Chime is a banking application which serves millions of users—but it’s not actually a bank. And it racked up an unusually large number of consumer protection cases over the last year—920 complaints at the Consumer Financial Protection Bureau and thousands at the Better Business Bureau. The majority of the CFPB complaints regard forced account closure—accounts closed against a consumer’s will without immediately refunding the consumer’s account balance in the process.
Unexpected account closures
Only 197 of the 920 complaints against Chime at the Consumer Financial Protection Bureau are tagged as involving a “closed account”—but as ProPublica reports, the CFPB complaints are inconsistently labeled, and details of many of the other 723 complaints involve forcible closures also. (By contrast, industry behemoth Wells Fargo has only 317 CFPB complaints tagged “closed account” over the same time period—and Marcus, a Goldman Sachs owned online bank with 4 million customers, has only seven.)
Although opening a Chime account is quick and easy—the app is straightforward, and the creation process requires no credit check and is done in minutes—account closures may happen just as rapidly. ProPublica recounts multiple similar stories of Chime customers who received cryptic emails stating, “Following a recent review of your Spending Account, we regret to inform you that we have made the decision to end our relationship with you at this time.”
Worse, these emails stated Chime’s refusal to expound on why the accounts are closed, citing “security reasons” for the stonewalling. Affected users are referred to a passage in their account agreement reading, “Chime and/or Bank may suspend, freeze, or close your Account for any reason with or without notice.” (Chime has two separate agreements—one for customers whose backing bank will be Stride, and the other for Bancorp—but both agreements have this passage.)
The same agreements warn that Chime bears no responsibility for effects of account closures—and that funds will be frozen or held until a “review” (which requires the customer to provide copious documentation) is completed. In Jonathan Marrero’s case, that led to a $10,000 balance being unavailable for more than two months. Chime eventually admitted that it “erred” in closing Marrero’s account, but it never gave any details about the error beyond attributing “suspicious activity” to the account.
Another Chime customer, Michelle Robertson, suffered a similar problem. Although the three-year customer didn’t have much money in her Chime account when it was summarily closed, she had just set up direct deposit for her IRS stimulus payment and tax returns, which disappeared with the account closure. Robertson spent two months ping-ponging back and forth between Chime (who told her to contact the IRS) and the IRS (who told her to contact Chime) before she finally received a paper check from the IRS.
When a bank is not a bank
Some of the problems surrounding Chime are likely due to its less thoroughly tested regulatory status. Although it tends to use the word “banking” in its advertisements, Chime isn’t actually a bank. Chime is a “neobank fintech app”—which means it operates as a third-party vendor supplying the application interface to one or more real banks behind it. (In Chime’s case, those real banks are Bancorp and Stride.)
The difference between a bank and a “neobank” is important—important enough that Chime found itself sued by the state of California in 2019 for misrepresenting itself as a bank. California’s Department of Financial Protection and Innovation reached a settlement with Chime in late March which required the fintech startup to clarify the language on its website.
Despite the settlement with California (and another with Illinois), Chime’s messaging about whether it is or is not a bank is still murky—its front page now includes fine print declaring “Chime is a financial technology company, not a bank,” but that statement is dwarfed by a gargantuan headline reading “banking that has your back.”
Although Chime isn’t licensed or insured as a bank, it’s still subject to significant regulation—which may be at the heart of many of the erroneous closures. According to Cornerstone Advisors, Chime’s customer acquisition rate more than quadrupled in the past year—and many of those new customers opened Chime accounts with deposits from federal stimulus payments.
Bancorp and Stride, the banks behind Chime, are required to treat Chime accounts in accordance with the same regulation as if the end user had walked into Bancorp or Stride directly to open an account. But Chime itself also has an obligation to mitigate fraud—and while Chime benefited greatly from new customers looking to deposit stimulus checks, the payments themselves seem to have been more likely to look “suspicious” to auditors and algorithms.
University of Utah law Professor (and former CFPB staff member) Chris Peterson highlights Chime’s status as a neobank, not a real bank: “As fintech businesses start to move into banking services, they have to have adequate resources to monitor [and resolve] problems,” he said. This alludes to a double-edged sword—fintech businesses are appealing because they’re new and they operate differently than traditional banks, but that also means they operate without traditional banking’s centuries of institutional experience.