall, the recent fines and settlements with regulatory agencies highlight the importance of fintech companies like Chime ensuring compliance with consumer protection laws and promptly addressing customer issues, especially during periods of increased fraud and financial challenges. While Chime has acknowledged past shortcomings and taken steps to rectify the situation, ongoing monitoring and improvement of processes will be essential to rebuild trust with customers and regulatory authorities. As the digital banking sector continues to grow, maintaining transparency, accountability, and regulatory compliance will be critical for fintech companies like Chime to succeed in the competitive financial services industry.