The Consumer Financial Protection Bureau (CFPB) has taken enforcement against Chime Financial. The CFPB held that Chime failed to give consumers timely refunds when their accounts were closed. Thousands of consumers waited for weeks or months for balance refunds after closing their accounts. This failure inflicted significant financial harm on consumers who did not have access to critical funds to subsist. In some cases, consumers had to seek expensive forms of credit to cover bills that were due.

“Chime’s customers had to wait weeks or months for access to their own money. They were forced to use alternative funds to cover their essential expenses,” said CFPB Director Rohit Chopra. “Fast-growing financial firms must treat their customers fairly and understand that federal law is not a suggestion.”

Chime: 7 million customers, $1.5bn in annualised revenue

Chime Financial is a nonbank company headquartered in San Francisco. The company partners with banks to offer financial products. These include current accounts, savings accounts, and credit cards. Chime has $1.5bn in annualised revenue. Approximately seven million consumers make $8bn in transactions using Chime cards each month. It is not publicly owned, and relies, in large part, on investments through venture capital firms.

Chime is responsible for processing accounts’ payments, which it does by contracting with a third-party payment processor. Chime is also responsible for nearly all consumer communications concerning accounts. It sets and applies the policies and procedures for servicing them with the review and approval of the company’s partner banks.

In most instances, when consumers’ checking and savings accounts are closed, Chime automatically refunds remaining balances by cheque. Until 2021, Chime’s policy, reflected in consumer account agreements, was to process and mail refund cheques within 14 days of an account’s closure.

CFPB findings vs Chime

  • Failed to timely provide consumer refunds: Chime failed to issue consumer refunds within the 14 days promised by its policy, including thousands of instances in which Chime did not get refunds to consumers within 90 days
  • Deprived consumers of needed funds to meet their responsibilities. Chime’s slow response in returning consumer funds prevented thousands of consumers from accessing their money. Sometimes this was for months on end. Consumers who did not have access to their funds were often unable to pay for basic living expenses. It is likely that they had to use or search for expensive credit alternatives, such as credit cards or payday loans.

Enforcement Action

Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws. This includes engaging in unfair, deceptive, or abusive acts or practices.

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Under the CFPB’s order, Chime must pay at least $1.3m in redress to harmed consumers. Generally, a harmed consumer will receive at least $150 in redress if, after 14 days from account closure, they still had a minimum unrefunded balance of $10.

Chime will pay $3.25m in penalties to the CFPB’s victims relief fund. Chime must also come into compliance with the law, including providing refund cheques on closed accounts within a reasonable period.

Chime statement

In response to the CFPB release relating to Chime, the firm issued the following statement.

“Chime was founded on the belief that basic banking services should be helpful, easy, and free. Today, together with our bank partners, we offer easy-to-use products that allow everyday people living paycheck-to-paycheck to bank with no monthly, overdraft or hidden fees, get paid early, and safely build credit. Our innovations have disrupted the status quo in banking, empowering consumers with more control over their financial lives.

“Our settlement agreement with the CFPB reflects our belief that the timely handling of customer matters is critical, even amid the pandemic’s unique challenges. In this case, the majority of the delayed refunds were caused by a configuration error with a third-party vendor during 2020 and 2021. When Chime discovered the issue, we worked with our vendor to resolve the error and issued refunds to impacted consumers. We share the Bureau’s goal to create a more competitive and accessible financial landscape that is good for everyday consumers. We look forward to continuing in this mission and are pleased to have resolved this matter.”