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US Consumer Protection Agency Issues Warning on Payment Apps Following Collapses of Crypto Firms, Banks
Transaction volumes on payment apps have “substantially increased,” the CFPB said in the report
The collapse of crypto exchange FTX and crypto lender Voyager Digital led to consumers losing hundreds of millions of dollars, the CFPB said
“Following the demise this year of Silicon Valley Bank, Signature Bank, Silvergate Bank, and First Republic Bank, the public has learned more about the importance of federal deposit insurance coverage,” the CFPB said.
“These events have spurred renewed attention on the ied types of financial institutions consumers use and the extent to which consumers’ funds at those financial institutions are protected from losses,” the agency added
The CFPB said it found that “stored funds can be at risk of loss in the event of financial distress or failure of the entity operating the nonbank payment platform, and often are not placed in an account at a bank or credit union and lack individual deposit insurance coverage.”
More payments apps offer crypto services
Companies such as Venmo and Paypal offer crypto services, but the CFPB warned that some of the funds are not eligible for deposit insurance.
The US Federal Deposit Insurance Corporation protects depositors up to at least $250,000 per depositor if a bank fails
Three crypto friendly banks —Silicon Valley Bank, Silvergate Bank and Signature Bank, crashed in March, which led to a stock price decline and deposit runs
FDIC Chair Martin Gruenberg spoke on Signature Bank’s failure at a congressional hearing this month, attributing the root cause of its failure to poor management while also blaming the bank for its over-dependence on uninsured crypto deposits without implementing proper risk control measures