On March 29, 2021, the FTC announced a settlement with Beam Financial Inc. (Beam) and its founder and CEO, Yinan Du, over allegations that the mobile banking app company deceived consumers about their access to funds and interest rates. The settlement included a far-reaching conduct ban. As the non-bank financial services continue to grow, the action and settlement underscore the role the FTC seeks to play in policing that sector.
By way of background, on November 18, 2020, the FTC filed a complaint against Beam, alleging that Beam and Mr. Du falsely promised users of their banking app that they would earn high interest rates on the funds maintained in their Beam accounts and have “24/7 access” to their funds. Beam was not a bank; rather, it promised to place funds at banks and provide consumers access to those funds through the app. The FTC alleged that Beam promised users would receive “the industry’s best possible rate”—at least 0.2% or 1%—when users actually received a much lower rate of 0.04% and stopped earning interest entirely after requesting that Beam return their funds. The FTC’s complaint also alleged that Beam misrepresented that consumers could easily move funds into and out of their accounts and that they would receive their requested funds within three to five business days. According to the FTC, users reported that their emails, texts, and phone calls to the company went unanswered; some users even allegedly waited weeks or months to receive their money, while others never received it. The FTC alleged that this was particularly difficult for consumers experiencing serious financial hardship during the COVID-19 pandemic.
Under the terms of the settlement, Beam and Mr. Du are banned from operating a mobile banking app or any other product or service that can be used to deposit, store, or withdraw funds. They are also prohibited from misrepresenting consumers’ access to funds, interest rates, and other aspects of any financial product or service. In addition, defendants must provide full refunds to customers, currently valued at approximately $2.6 million.
Interestingly, the proposed settlement was approved by a 3-1 vote, with Commissioner Rohit Chopra voting against it. Even though Commissioner Chopra did not issue a statement to explain his vote, it is safe to assume, given his recent advocacy, that he likely preferred a settlement that included additional financial consequences to the defendants, including civil penalties, perhaps through a referral to the Consumer Financial Protection Bureau (CFPB), which he may soon lead.
As most readers know, the FTC lacks jurisdiction over banks. Non-bank financial services, however, continue to grow. Many of those services are aimed at consumers who are under-banked or not banked. Providers in that sector need to remember that traditional FTC advertising principles apply to these novel services.