Whose “Bank” is it Anyway? State Enforcement Actions Against Chime Underscore the Pitfalls of Using “Bank” Terminology

As the payments industry awaits expected increases in enforcement activity from the newly revamped Consumer Financial Protection Bureau, two recent state level actions brought against digital banking platform Chime have underscored the importance of financial service marketing activities conducted by non-bank entities and the use of the terms “bank” or “banking” in particular.

Each of the two actions, one brought by the Illinois Department of Financial and Professional Regulation and the other by the California Department of Financial Protection and Innovation, stemmed from investigations into the use by Chime of the word “bank” or derivations thereof in its marketing, its terms and conditions, and even within its website URL. Notably, while Chime is not itself a bank, it does partner with financial institutions to make financial services available to its customers, including deposit accounts and debit cards.

The Illinois and California investigations ultimately resulted in Chime entering into a settlement agreement with each state including on March 25, 2021 in the case of Illinois, and March 29, 2021 in the case of California. As part of each settlement agreement, Chime agreed to perform certain changes to its marketing and other services to clarify that Chime is not a bank and that bank services are provided by its bank partners (as described in more detail below). In addition, the Illinois settlement agreement required Chime to pay a $200,000 civil money penalty to the state.

As noted above, the settlement agreements include a number of obligations for Chime with respect to its marketing of its services that other non-bank entities should take note of, including the following:

• A general obligation on Chime cease and desist using the URL “chimebank.com”

• A requirement that whenever banking terminology is used (including in testimonials), Chime shall place a disclosure stating that Chime is not a bank and that bank services are provided by its partners. The disclosure is required to be in bold and or increased font size and placed in a clear and conspicuous manner proximate to the use of the banking terminology.

This latter obligation is notable because while Chime’s website and marketing materials include disclaimers today, those disclaimers do not meet the “clear and conspicuous” standard laid out by the states, meaning other providers that provide similar disclaimers should review those disclaimers to make sure they meet with the states’ expectations.

• A requirement that Chime enhance its internal review and approval process for when it presents testimonials that may be perceived as presenting itself as a bank.

This requirement underscores the importance of providers being able to provide “audit trail” of their compliance activities and, in the context of these enforcement actions, be able to show that processes are in place to prevent misleading consumers into believing the non-bank third party is a bank.

• A requirement that Chime revisit its website and, where appropriate, revise language to state that customers can open accounts “through Chime” rather than open a “Chime bank account.”

• For paid Google searches, the settlement agreements require Chime to place a statement on Google and other ads that banking services are provided by Bank partners and to identify the Bank partner by name.

• Chime is required to include an FAQ on its website that clearly explains in an answer that bank accounts are held at Chime’s bank partner and identify that bank partner.

• Chime is required to provide a clear and prominent disclaimer in its account set-up process to inform the consumer that Chime is a financial technology company and not a bank, and that services are provided by Chime’s bank partners.

Non-Bank financial services providers (as well as their bank partners) should carefully review their marketing materials and terms and conditions in light of these settlement agreement and consider making any changes needed to conform to the expectations laid out by California and Illinois for the use of “banking” terminology.

A copy of the California Settlement Agreement can be found here.

A copy of the Illinois Settlement Agreement can be found here.