On Thursday, the Consumer Financial Protection Bureau announced a massive $175 million settlement with Block, the publicly traded financial conglomerate led by Jack Dorsey. The government agency argued that one of Block's portfolio companies, the leading peer-to-peer payments service Cash App, had allowed rampant fraud while misleading its customers. The settlement includes customer refunds up to $120 million.
The action comes in the waning days of the Biden administration, whose regulators took an aggressive pro-consumer approach in the financial sector, often to the chagrin of business leaders and tech investors. The CFPB's settlement is the latest in a string of high-profile lawsuits brought by the agency.
"When things went wrong, Cash App flouted its responsibilities and even burdened local banks with problems that the company caused," said CFPB director Rohit Chopra in a statement.
In a press release, Block said that the guiding principle for Cash App is to "do right by our customers."
"While we strongly disagree with the CFPB’s mischaracterizations, we made the decision to settle this matter in the interest of putting it behind us and focusing on what’s best for our customers and our business," the press release stated.
Failures at Cash App
Launched in 2013, Cash App has become one of the most widely used digital wallets in the U.S., competing against other apps like Venmo and Zelle. According to the CFPB, Cash App has more than 56 million accounts, with Block generating more than 50% of its gross profit in 2023 from the payments app.
While Block started with the point-of-sale system Square in 2009, it has diversified into other products, including Cash App, the Bitcoin hard wallet Bitkey, and the music platform Tidal, which Block acquired in 2021. Dorsey previously served as CEO to both Block and Twitter—since renamed X under Elon Musk—Twitter, before stepping down from the social media site in 2021.
Cash App may be Block's main profit generator, but it has come with headaches for the company stemming from its handling of fraudulent transactions. In 2023, the prominent short seller Hindenburg Research alleged that Block misrepresented the number of people using Cash App, and pointed to illegal activity on the app. Block called the report "factually inaccurate and misleading."
In its enforcement action, the CFPB argued that Block is legally required to investigate and resolve disputes about unauthorized transactions, but that the company's investigations were "woefully incomplete." Instead, according to the agency, Block directed users to ask their banks to reverse transactions, which Block would then deny.
The CFPB characterized this approach as "tricking consumers" by relying on its Terms of Service. The agency further accused the app of denying customer service remedies, and making it easy for fraudsters to exploit the lack of support by posing as Cash App representatives and stealing personal information. "Cash App created the conditions for fraud to proliferate on its popular payment platform," said Chopra.
In its press release, Block said that Cash App experienced "unprecedented growth" during the pandemic and has been making investments to bolster its customer support. "The historical issues raised in this agreement do not reflect the Cash App experience today," Block stated in the release.
As part of the action, Block will pay up to $120 million in refunds to consumers, set up a 24-hour customer service program, and pay a $55 million fine.
The CFPB's lawsuit comes on the tails of a joint enforcement action by 48 state financial regulatory agencies earlier this week, which accused Block of money laundering violations. Block agreed to pay an $80 million penalty and hire a consultant to review its money laundering and Bank Secrecy Act programs.
With Chopra likely leaving the CFPB with the incoming Trump administration, the regulator has brought an onslaught of high-profile actions against leading financial services companies, including suing Capital One on Tuesday for allegedly cheating consumers out of more than $2 billion in interest. The embattled agency has faced withering criticism from Republicans since its establishment in 2011 as part of the Dodd-Frank banking reform act.
