Who Cares If You're
Called a "Bank?"
Does the average American know the difference between a legitimate bank and a non-regulated financial services institution? They should. Under U.S. statute, (26 US Code 581) the term “bank” means a bank or trust company incorporated and doing business under the laws of the United States or of any State—and which is subject by law to supervision and examination by State or Federal authority having supervision over banking institutions. Americans should know that when they bank with a real bank, they have certain protections and securities to mitigate risks such as those that can come with an economic upheaval.
Bankers generally want to be able to use the term “bank” in a correct way, one that isn’t misleading to customers.
As a recent example of misleading use of the term “bank,” a non-bank company called “Chime” agreed to stop referring to itself as a bank in a settlement with California regulators. The California Department of Financial Protection and Innovation ordered Chime to cease and desist using language the regulator says falsely portrays the fintech as a bank, according to a settlement agreement reached March 29. The San Francisco-based company has been the subject of a yearlong investigation by the California regulator for using "chimebank.com" as its web address prior to February 2020, and for using the terms "bank" or "banking" in its business.
Chime, which does not have a banking license, has cooperated with the investigation, and has neither admitted nor denied any wrongdoing, according to the settlement.
Another real life example: In 2018 to 2020, when traditional banks were paying about less than 0.10 percent on savings accounts, “Beam Financial,” a consumer banking app, advertised that it was offering up to 8 percent on deposits with no fees, no minimum-balance requirements, and easy customer service—including quick deposit account transfers and openings. Customer requests to withdraw funds would be honored within three to five business days. But Beam was not a financial institution. It was a consumer banking app. Its vision was “to make high-interest bank accounts accessible to all Americans, regardless of wealth status, account balance, or whether they would be eligible for cross-selling of other financial products.”
After receiving complaints that customers couldn’t get their money back and that Beam was not paying the high interest rates it advertised, the Federal Trade Commission began investigating Beam. On its website, Beam listed 50 banks it claimed to be working with, including some of the biggest in the country. But according to an investigation, some or all had no relationship whatsoever with the company. Beam has an F record with the Better Business Bureau (BBB) for failing to respond to complaints filed by its customers.
Meanwhile, another payment app, Venmo, owned by PayPal Holdings, is cooperating with the Consumer Financial Protection Bureau, which is investigating allegations that Venmo is involved in unauthorized fund transfers and collections processes. This is not the first time the CFPB has investigated PayPal.
Americans should be informed and understand how a mobile banking app works before downloading and using it. Read the terms and check it out with consumer rating services and such as the BBB. Just because a company uses the word “bank” in its name doesn’t meant it’s FDIC-insured. Or a real bank.
To sum up: If customers want assurance that a bank is really a bank that is required to comply with strict laws and subject to frequent regulatory examinations, bank with a bank!