When is a bank a bank?
While this is a great debate for regulators and existential philosophers, for most people it simply has to do with holding money securely and using it when you want. For years now, Fintechs that have provided bank-like services have referenced themselves as digital banks or neobanks. In California, this may no longer be the case as the Commissioner of Financial Protection and Innovation has compelled Chime to stop calling itself a bank. Or else.
Chime, valued at over $14 billion in its last funding round, has been slapped with an order to “cease and desist from using the name “chimebank.com” in its business unless and until it becomes licensed or otherwise authorized to engage in the business of banking under the laws of California, another state or of the United States.”
Chime has until May 15, 2021, to update its promotions and website to scrub the term bank and “make enhancements.” Chime will have to report back to the Commissioner by June 15, 2021.
To quote the Settlement:
- Chime shall distance itself from use of the term “banking” and derivatives by
clarifying statements on its website, on its mobile app, and in advertising to address
the following:- Where “banking” terminology is used, Chime shall place a disclosure stating
that Chime is not a bank and banking services are provided by its Bank
Partner(s). The disclosure shall be in bold and/or increased font size in a
clear and conspicuous manner proximate to the use of the banking
terminology. - Chime shall enhance internal review and approval process for when it
presents testimonials that may be perceived as representing Chime as a bank. - Chime shall clarify or annotate in all testimonials it publishes, or causes to
be published, that use “banking” terminology that Chime is a financial
technology company not a bank and banking services are provided by
Further, Chime shall monitor affiliates and agents who publish other testimonials and provide clarifying information that Chime is not a bank in response to such testimonials that use “banking” terminology. - Where appropriate, Chime shall revise website language to state that customers can open an account “through” Chime, where existing language states “opening a Chime bank account” or “how to open a bank account with Chime” or similar language.
- In paid Google search results, Chime shall place a statement on Google and other ads that banking services are provided by its Bank Partner(s), which it will identify by name.
- Chime shall include in its website Frequently Asked Questions (FAQ), an answer that clearly explains that the bank accounts are held at its Bank Partner(s), which it will identify by name.
- Chime shall provide a clear and prominent disclaimer during the account set up process to inform the consumer that Chime is a financial technology company not a bank and banking services are provided by Chime’s Bank Partner(s).
- Where “banking” terminology is used, Chime shall place a disclosure stating
So what does California accomplish with this enforcement action? Little, really, except that it causes Chime to jump through some hoops to re-lable the services it offers. It is not immediately clear who this benefits besides establishment financial services firms.
Perhaps this will morph into an opportunity for Chime to establish a new term for bank-like services without using the word bank – as many consumers affiliate the term bank with high fees and poor service.