By Manya Saini
(Reuters) -The Consumer Financial Protection Bureau on Thursday ordered payments firm Block to pay a penalty, citing fraud and weak security protocols on its mobile payment service Cash App.
The regulator said Block, which is led by Twitter Co-founder Jack Dorsey, directed Cash App users who experienced fraud-related losses to contact their banks for transaction reversals, which Block subsequently denied.
The regulator also alleged the company deployed a range of tactics to suppress Cash App users from seeking help in order to reduce its own costs.
Cash App is one of the largest peer-to-peer payment platforms in the U.S. and allows consumers to send and receive electronic money transfers, accept direct deposits and use a prepaid card to make purchases.
“When things went wrong, Cash App flouted its responsibilities and even burdened local banks with problems that the company caused,” said CFPB Director Rohit Chopra.
In response, Block said the issues raised by the regulator were “historical” and did not “reflect the Cash App experience today”.
“While we strongly disagree with the CFPB’s mischaracterizations, we made the decision to settle this matter in the interest of putting it behind us and focusing on what’s best for our customers and our business,” the company added.
The move is one of the final regulatory actions under the Biden administration as Washington awaits the inauguration of President-elect Donald Trump. Billionaire Elon Musk, who is slated to co-head a new government agency to slash government spending, has called for the elimination of the CFPB.
The regulator’s order includes up to $120 million in compensation and a $55 million penalty to be paid into the CFPB’s victim relief fund.
“The CFPB has made a few last-minute moves to aid consumers ahead of the incoming Trump administration including action against Zelle and the current settlement with Block,” said Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors.
Last month, the agency filed a lawsuit against banking giants JPMorgan Chase (NYSE:), Bank of America and Wells Fargo (NYSE:) tied to payments platform Zelle.
Block’s gross profit rose 19% to $2.25 billion in the third quarter ended Sept. 30, with Cash App accounting for $1.31 billion of the total income. It had 57 million active customer accounts.
Under the enforcement action, the CFPB has also ordered Block to set up a 24-hour, live-person customer service to investigate unauthorized transactions and provide timely refunds, where appropriate.
On Wednesday, Block also agreed to pay $80 million to a group of 48 state financial regulators.
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