Not Just a Crypto Issue: PayPal and Venmo Lack FDIC Insurance Too

“Billions of dollars” are currently stored in apps like Venmo and PayPal and just like crypto exchanges, they are not FDIC insured

article-image

Ink Drop/Shutterstock modified by Blockworks

share

Bankrupt crypto exchanges and Web2 digital payment apps have something in common: They aren’t insured by the FDIC, the Consumer Financial Protection Bureau (CFPB) reminded users this week. 

In a Thursday release, the CFPB warned users that keeping cash in apps like Venmo, Cash App and PayPal is inherently dangerous. 

“Billions of dollars” are currently stored in apps like Venmo and PayPal, the release said, but if these platforms were to go under, there is no guarantee clients would be made whole.

The companies disclose as much in their published legal terms. For instance, PayPal notes, “FDIC insurance does not protect you against the failure of PayPal,” but individual consumers may nevertheless be unaware.

“Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe,” CFPB Director Rohit Chopra said in the release.

Similarly, crypto exchanges such as Coinbase and Gemini are not insured by the Federal Deposit Insurance Corporation (FDIC). Bankrupt firms including Voyager Digital, Celsius and BlockFi are among many crypto companies that operated banking services without protection under the government. 

The FDIC has for months attempted to crack down on crypto companies using “misleading” statements about their status as insured institutions. 

In a July 2022 cease and desist letter to Voyager Digital, the FDIC alleged the brokerage firm falsely advertised itself as an insured institution. 

“Based on the information gathered to date, it appears that these representations likely misled and were relied upon by customers who placed their funds with Voyager and do not have immediate access to their funds,” the FDIC said in the letter. 

Voyager advertised to clients that deposits of up to $250,000 would be insured through the FDIC because Voyager had partnered with FDIC-backed Metropolitan Commercial Bank to maintain a deposit account on behalf of users. 

“Voyager is not itself insured by the FDIC, though, and so customers who invested through its cryptocurrency platform would not receive insurance coverage in the event of Voyager’s failure,” the FDIC added in the letter. 

In August 2022, the FDIC informed crypto safety information provider CryptoSec.info, now known as ChainSec.io, incorrectly was advertising certain crypto exchanges as being FDIC insured. 

“The FDIC does not insure any crypto exchanges,” the letter stated.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

AERODROME TEMPLATE.png

Research

Aerodrome is a "MetaDEX" that combines elements of various DEX primitives such as Uniswap V2 and V3, Curve, Convex, and Votium. Since its launch on Base, it has become the largest protocol by TVL with more than $495B in value locked, doubling Uniswap's Base deployment.

article-image

The former Valkyrie CEO chats with Blockworks about what she has her eye on as Cypherpunk Holdings’ new leader

article-image

Thursday’s CPI report shows prices are coming down more quickly than analysts had anticipated, renewing hope that central bankers will cut rates in the fall

article-image

If we tokenize all assets in a speculative rush, the risk of creating illiquid markets and trapped value will manifest on a large scale

article-image

Plus, Trump is headed to the heart of Bitcoinlandia with a speaking appearance at the Bitcoin 2024 conference

article-image

Meanwhile, stocks rally after Jerome Powell finishes his Capitol Hill tour

article-image

Plus, Blinks have reshaped many people’s understanding of what blockchains are capable of