What to do if Chime or other neobanks close your account | Business
A wave of foremost digital challengers for traditional banks has attracted millions of customers with free accounts and hassle-free signups. But a recent report highlights some risks of entrusting money to neobanks, fintech companies that partner with established financial institutions to provide banking services.
Nonprofit news organization ProPublica reported on July 6 that clients of Chime, one of the largest neobanks, had their accounts closed without notice, leaving them no way to access their money. ProPublica’s report included interviews with 13 former and current Chime customers as well as publicly available customer complaints.
Chime “has, according to experts, generated a high rate of complaints, with 920 filed with the Consumer Financial Protection Bureau since April 15, 2020,” ProPublica reported. Of those complaints, 197 – over 20% – were classified as involving a closed account. Complaints to CFPB also mention slow response times, sometimes weeks, from Chime customer support.
Neobanks often promise a quick account setup with limited background checks. Chime’s website estimates the process to take two minutes, and Varo’s website, another neobank, says five minutes. Chime and Varo do not check applicants’ credit or disqualify people who have already been rejected by banks.
Easy sign-up process makes neobanks targets for scammers, says 2019 report by the National Center for Consumer Law. Scammers can open multiple accounts under false identities in an attempt to receive money from hacked bank accounts or collect inappropriate government benefits.
In the ProPublica report, Chime said many account closings are linked to fraud, such as mistakenly receiving stimulus payments. But he also admitted that several of the closures brought to his attention were errors.
How to reduce your risk
Neobanks, like other banking institutions, can close accounts without notice, but most closures happen for one of the few reasons, including:
- Unpaid fees, including overdraft fees.
- Account inactivity over a given period.
- Suspicious activity, such as fraud.
Numerous Chime account closings have taken place after a government filing as Chime attempted to verify millions of new accounts for fraudulent activity, ProPublica reported.
If you’re worried that a neobank is freezing or closing your account because of a mistaken suspicion of fraud, here are some tips to reduce the risk:
- Report any unauthorized use of your account. If you see any purchases or other account activity that you haven’t approved, let your banking provider know as soon as possible. You don’t want to be the victim of a fraudulent transaction.
- Do not use your account for commercial purposes if it is not authorized. Neobanks such as Chime, Varo and N26 mention in their account agreements that accounts may be closed due to suspected business activity. If you are self-employed or run a small business, create an account at a neobank like Oxygen, Lili, or Lance that focuses on business banking services.
- Know your eligibility for government benefits. Making an abusive claim for benefits such as unemployment insurance or stimulus funds can be considered fraud and trigger the closure of an account.
There are also ways to reduce the impact if your account is frozen or closed:
- Keep your account details up to date. Chime’s primary method of contacting customers is by email, and other neobanks can do the same, so be sure to watch for notifications.
- Keep an offline record of account information. Write down the neobank email address or phone number, your account number, and other details, such as any previous correspondence you have had with the neobank, including dates, names of service representatives client and what you were told.
- Have a backup account and a debit or credit card. You don’t want to be stuck if your only payment option stops working or if you lose access to your account before your next direct deposit. Consider opening a backup account at a local credit union or online bank with little or no monthly fees.
What to do if your account is closed
As the ProPublica report revealed, an account can be reported even if you haven’t done anything wrong. If this happens to you:
- Move quickly. Account closings don’t necessarily happen right away, so maybe it’s time to put things right. “For the vast majority of account closings, we communicate to members that the account will be closed within a minimum of five days,” Gabe Madway, communications manager at Chime, said in an email. He adds that in some closures, Chime must retain funds for legal or restitution purposes.
- Contact the neobank. Chime customers can email Member Services at [email protected], call 844-244-6363, or contact the company on social media. “Make sure you have documents on hand to explain any unusual activity on your account, including large deposits from new sources or suspicious login activity,” Madway said. In some cases, you may need to provide additional proof of your identity, such as a utility bill to establish your home address, if a payment requires you to reside in a certain state.
- If you are not helped, file a complaint with the CFPB. This option may attract the attention of a neobank, and generally you can expect a response within 15 days, although it may take longer.
The specific risks of neobanks
A neobank is generally not a bank. Rather, it’s a fintech company that partners with a bank to deliver mobile-focused bank accounts and debit cards. The partner bank provides federal deposit insurance to protect customer money in the event of the neobank’s failure. Chime, for example, is a partner of The Bancorp Bank and Stride Bank.
Neobanks can be great alternatives to traditional banks, offering perks like free checking accounts, no overdraft fees, two-day early direct deposit, and more. But they may not have the support systems of a regular bank. With the exception of a select few with bank charters, like Varo and GO2Bank, neobanks are not directly overseen by a federal regulator.
Since neobanks do not have a physical location, verifying customer identities is done online or over the phone – and their customer service may not be as reliable as at traditional banks.
“The new mobile fintech accounts tend to rely too much on automated, online customer service and make it difficult to access a human being, which can work with simple questions but not when the going gets tough,” he said. said Lauren Saunders, partner. director of the National Consumer Law Center, in an email.