Dive Brief:
- The Federal Trade Commission (FTC), banned the mobile banking app Beam and its founder, Yinan "Aaron" Du, from operating a product or service that can deposit, store or withdraw funds as part of a settlement the panel announced Monday.
- Beam must fully refund customers' deposits and interest — an amount that was $2.6 million as of November — and submit reports to the commission detailing its refund progress after 30, 90 and 180 days. Beam must remit to the FTC any outstanding refund amount after 200 days, according to the settlement.
- Neither Du nor Beam admitted wrongdoing in the settlement, which still must be approved by a federal judge in San Francisco.
Dive Insight:
The settlement follows a lawsuit the FTC filed against Beam in November, alleging the app engaged in "unfair and deceptive acts."
Beam claimed to pay users 0.2% to 1% on interest on deposits — about 20 times the rate of a traditional bank — and said users could increase that rate to as high as 7% by referring new customers.
The company said it could afford to pay such rates because of its branchless model. However, a CNBC investigation in October found the company used a legal arrangement known as a sweep account to funnel customer deposits through a network of banks. Beam would collect interest on those deposits and pass them back to account holders.
Beam, which launched in 2019, labeled itself "the first mobile high-interest savings account for the 99%" and said it gave users "24/7 access" to their money.
However, some customers, as early as last spring, said the company began refusing withdrawal requests, blaming Beam’s vendors and the coronavirus pandemic, for funds’ lack of availability.
A spokesperson for Beam and Du did not immediately respond to CNBC with a comment.
"The message here is simple for mobile banking apps and similar services: Don’t lie about your customers’ ability to get their money when they need it," Daniel Kaufman, acting director of the FTC’s Bureau of Consumer Protection, said Monday in a press release.
The commission voted 3-1 to approve the settlement order. Rohit Chopra, President Joe Biden’s nominee to lead the Consumer Financial Protection Bureau (CFPB), was the lone dissenter.
Beam told CNBC little more than a week after the FTC sued that the company had processed withdrawals "for 98% of all requested customers" — and several customers told the network they had indeed received their funds.
Court documents did not indicate how much was still outstanding.
