Federal, state regulators take Block to task

The Consumer Financial Protection Bureau ordered Block, owner-operator of the peer-to-peer payment app Cash App, to refund and pay other redress up to $120 million to consumers for shirking its responsibilities to protect consumers from fraudsters. That's on top of a $55 million fine, to be paid into the CFPB's victim's relief fund, which is used to help compensate harmed consumers who might not otherwise receive compensation from Block.

The CFPB's action follows a coordinated enforcement action by 48 state financial regulators that includes an $80 million fine and mandatory corrective actions for violations of the Bank Secrecy Act and anti-money laundering (AML) rules.

States cite BSA/AML violations

Cash App is one of the largest P2P payment platforms in the United States with more than 56 million accounts, according to the CFPB. Block made approximately $7.5 billion in gross profit in 2023, approximately $4 billion of which was generated by Cash App.

Consumers who download Cash App to their mobile devices use it to spend, send, store and invest money. It even offers a prepaid debit card, Cash Card, that consumers can use to make purchases or ATM withdrawals.

Some consumers, however, apparently use the app to launder money obtained from criminal activities.

BSA and AML rules require financial firms to perform due diligence on customers. This includes verifying identities, reporting suspicious activities and applying controls for high-risk accounts.

State regulators said they found that Block was not in compliance with some of these requirements, creating the potential that its services could be used to support money laundering, finance terrorism or to engage in other illegal activities.

State regulators in Arkansas, California, Massachusetts, Florida, Maine, Texas and Washington State led the multistate enforcement effort, and Block cooperated with the states in working out the details of the settlement, the Conference of State Bank Supervisors explained in a press release.

Under terms of the agreement, signed Jan. 16, 2025, Block agreed to pay the assessed penalty to the state agencies, hire an independent consultant to review the comprehensiveness and effectiveness of its BSA/AML program, and submit a report to the states within nine months. Block will have 12 months to correct any deficiencies found in the review once the report has been filed.

State financial regulators license and supervise more than 34,000 nonbank financial services companies, including 700 money transmitters. Other nonbank financial firms that are regulated at the state level include mortgage companies, consumer finance providers and debt collectors.

State regulators regularly coordinate supervision of multistate firms, and when necessary, initiate coordinated enforcement actions, CSBS said in its press release.

CFPB zeroes in on fraud

The CFPB, meanwhile, took Block to task for employing weak security protocols, which put Cash App users at risk, and for violations of the Consumer Financial Protection Act and the Electronic Funds Transfer Act.

Block is required under federal law to investigate and resolve disputes involving unauthorized transactions. However, the company's investigations were "woefully incomplete," the CFPB said in a statement. Rather than investigate, Block would direct Cash App users who had suffered financial losses due to fraud to ask the financial institutions where they held accounts linked to Cash App to reverse the transactions. But Block then would subsequently deny reversals, the CFPB added.

"Cash App created the conditions for fraud to proliferate on its popular payment platform," said CFPB Director Rohit Chopra. "When things went wrong, Cash App flouted its responsibilities and even burdened local banks with problems the company caused."

Block also deployed a range of tactics to suppress Cash App users from seeking help. For example, Block told consumers it manned a telephone line where they could report unauthorized transactions, but for many years the number did not connect consumers to customer support of any type, the CFPB stated.

Block's actions left Cash App users vulnerable to fraudsters, the agency said. In fact, consumers looking for customer support through web searches were often targeted by fraudsters posing as Cash App representatives who tricked them into giving up their passwords and other personal information.

Block to pay fines and redress to consumers

The CFPB order Block to pay between $75 million and $120 million in refunds and other redress to consumers whose unauthorized transfers were not investigated, who did not receive refunds they were entitled to, who were locked out of their accounts for extended periods, and/or who were not provided provisional credits during delayed investigations.

Block also has been ordered to set up a 24-hour, live-person customer service line, to fully investigate unauthorized transactions and to provide timely refunds where appropriate, the CFPB said.

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