Digital payments company Block has agreed to pay $255 million to federal and state regulators for deficiencies in oversight of its peer-to-peer payments tool Cash App. A portion of this amount will go to compensate consumers who have been victims of fraud.
The company paid a fine of $55 million to the Consumer Financial Protection Bureau (CFPB) and has promised to compensate up to $120 million to users who have been victims of fraud. The announcement came on Thursday, when the federal agency issued a press release about this.
Cash App and security issues
The CFPB said in its report that Block had implemented weak security protocols for Cash App, due to which users were exposed to risk. According to the agency, the investigations conducted by Block were incomplete and the company ignored cases of unauthorized transactions without proper investigation.
In addition, Block advised consumers to contact their bank for financial losses related to fraud, but when banks demanded compensation from the company, Block refused it. According to the CFPB, the company used various strategies to further complicate the process, such as “baffling” users with its terms and “cheapening” investigations.
CFPB Director Rohit Chopra said, “Cash App created an environment for fraud to flourish on its popular payment service platform. When things went wrong, Cash App turned its back on its responsibilities and even passed the problems it caused on to local banks.”
Actions taken by state regulators
The company also admitted that it has paid another $80 million fine to Cash App. States had alleged that Block’s service violated banking laws. The fine was imposed by 48 states that filed a report against Block in November 2023. The report said that Block lacked compliance with the Bank Secrecy Act and related anti-money laundering laws.
Cash App’s compensation and corrective measures
Under the agreement, Block must take corrective measures, including hiring a consultant who will review the company’s programs to ensure compliance with the Bank Secrecy Act and money laundering laws. In addition, Block must ensure that its service is not used to launder money, promote terrorism or other illegal activities.
The company said it has changed its previous strategy to address these problems and is now investing significantly in compliance and risk management. Block also reported that it has begun using artificial intelligence (AI) to improve customer service and compliance and to identify “bad activities” and account takeovers.
Cash App’s impact and future
Cash App is used by more than 56 million people, and it is projected to generate $7.5 billion in profits in 2023, $4 billion of which came from Cash App alone. This financial growth is a positive sign for Block, but it needs to make its services more secure and reliable to maintain the trust of users.
It is the responsibility of Block to provide proper security and monitoring to the consumers using its services. This development also makes it clear that compliance and customer security should now be the most important priority for the company.
Thus, Block has taken corrective steps by learning from its past mistakes and has promised to follow more strict rules to avoid any such problem in the future.
FAQs
Q. What is Block’s $255 million settlement about?
A. Block agreed to pay $255 million to federal and state regulators due to deficiencies in its oversight of Cash App and to compensate fraud victims.
Q. What penalties did Block face in this settlement?
A. Block was fined $55 million by the Consumer Financial Protection Bureau and agreed to pay up to $120 million in compensation to victims.
Q. Why was Block’s Cash App service penalized?
A. Block was found to have weak security protocols for Cash App, which led to users falling victim to fraud. The company also failed to properly investigate unauthorized transactions.
Q. What corrective actions must Block take as part of the settlement?
A. Block is required to hire a consultant to review its compliance programs and improve its anti-money laundering practices.
Q. How many people use Cash App?
A. Over 56 million people use Cash App to send, store, spend, and invest money.
