The following section is lengthy, but it is absolutely worth your attention, as many people utilize the product discussed.
Increasingly, companies, through their apps are becoming a major part of our financial lives -- acting in many ways like banks, but without many of the consumer protections like FDIC that provides federal protections to deposits should a bank fail.
PayPal, Venmo and the like are prime examples of apps that act like banks -- people often keep rather large balances on them and can even get short-term loans from them -- but are not technically banks.
A few years ago the federal Consumer Financial Protection Bureau put out an advisory telling consumers that their money is at greater risk when stored with one of these payment apps than at an FDIC-insured bank. The CFPB also warned that these companies might invest the money they get from customers, but their investments aren't subject to the same kind of oversight that a regulated bank would get.
Meanwhile, companies that you'd never consider as acting like a bank, are encroaching into that territory. Take Starbucks, for example. Its app allows you to keep a balance, with customers earning rewards like a free cup of coffee for continual use. These so-called loyalty programs float hundreds of millions of dollars to companies, while subjecting them to separate oversight than a traditional bank. (Gift cards represent similar, but separate challenges that the state legislature addressed a few years ago.)
I will continue to look at this issue as we move forward so Connecticut residents are protected from potentially harmful practices that could cost them more than just a cup of coffee. |
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