Chime to pay $4.5 million for illegally delaying consumer refunds

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The Consumer Financial Protection Bureau has fined Chime Financial $3.25 million and ordered the San Francisco challenger bank to pay $1.3 million in redress for failing to give consumers timely refunds when their accounts were closed. 

Chime was bombarded with a surge of consumer complaints in 2021 and bad publicity after ProPublica ran a lengthy investigative report that found many Chime customers had had their accounts closed without warning and were unable to access their money.

The CFPB said in a 28-page consent order that thousands of consumers waited months to get refunds, a failure that inflicted "significant financial harm." Affected consumers will receive roughly $150 in redress if they held a minimum unrefunded balance of $10 and were not refunded by Chime within 14 days of closing their account, the CFPB said. 

The CFPB's consent order follows a crackdown by federal regulators that have taken a sharper look in recent months at bank partnerships with financial technology firms. Chime's banking services are provided by The Bancorp Bank in Sioux Falls, South Dakota, and Stride Bank in Enid, Oklahoma, though the company is funded by venture capital firms. 

"Fast-growing financial firms must treat their customers fairly and understand that federal law is not a suggestion," CFPB Director Rohit Chopra said in a press release.  "Chime's customers had to wait weeks or months for access to their own money and were forced to use alternative funds to cover their essential expenses." 

In February, the mobile app agreed to pay a $2.5 million fine to California's Department of Financial Protection and Innovation for failing to respond to consumer complaints. Chime partners with banks to provide checking, savings and credit card services through a mobile app. It has $1.5 billion in annual revenue.

Until 2021, Chime had a policy in its consumer account agreements to process and mail refund checks within 14 days of an account's closure. Chime typically automatically refunded remaining balances. But the CFPB said that "in thousands of instances," Chime took longer than 90 days to issue refunds. 

Chime is responsible for processing accounts' payments but it does so through a third-party payment processor, the CFPB said.

In a statement, Chime blamed the delay in refunds on a third-party vendor that it refused to identify. Media reports have claimed that Chime relied on the Galileo software system sold by competitor SoFi, which sustained multiple outages in 2021 that kept customers from using their debit cards. 

"The majority of the delayed refunds were caused by a configuration error with a third-party vendor during 2020 and 2021," Chime said in an emailed statement. "When Chime discovered the issue, we worked with our vendor to resolve the error and issued refunds to impacted consumers."

The company also said it was "pleased to have resolved this matter."

The CFPB said Chime committed "unfair acts or practices," in violation of the Consumer Financial Protection Act. Chime is required within 60 days to refund harmed consumers and ensure that its practices comply with federal consumer financial laws. 

The consent order stated that the company's "Board has the ultimate responsibility for ensuring that [Chime] complies with this Consent Order."