Roderick Woodson was wrapping up some errands using his Chime Financial card when two texts alerted him 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 to use 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 raced home to Morgan Park and contacted Chime Financial, alarmed to see four mystery 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, that added up to $997 that had been stolen from him.
A Chime representative shut down the compromised account, gave Woodson a new account number and promised to investigate, Woodson says.
After a few days, though, the dispute was deemed “closed” — with no explanation and without Woodson getting back his money.
“It was so wild that they could get my PIN number and go to the ATM and get my money so fast,” he says. “How did these people get my PIN number?”
Thousands of people have filed complaints over the past year about fintech or “neo-bank” companies including Chime, which look and act like banks but aren’t regulated by the government the way that traditional banks are.
After being asked by a Chicago Sun-Times reporter about how and why Chime was scammed and wouldn’t make good on Woodson’s vanished $997, the company restored Woodson’s money.
But others who use such apps — many of them younger or low-income — have faced similar problems, and consumer groups say federal and state authorities should do more to protect them.
Chime Financial has drawn 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 URL for its website.
The consent order noted that Illinois law “prohibits any person or entity that is not a bank from transacting business in Illinois in a manner which has the substantial likelihood of misleading the public by implying 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 being 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 those banks — though not the app companies themselves — are regulated by federal and state authorities and insured through the Federal Deposit Insurance Corp.
But with users of these apps not having a direct customer relationship with the banks themselves, that leaves them with less protection, says Carla Sanchez-Adams, an attorney with the nonprofit National Consumer Law Center.
And other apps that offer person-to-person payments, bill-paying 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 that if you have a problem with one of the fintech apps that ends up costing you, “Really, the only remedy would be for the consumer to sue them.”
According to the federal Consumer Financial Protection Bureau, fintech companies — Chime being one of the best-known — have the same obligations as real banks under what’s called Regulation E, the federal rule governing certain types of electronic funds 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 financial agency to more closely regulate fintech companies.
Established in 2012, Chime offers no-fee mobile banking services to millions of people through Visa debit or credit cards. It doesn’t have any physical locations — no branches that you can go to. Among the benefits that Chime touts, its 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, though people who use it are encouraged to “tip” the app.
Chime also makes money by collecting a small portion of interchange fees on card transactions.
Private investors have pushed the company’s most recent known valuation, in August 2021, to $25 billion.
But even as it has won praise for innovation, Chime has racked up complaints to the Consumer Financial Protection Bureau. The federal agency has gotten more than 1,800 such complaints in the past year, including beefs about card disputes, inaccessible 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 grade of B-minus. On the BBB website, Chime says: “For the issues relating to account suspension, reimbursement and fraudulent activity, Chime takes these issues seriously and follows policy to address these issues on a case-by-case basis.”
In Woodson’s case, after the Sun-Times brought his issue to the company’s attention, Chime restored the $997 to his account in less than 24 hours but with no explanation.
“They never called me,” Woodson says. “They just put the money back.”
Asked about what happened with Woodson, Chime spokeswoman Jen Hibbard says she couldn’t provide details about the fraud that affected his account. Hibbard says the company has made “significant” investments in risk and compliance, with one in every five of its employees working in those areas. She says Chime watches for fraud and that its users also need to look out for themselves, practicing smart online behavior such as monitoring their accounts, using strong passwords and not giving out personal information.
“Our members are the 70% of Americans living paycheck to paycheck, including many who have historically been excluded or harmed by traditional financial services,” Hibbard says. “We understand the importance of — and have doubled down on — customer service and consumer protection.”
Rachel Gittleman, financial services outreach manager for the Consumer Federation of America, says many people don’t realize the fintech apps they use aren’t banks and don’t offer them the same protections.
Gittleman says some facets of the apps, such as Chime’s tipping feature, can obscure their real costs. With no standardized disclosures, it can be hard to compare costs or to realize that a pile of tips could equate to a relatively high interest rate.
“Having that be unregulated poses so many risks to consumers,” she says.
Though consumer groups want closer eyes on fintech companies, the apps have helped drive some positive change, says Alex Horowitz, a senior officer specializing in consumer finance research for The Pew Charitable Trusts. Many big banks recently eliminated or lowered overdraft fees, and some are offering small-dollar loans and early access to paychecks — innovations popularized by fintech companies, Horowitz says. Pew estimates that the overdraft-fee changes could save consumers nationwide a cumulative $4 billion a year.
