Federal Watchdog issues Advisory on Payment sending services

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Venmo, Cash App, and PayPal all offer users the ability to store money in their apps, which can be accessed at any time to make payments or purchases. While they may seem convenient, the CFPB has warned that users should be aware of the potential risks. A recent warning from a federal consumer watchdog has highlighted the risks associated with using these services to store money.

The Consumer Financial Protection Bureau (CFPB) has expressed concerns that consumers may not fully understand the risks involved in using such apps as digital wallet. These apps are primarily designed to transfer money between individuals, rather than store it like a traditional bank account. As a result, they lack some of the security features that protect consumers' money in a traditional banking system. Unbanked communities, especially, use these apps to store their money since they have no accounts to move funds to.

These apps are not FDIC-insured, which means that if the app's parent company goes bankrupt or is hit with a major hack, users' funds are not guaranteed to be reimbursed. Furthermore, the funds stored in these apps may be vulnerable to cyberattacks as they are not protected by the same level of encryption and security measures as traditional banks.

Users can also be easily scammed or defrauded when using these apps. For example, a scammer may contact a user and convince them to send money through one of these apps, promising a return on their investment. Once the money has been sent, it can be difficult to recover, as these apps are not yet subject to the same fraud-prevention regulations as traditional banking institutions.

So, what can you do to protect yourself when using Venmo, Cash App, or PayPal? The CFPB advises that users treat these apps like cash and only store small amounts of money in them. Furthermore, it recommends that users avoid using these services to make transactions with unfamiliar individuals or businesses.

While Venmo, Cash App, and PayPal may be convenient for sending and receiving money, it is important for users to understand the risks associated with using them to store money. In light of the recent bank failures, consumers are urged to immediately transfer large sums of money out of these risky, uninsured apps.