Block to Pay $175 Million for Cash App Customer Service Failures

Jack Dorsey’s Block Inc. will pay up to $175 million for failing to investigate and protect Cash App customers from fraudulent transactions under a settlement with the Consumer Financial Protection Bureau.

Oakland, Calif.-based Block put weak security protocols on its Cash App digital payment service and conducted incomplete investigations when customers reported fraud, the CFPB said in a Thursday consent order.

Block and Cash App instructed customers to contact their banks to reverse fraudulent transactions, but in many instances blocked the banks from doing so, the CFPB said.

“When things went wrong, Cash App flouted its responsibilities and even burdened local banks with problems that the company caused,” CFPB Director Rohit Chopra said in a statement.

Block will return up to $120 million to harmed consumers and pay a $55 million civil penalty to the CFPB. The company also agreed to make updates to its customer service and investigation operations, including setting up 24-hour, live-person customer support services.

Block said it has made significant investments in its customer support and complaint resolution capabilities after a period of rapid growth during the Covid-19 pandemic. The company said it “strongly disagrees with the CFPB’s mischaracterizations” but agreed to a settlement to close the issues.

“We are committed to continually investing to ensure we uphold industry leading standards,” Block said in a statement.

The CFPB’s enforcement action came a day after Block paid $80 million to resolve claims from state regulators that Cash App had poor anti-money laundering and Bank Secrecy Act protocols.

Cash App allows customers to send and receive money and accept direct deposits. It also has a prepaid card, known as Cash Card, that can be used for purchases and ATM withdrawals.

CashApp is one of the largest peer-to-peer payment apps. Block reported that Cash App had roughly 57 million users conducting transactions last year, with users in all 50 states.

The app is also a cash cow for Block, accounting for $4.3 billion of Block’s $7.5 billion in gross profit for 2023, according to a securities filing.

But Block’s security protocols didn’t keep up with its growth and had terms and conditions that misled customers, the CFPB said.

Among the issues cited by the CFPB, Cash App said in its terms of service that customers’ banks were responsible for investigating and reversing fraudulent transactions. But the 1978 Electronic Fund Transfer Act, which governs digital payments, requires peer-to-peer payment providers such as Cash App to investigate and resolve fraud claims, the CFPB said.

WhenCash App did investigate alleged fraud, it used shoddy techniques that typically ended in the company’s favor, the CFPB said.

The agency also faulted Cash App for its customer support offerings. Cash App provided a customer support number on the Cash Card and in its terms of service, but that number led to a recorded message that instructed customers to contact the company through the app.

When customers used web searches to find alternative ways to get help, they were targeted by fraudsters posing as Cash App representatives, the CFPB said.

Hindenburg Research, an activist short-selling firm, flagged many of the issues cited by the CFPB in a 2023 report. Hindenburg announced Wednesday it would be winding down its operations.