In a major regulatory crackdown, Block Inc., the parent company of Cash App, has been ordered to pay a total of $255 million in penalties following coordinated actions by 48 state financial regulators and the Consumer Financial Protection Bureau (CFPB). The enforcement stems from anti-money laundering (AML) and fraud failures linked to the popular mobile payment service.
Breakdown of Penalties:
- $80 Million Fine: Imposed by state regulators for violations of the Bank Secrecy Act (BSA) and AML regulations. Block will also have to take corrective measures, including hiring an independent consultant to review its BSA/AML program.
- $175 Million Penalty by CFPB: This includes $120 million in consumer refunds and redress, and a $55 million fine directed to the CFPB’s victims’ relief fund.
Key Issues Identified:
- Non-compliance with BSA/AML Regulations: State regulators found significant deficiencies in Block’s compliance with customer due diligence, identity verification, and suspicious activity reporting. This failure increased the risk of Cash App being used for money laundering and other illicit activities.
- Fraud and Weak Security Protocols: The CFPB highlighted that Cash App allowed fraud to thrive, employed inadequate security measures, and failed to properly address unauthorized transactions. Block’s investigations into such cases were described as “woefully incomplete,” often leaving consumers to seek resolution from their banks.
Corrective Measures:
- Independent Review: Block must conduct a thorough review of its BSA/AML program and rectify any deficiencies within a year.
- Enhanced Customer Support: The CFPB has mandated the establishment of 24-hour live customer service to address and resolve unauthorized transactions promptly, ensuring timely refunds when necessary.
Broader Implications:
The crackdown on Block comes amid increased regulatory scrutiny of mobile payment platforms. The CFPB is also targeting Zelle, a Cash App competitor, filing a lawsuit against Early Warning Services, JPMorgan Chase, Bank of America, and Wells Fargo for similar issues.
CFPB Director Rohit Chopra stated, “Cash App created the conditions for fraud to proliferate on its popular payment platform… When things went wrong, Cash App flouted its responsibilities and even burdened local banks with problems that the company caused.”