Beam Money Withdrawal Problems Highlight Risk of Banking at Fintechs
The financial technology company (fintech) known as Beam has made news due to many of its banking customers reporting that they have been unable to withdraw their money for months. Beam attracted attention in the last year due to its high yield bank account that’s accessed through the Beam mobile app. Like many fintechs, Beam claimed to be working with banks that actually hold the customer deposits. Through these banks, it was claimed that the accounts offered FDIC coverage. The problem that Beam customers have been experiencing is shedding light on what can go wrong at these fintechs who are operating like banks.
CNBC is the news organization that published the exposé on Beam. In the CNBC October 28th article, five Beam customers were interviewed and described their failed attempts to withdraw their money from their Beam accounts. One has been trying since August.
In September, two DA readers posted similar issues in their reviews of Beam. Here’s an excerpt of one of the reviews:
Like many I was lured in by their interest rates and the easy ability to get Billies and boost the rates just by signing up for emails. Well that's garbage, the email-rates only last for a day and then push you back to .02%. But that's nothing compared to withdrawing.
MANY PEOPLE have requested withdrawals OVER ONE MONTH AGO, yet still haven't received their $$. I am one of them. Beam has totally stopped responding. If anyone knows how to file this issue with the FDIC, please post here!
Beam claimed to offer an FDIC-insured sweep account in which deposits would be transferred to a network of banks that actually hold deposits. This is one of the two typical arrangements fintechs use to provide banking services. The other arrangement is when the fintech partners with just one bank. As I described in my review of the safety of banking at fintechs, the sweep-account approach is the most problematic.
Not only are Beam customers lacking access to their money, there is significant uncertainty about who is holding their money. This highlights the problem that can occur when you’re dealing with a middleman for managing your bank account.
According to the CNBC article, at least five entities have been involved with the customer funds. The first is Beam itself which provides the frontend to customers. Then those funds were supposed to be transferred to the company R&T that handles Beam’s sweep accounts. R&T uses another bank to temporarily hold the funds. At some point, R&T is supposed to transfer the funds to one or more custodian banks which comprise the network of banks that provide long-term holding of the funds. The only custodian bank that CNBC was able to confirm was Huntington Bank. Beam had listed 50 banks that were supposed to be part of the network of banks that would act as custodians of the funds. Lastly, the company Dwolla was used to process ACH transfer requests.
Based on CNBC’s report, it appears customer funds are currently being held at an unnamed bank that R&T uses to temporarily hold funds. The Huntington Bank statement that CNBC shared is disturbing. According to the CNBC article:
Huntington is “not currently in possession of any [Beam user] funds and has not withheld any Beam funds,” the spokeswoman said. The funds “will be transferred to the custodial account, once R&T is instructed to do so by Beam,”
I find this disturbing since Beam had claimed that funds would be swept into Huntington and other banks in its network of banks. It appears that Beam’s customer funds never made it to Huntington Bank.
Also disturbing is that Dwolla has cut ties with Beam as of October 1st, and according to the CNBC article, R&T will be cutting ties on October 31st. Next week may be an important time for Beam customers who are trying to get back their money. If the money leaves R&T and its bank but is not transferred to either the Beam customers or Huntington Bank, the prospect dims that Beam customers will see a return of their money.
Safety of banking at any non-bank fintech?
In closing, this problem at Beam highlights the risks of banking at a fintech that uses a sweep account arrangement. It also suggests risks of banking at any fintech that’s not a bank. Even with fintechs that partner with just one bank, there may be more risk than we think. If the fintech doesn’t act responsibly, your money may be at risk. The FDIC may not be able to help if the money is not at the bank. If you’re dealing directly with a bank that doesn’t act in a safe and sound manner, the FDIC can force changes or shut down the bank to prevent loss of your insured funds. If you’re banking at a fintech that doesn’t act in a safe and sound manner, you may be out of luck.
I suspect we will soon see a lawsuit brewing.
As soon as I read about this I immediately took the $125 x2 bonus Cash out of my SoFi accounts just in case and will be closing them after the required 90 days is up.
Maybe there will end up being a class action but that's no guarantee they will get their funds back just pennies on the dollar.
Dealing with a middleman for a bank: risk=x+y where y'>'0
Wondering if this unnamed institution is somehow located out of the US maybe in the Cayman's always heard that is a good place lol
When these Fintech accounts came out I was wary. Would I sent my money to some silicon valley wiz kids running a start up? Also, If the rates are much higher than regular rates that sets a red flag for me.
For example, the Consumer Financial Protection Bureau states that it has a "Payday Lending Rule". As I understand it (and I may be wrong), that Rule does apply to lenders that are not "financial institutions".
Whether "the CFPB (or any other governmental financial regulatory agency)" can help, with regard to Beam, is a question I would not endeavor to answer without conducting further research. But ichaelm could obviate any need for further research by anyone by simply providing the basis for his statement. I would greatly appreciate it if ichaelm would provide us with the benefit of his knowledge. Thanks.
Note paragraph 7:
But it has not done so. Instead, the CFPB has generally supported the growth of fintechs as “consumer friendly innovation.” The agency created a regulatory sandbox in 2019, over the objections of a number of state attorneys general, for fintech firms. The sandbox was defined in a no action letter to mean that qualifying fintechs could assume that they would not be subject to CFPB enforcement actions for three years, in exchange for data sharing.
Note paragraph 5:
Fintech firms are today not directly supervised, examined, or regulated by a federal banking regulatory agency. However, Fintech companies, including marketplace lenders and payment companies, are subject to certain federal regulations.
For example, the Bureau went after "My Loan Doctor LLC". https://files.consumerfinance.gov/f/documents/cfpb_loan-doctor_complaint_2020-07.pdf
It did so pursuant to 12 U.S. Code § 5481(6) which defines "Covered person":
The term “covered person” means—
(A) any person that engages in offering or providing a consumer financial product or service; and
(B) any affiliate of a person described in subparagraph (A) if such affiliate acts as a service provider to such person.
12 USC § 5481(19) defines "person" to include entities.
12 USC § 5481(15) defines "financial product or service" and appears to include Beam's activities; e.g. "engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds or any financial instrument for use by or on behalf of a consumer;"
Again, I am not stating a position re the Bureau and Beam. I think further research is required.
is contradicted by your follow-up statements:
fintechs could assume that they would not be subject to CFPB enforcement actions for three years, in exchange for data sharing.
(if the CFPB is putting them in a sandbox for three years, that's very much admitting the CFPB considers them under their jurisdiction)
Fintech companies, including marketplace lenders and payment companies, are subject to certain federal regulations.
(If they're subject to federal regulation than there is most definitely a federal agency that is behind those regulations).