On August 21, the CFPB filed a complaint and stipulated final judgment in the U.S. Bankruptcy Court for the Central District of California against a fintech service provider in Chapter 11 proceedings. The Bureau alleged violations of the Consumer Financial Protection Act (CFPA), asserting the company engaged in unfair acts and practices by failing to maintain accurate custodial records of consumer funds. The stipulated order, entered with the consent of the Chapter 11 Trustee, permanently bars the company from participating in a range of consumer financial activities.
The Bureau’s allegations centered on the fintech’s role in connecting nonbank platforms with partner banks for deposit accounts, debit cards, and payment processing. According to the complaint, beginning in 2023, the fintech operated a cash management program that swept deposits into omnibus accounts at multiple partner banks. The Bureau alleged that the company engaged in unfair practices, including:
- Failure to maintain accurate records of consumer funds. The company’s books overstated balances at partner banks, creating an estimated $60 to $90 million shortfall across accounts.
- Depriving consumers of timely access to deposits. After operations ceased in May 2024, partner banks froze accounts and stopped processing transactions, leaving thousands without access to paychecks or bill-payment capabilities for weeks or months.
- Causing substantial consumer harm. Consumers reportedly missed rent, mortgage, and medical payments, and many have yet to recover their full balances more than a year later.
The stipulated final judgement and order permanently enjoins the company from engaging in deposit-taking, money transmission, custodial fund activities, or payment and financial data processing.
Putting It Into Practice: While the CFPB’s authority has been narrowed in several areas under the current administration, the order shows that the Bureau continues to exercise its enforcement powers in areas where it retains jurisdiction (previously discussed here). Market participants should not assume a diminished agency means diminished enforcement risk. Fintech platforms, banks, and service providers operating in banking-as-a-service models should strengthen oversight controls for custodial accounts, recognizing that consumer access to funds is a priority enforcement area.