US consumer protection agency warns about payment apps due to crypto firm and bank collapses.

The US Consumer Financial Protection Bureau has issued a warning to individuals who use person-to-person services to store their funds, reminding them that these funds are not federally insured. This warning came in the wake of FTX and multiple bank collapses.

According to the report by the CFPB, there has been a substantial increase in transaction volumes on payment apps. Consumers lost hundreds of millions of dollars due to the collapse of crypto exchange FTX and crypto lender Voyager Digital, as stated by the CFPB.

“Following the demise this year of Silicon Valley Bank, Signature Bank, Silvergate Bank, and First Republic Bank, the public has learned more about the importance of federal deposit insurance coverage,” the CFPB said.

The agency added, “These events have spurred renewed attention on the varied types of financial institutions consumers use and the extent to which consumers’ funds at those financial institutions are protected from losses.”

The CFPB found that stored funds can be at risk of loss in the event of financial distress or failure of the entity operating the nonbank payment platform. These funds are often not placed in an account at a bank or credit union and lack individual deposit insurance coverage.

More payments apps offer crypto services

Although companies such as Venmo and Paypal offer crypto services, the CFPB warned that some of the funds are not eligible for deposit insurance.

If a bank fails, the US Federal Deposit Insurance Corporation protects depositors up to at least $250,000 per depositor. Three crypto-friendly banks, namely Silicon Valley Bank, Silvergate Bank, and Signature Bank, crashed in March, which led to a decline in stock prices and deposit runs.

FDIC Chair Martin Gruenberg spoke on Signature Bank’s failure at a congressional hearing this month and attributed the root cause of its failure to poor management. He also blamed the bank for its over-dependence on uninsured crypto deposits without implementing proper risk control measures.