“Just send a Venmo!” “… To a collection agency? | Spilman Thomas & Battle, SARL


Due to COVID-19, many businesses are reluctant to handle cash, credit cards or debit cards, and consumers are concerned about the use of paper money and coins. So it’s no surprise that a by-product of the COVID-19 pandemic is a boom in contactless payment. Peer-to-peer payment platforms, such as Venmo, PayPal, Xoom, and others enable the digital transfer of money from one user to another in a fast, convenient and socially distant manner. Digital wallet platforms have seen a dramatic increase in personal use throughout the pandemic and are starting to expand their contactless payment services to physical stores and retailers such as CVS.

On January 21, 2021, Paypal Holdings Inc. received a Civil Investigation Request (“CID”) from the Consumer Financial Protection Bureau (“CFPB”) “relating to Venmo’s unauthorized fund transfer and collection processes”. This is not the first time that Venmo’s practices have come under close scrutiny by the CFPB. A CID occurs when the CFPB is gathering facts to determine whether Venmo has violated the Fair Debt Collection Practices Act and whether enforcement action is required.

To understand the reasoning for which a CID was created, it is important to understand the history of Venmo and how it works. Venmo allows instant transfer of money from one user account to another. The funds transfer may take a day to move from the user’s bank account to the other party, therefore, the Venmo account of a user making the transfer is overdrawn. To make the instant transfer, Venmo covers the specific money transferred between accounts until the user’s bank can transfer the funds. However, problems arise when the user’s bank does not have the money to transfer the funds. To cover these losses, Venmo may hire debt collectors for users with negative account balances and has also amended its User Agreement to give itself the power to recover money by seizing it on others. PayPal accounts belonging to the Venmo user. Thus, the CFPB investigation into whether this activity violates the Fair Debt Collection Practices Act.

Venmo’s collection practices have come under scrutiny for two reasons: the timing and context of the overdraft accounts. Indeed, many overdraft accounts are the result of account theft and / or scams on Venmo which have increased dramatically throughout the pandemic. Notably, crooks use stolen credit cards to transfer money to the account of an unknown user. The user receives a message requesting the refund which was accidentally transferred to the user’s account. As the user transfers the money, the scammer updates their payment method to receive the money on their own card and the money is fraudulently withdrawn from the user’s bank account. On its website, Venmo lists many other common scams on the platform. Despite careful scrutiny of its collections, Venmo has yet to change its approach.

Venmo is complying with the federal investigation, and the result will have an interesting effect on all peer-to-peer payment platforms. Is the convenience of instant transfers too high a risk for digital payment providers outweighed by potential legal violations and unfair collection practices? The pandemic boom in contactless payments will undoubtedly raise many legal questions for providers and users of these platforms, as they continue to become the norm for personal and business payments.


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