Chime is one of the fastest-growing banking apps thanks to its easy sign-up process, clean interface, credit-building features, and two-day-early paycheck advances. But a new report from ProPublica reveals that thousands of Chime users are locked out of their accounts and unable to access their money for seemingly no reason.
According to Chime’s user agreement, the company “may suspend, freeze, or close your Account for any reason with or without notice.” Funds held within closed or suspended accounts are then frozen for the duration of a review process, which may take months to complete. If your account is closed when you try to pay bills or buy groceries, tough luck, you can’t access your money.
In instances of fraud, this policy makes sense. That’s probably the reason why Chime spokesperson Gabe Madway blames the company’s excessive account closures on an “extraordinary surge in activity by those seeking to illicitly obtain pandemic-related government funds and defraud U.S. taxpayers.” But this excuse falls apart when you learn just how many accounts Chime is closing for “fraud.”
Over the last three months, Chime has accumulated 902 complaints at the Consumer Financial Protection Bureau, most of which revolve around closed accounts and withheld funds funds (197 of the complaints are actually tagged with “closed account,” though tags are inconsistent on the CFPB website). Chime has also managed to rack up 4,439 complaints (and a 2/5 star rating) at the Better Business Beareau, with many reviews citing account closures.
For comparison, only 317 CFPB closed-account complaints have been directed at Wells Fargo in the last three months. Wells Fargo also has just 3,281 complaints at the Better Business Bureau. This is despite the fact that Wells Fargo is six times larger than Chime and mishandled stimulus checks earlier this year—Wells Fargo even has a 1/5 star rating at the BBB; it’s not a well-liked company!
So, why is Chime closing a larger percentage of accounts than big banks like Wells Fargo? Well, it may come down to the fact that Chime isn’t a bank—it’s a “financial technology” company that does not have a primary regulator. Yes, Chime controls customer accounts and manages an app, but its banking services are provided by the FDIC-insured Bancorp and Stride banks. (Chime was sued in 2019 for misrepresenting itself as a bank. Since then, it has done the bare minimum to avoid similar lawsuits.)
Bancorp and Stride are under strict regulation, so like any real bank, they can be punished for accommodating fraudsters. By extension, Chime is expected to report instances of fraud to the federal government and return suspicious payments to their source. Chime moderates accounts using algorithms and human auditors, a point that may explain the not-a-bank’s over-zealous account closures.
Chime’s customer base has increased from 8 million users to 12 million users in the last year, a 50% increase. That’s a lot of new customers to manage, so Chime may be relying less on human auditors than it used to. If the company’s fraud-catching algorithms were designed before the pandemic, then they may be easily triggered by stimulus checks and other pandemic assistance, especially when these checks are deposited in new accounts.
Is this a satisfactory explanation? Of course not. Chime still refuses to acknowledge that it’s doing anything wrong and has repeatedly stated that most account closures are due to fraud. The fintech company is withholding people’s money and refuses to tell suspended customers why their accounts are frozen.
Until this problem is sorted out, Chime users should consider transferring their money and rerouting their direct deposits to another bank. A frozen or closed account is the last thing you want to deal with when your bills are due. If you’re having trouble with your Chime account, you can contact the company at firstname.lastname@example.org or file complaints at the CFPB and BBB.