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FTC Bans Beam Financial from Mobile Banking

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The financial technology company (fintech) known as Beam that offered a high-yield bank account via its mobile app is banned from offering banking services. The Federal Trade Commission (FTC) just announced the settlement it reached with Beam Financial. According to the FTC press release:

Beam Financial operator is banned from mobile banking and must provide full refunds as part of FTC settlement.

Concerns started to build at Beam last September when DA readers posted problems that they had in withdrawing their money from Beam. In October, news of these issues were published by CNBC. In my October blog post, I reviewed these issues and my concerns about how Beam operated as a middleman between depositors and banks.

The FTC acted in November when it filed a complaint in federal court alleging that Beam had “falsely promised high interest rates on their accounts and “24/7” access to their funds.” After more than four months, the FTC finally reached a settlement with Beam. Today’s press release includes the two primary FTC complaints:

[Beam and its founder and CEO] promised users of Beam’s free mobile banking app that they could make transfers out of their accounts and would receive their requested funds within three to five business days. In fact, some users waited weeks or months to receive their money,

[...]

Beam also failed to give users the high interest rates the company promised, the FTC alleged. Beam repeatedly claimed that users would receive at least 0.2 percent or 1.0 percent, but many new users received a much lower interest rate of 0.04 percent and stopped earning any interest after requesting that Beam return their funds.

The settlement appears to end Beam’s banking operations, and it should help Beam customers get back their funds and earned interest. According to the FTC press release:

As part of the settlement, Beam is banned from operating a mobile banking app or any other product or service that can be used to deposit, store, or withdraw funds. It also is prohibited from misrepresenting the interest rates, restrictions, and other aspects of any financial product or service.

In addition, full refunds, including interest, must be provided to all of Beam’s customers, and Beam must periodically update the FTC on its refund efforts, including identifying any consumer complaints. It also is prohibited from benefitting from any personal information collected from customers.

Thanks to the DA reader who emailed me news of this FTC press release.

My Take - Safety of banking at any non-bank fintech?

It’s nice to see that the FTC was able to reach this settlement after these major problems at Beam. However, it took a long time to reach this settlement. Some customers couldn’t access their money for months.

Beam had 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.

The problems at Beam highlight 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.

As this Beam case showed, it was the FTC and not the FDIC that helped Beam customers. 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’ll need to wait for the FTC to settle with the fintech or win in court. After that, it may still be awhile before the fintech meets its obligations. When a bank is shut down by regulators, the FDIC immediately steps in to ensure depositors quickly receive all of their insured funds.

Related Pages: savings accounts, bank health ratings, nationwide deals, Internet banks
Comments
milty
  |     |   Comment #1
Good read. Thank goodness for regulators and alert, well-informed depositors due at least in part to sites like Ken's.
ichaelm
  |     |   Comment #2
"Mr. Madoff, meet your new cellmate, Beam CEO Yinan Du."
Mikey1
  |     |   Comment #3
“Beam” me down, Scottie.

Any opinions out there (or negative experiences) about T-Mobile Money?
GreenDream
  |     |   Comment #4
T-Mobile Money operates differently than Beam. As Ken's article points out, there's two typical ways fintechs operate: 1) sweep accounts with multiple banks (this is the method Beam used) 2) partnering with a single bank (this is the method T-Mobile uses, as it partners with BankMobile. Basically it's a BankMobile account with a T-Mobile logo).
P_D
  |     |   Comment #8
Any time I send money or confidential information somewhere there is one key part of the process I want to understand before sending it. What is the chain of custody?

Will my money EVER be in any account other than titled in my name in the insured FI account? Will my private information EVER be accessible to any entity other than the insured FI?

If the answer to either of these questions is yes, then I know that I am taking additional risks beyond those of a standard FDIC insured bank account. And I am not willing to take those risks for the typical premiums offered by a fintech. The risk premium is too small.

I do not know the answer to these questions with respect to T-Mobile Money.

I do think the fact that T-Mobile Money is branded with a major brand name offers some risk reduction because T-Mobile certainly doesn't want to damage their brand with a scandal. It reduces but does not eliminate such additional risks if they are present. And if they are, the premium is still not attractive enough for my level of risk aversion.
Choice
  |     |   Comment #5
Any reason why WSJ has passed on news of anything on Beam? No big deal?  Perhaps...no one wants to let customers/investors know that part of the real message is, “no longer can terms of the deal be changed...there is no safe harbor by boilerplate terms and conditions.”  Isn’t that the real message of the holding AND absence of news coverage?  Keep this decision in your arsenal of tools!
Jik
  |     |   Comment #6
I don't think Beam was ever significant enough for most places to care. The most reporting I seen on it since it was announced was when CNBC ran a couple of articles last year on people who couldn't get their money out.
Jik
  |     |   Comment #7
Not sure how but this was a double post

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