Chime Financial app refunds $977 to Morgan Park man amid Sun-Times questions, neo-banking, fintech apps face thousands of complaints to US Consumer Financial Protection Bureau
Roderick Woodson was finishing up some errands using his Chime Financial card when two text messages alerted him that he had a problem with the app.
“Did you try to use your Chime card … for $80 at 6358 W. 111th St., Chicago Ridge?” the first text asked, referring to his app-based account. Then another: “Did you try using your Chime card…for $60?”
Woodson, 56, an Amtrak conductor, was near 98th Street and Western Avenue, not in Chicago Ridge, that day in late August. He ran home to Morgan Park and contacted Chime Financial, alarmed to see four mysterious withdrawals in just six minutes. And they weren’t for $80 or $60, but for $200, $303.49, $203.49, and $283.49.
With fees, the total that had been stolen from him was $997.
A Chime representative closed the compromised account, gave Woodson a new account number and promised to investigate, Woodson says.
After a few days, however, the dispute was considered “closed” – without any explanation and without Woodson getting his money back.
“It was so wild that they could get my PIN number and go to the ATM and get my money that quickly,” he says. “How did these people get my PIN?”
Thousands of people have filed complaints in the past year against fintech or “neobank” companies, including Chime, which look and act like banks but are not regulated by the government the way traditional banks are.
After being asked by a Chicago Sun-Times reporter how and why Chime was defrauded and would not make good on Woodson’s missing $997, the company recovered Woodson’s money.
But others who use such apps — many of them younger or with low incomes — have faced similar problems, and consumer groups say federal and state governments should do more to protect them.
Chime Financial has received scrutiny from the Illinois Department of Financial and Professional Regulation, which regulates banks. In March 2021, Chime agreed to a $200,000 civil settlement and consent order after the state agency took issue with the company’s use of the word “bank” in its marketing and its use in a website URL.
The consent order noted that Illinois law “prohibits any person or entity that is not a bank from conducting business in Illinois in a manner likely to mislead the public by suggesting that the business is a bank.”
California regulators took similar action last year in a case involving Chime.
Now Chime’s website — which touts it as the “#1 most loved banking app” — has added this disclosure: “Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank or Stride Bank.”
Some fintech apps have actual banks as partners. And these banks—but not the app companies themselves—are regulated by federal and state governments and insured through the Federal Deposit Insurance Corp.
But with users of these apps not having a direct customer relationship with the banks themselves, it gives them less protection, says Carla Sanchez-Adams, an attorney at the nonprofit National Consumer Law Center.
And other apps that offer person-to-person payments, bills or other financial services typically don’t have partner banks, so they’re subject to even less regulation, Sanchez-Adams says.
She says that means if you have a problem with one of the fintech apps that ends up costing you, “Really, the only solution would be for the consumer to sue them.”
According to the federal Consumer Financial Protection Bureau, fintech companies — Chime is one of the best known — have the same obligations as real banks under what’s called Regulation E, the federal rule that governs certain types of electronic money transactions.
In May, four consumer groups – the National Consumer Law Center, Americans for Financial Reform, the Center for Responsible Lending and the Consumer Federation of America – submitted an 85-page letter urging the federal consumer finance agency to more closely regulate fintech companies.
Chime calls itself the “#1 most loved banking app” and has millions of users, although it also discloses that it is a “financial technology company, not a bank.”
Anthony Vazquez/Sun-Times
Chime was established in 2012 and offers free mobile banking services to millions of people through Visa debit or credit cards. It has no physical locations – no branches you can go to. Among the benefits Chime cites, users can get their direct deposit paychecks two days early and can get overdraft protection through the app’s “SpotMe” program.
The overdraft protection is free, although people who use it are encouraged to “tip” the app.
Chime also makes money by collecting a small portion of the interchange fees on card transactions.
Private investors have pushed the company’s last known valuation, in August 2021, to $25 billion.
But while it has won praise for innovation, Chime has received complaints to the Consumer Financial Protection Bureau. The federal agency has received more than 1,800 such complaints in the past year, including beefs about card disputes, unavailable funds or surprise account closures. Most of the complaints end up being marked “closed with explanation”, meaning the company has resolved them privately with the customer.
The company has had more than 2,500 complaints in the past year to the nonprofit Better Business Bureau, which gives Chime a B-minus grade. On the BBB website, Chime says: “For issues related to account suspension, refunds and fraudulent activity, Chime takes these issues seriously and follows guidelines for addressing these issues on a case-by-case basis.”
In Woodson’s case, after the Sun-Times brought his problem to the company’s attention, Chime restored $997 to his account in less than 24 hours, but without explanation.
“They never called me,” Woodson says. “They just put the money back.”
Roderick Woodson of Morgan Park says he was drawn to Chime because of the app’s simplicity and “no-fee” model.
Anthony Vazquez/Sun-Times
When asked what happened to Woodson, Chime spokeswoman Jen Hibbard said she could not provide details about the fraud affecting his account. Hibbard says the company has made “significant” investments in risk and compliance, with one in five employees working in these areas. She says Chime looks for fraud and that users also need to take care of themselves, practicing smart online behavior like monitoring their accounts, using strong passwords and not giving out personal information.
“Our members are the 70% of Americans who live paycheck to paycheck, including many who have historically been excluded or harmed by traditional financial services,” says Hibbard. “We understand the importance of – and have doubled down on – customer service and consumer protection.”
Rachel Gittleman, director of financial services outreach for the Consumer Federation of America, says many people don’t realize that the fintech apps they use aren’t banks and don’t offer the same protections.
Gittleman says some aspects of the apps, such as Chime’s tipping feature, can hide their real costs. Without standardized disclosures, it can be difficult to compare costs or to realize that a bunch of tips can equate to a relatively high interest rate.
“Having it unregulated poses so many risks to consumers,” she says.
Although consumer groups want to keep a closer eye on fintech companies, the apps have contributed to a positive change, said Alex Horowitz, a senior officer who specializes in consumer finance research for The Pew Charitable Trusts. Many big banks recently eliminated or lowered overdraft fees, and some offer small-dollar loans and early access to paychecks — innovations popularized by fintech companies, Horowitz says. Pew estimates that the changes in overdraft fees could save consumers nationwide a cumulative $4 billion a year.
