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Traditionally, banks have been the most popular way for consumers and companies alike to deposit and hold money. Since the Great Depression, consumers have had peace of mind placing their money with Federal Deposit Insurance Corporation (FDIC) insured institutions. These FDIC-insured institutions protect individual account deposits of up to $250,000 per bank in case of a bank failure or collapse.
Keeping with the times, most major banks also offer the convenience of banking through a mobile application. With a mobile app, consumers and companies can deposit checks, check account balances, and transfer funds with the ease of a click. Other nonbank companies have also started offering similar services, but without a banking license, federal oversight, or the protection of an FDIC-insured institution.
The most popular “nonbank” institutions that consumers may encounter are “peer 2 peer” (P2P) payment systems such as PayPal, Venmo, and Cash App. These apps are very popular options for paying friends, family, and other individuals such as contractors. The Consumer Protection Financial Bureau (CPFB) found that more than “three-quarters of adults in the United States have used a payment app,” with “approximately 85 percent of consumers aged 18-29 (reporting using) such a service.” Consumers may also encounter nonbanks in the form of prepaid accounts or cards for stores like Starbucks, Google Play, and Apple.
Bitcoin and cryptocurrency investment are also popular industries that utilize nonbanks. Many consumers and businesses are lulled into a false sense of security when they see websites that look like professional banks with trendy industry buzzwords. A consumer from the Cleveland, Ohio area reported to the Better Business Bureau® (BBB®) Serving Greater Cleveland that he “joined Maecon Investment Group under the impression I would earn money by investing a total of $2,000 in cryptocurrency to their company. I joined the Facebook group that was associated with Maecon Investment Group and gained trust by seeing 96 members on their page. I was able to see my online account until a of couple days ago. I cannot reach the website, the message on the screen shows 404 not found. I've tried calling the phone number listed in Google and did not get an answer, I attempted to reach their chat and messenger and the screen shows 'No Internet.'" The consumer could not recover their money and the US Securities and Exchange Commission has listed Maecon Investment Group as an unregulated soliciting entity in its PAUSE Program. This program lists entities falsely claiming to be registered, licensed, or located in the United States in soliciting investors.
Nonbank apps provide a necessary service when used conscientiously in an era where writing personal checks has fallen by the wayside. Not to mention, the convenience of a prepaid account to make a purchase is also unmatched. However, consumers should know the pitfalls of using a “nonbank.”
Consumers should know that:
- Deposits may not be FDIC insured - Wise consumers should keep only enough funds on hand for anticipated transactions. Also, if the institution isn’t FDIC-insured, consumers should know they can lose their money if the company goes out of business.
- Companies may be making money using your funds - Non-FDIC companies do not have the same federal oversight that banks or credit unions do, and they may hold and invest consumers’ money without their knowledge.
- User agreements may be vague - User agreements for nonbanks may be vague and lack information about what the company may do with the funds if it is insured and who is responsible or is the point of contact if the company fails.
- Some nonbanks may be scams - Scammers like to impersonate well-known brands and companies. Research companies thoroughly before depositing large amounts of money into new accounts or apps.
For more information
Visit BBB’s Consumer Headquarters on BBB.org.
If you or someone you know has spotted a scam, report it to BBB.org/ScamTracker.
Consumers can also file a complaint at BBB.org/Complaint.
BBB Greater Cleveland contributed this article.