Chime is an application that works with banking partners to provide consumer-oriented banking products.
However, Chime was not registered as a bank with the California Department of Finance and Innovations and, therefore, violated California law.
Why the California Department of Finance and Innovations Was Prompted to Act
The Chime settlement was the result of an inquiry by the California Department of Finance and Innovations. Chime has agreed to very clearly state on their website and application that they are not a bank, but instead they just partner with registered banks. They have also agreed to stop using the URL www.chimebank.com.
Advice on Compliance: Main Insights for CCOs
If you run a financial application, be sure not to accidentally mislead consumers as to whether you are a full-fledged financial institution under California law, or other applicable regulations. If you are not fully registered as a bank, you must make it very clear that you are not a bank yourself, but that you partner with registered banks.
Additional clarity can result from adjusting the font to be bold, using larger letters, and applying terminology such as "through" rather than "with" when talking about consumer financial services in your advertising.
Fin. Code §§ 561 and 563: 3 Steps to Stay Compliant
On March 29, 2021, Chime Financial, Inc. entered into a settlement agreement with the California Department of Finance and Innovation after it was found to have violated Cal. Fin. Code §§ 561 and 563 in their advertising on their website and their mobile application.
There are three main takeaways that you as a finance company can learn from the Chime settlement to avoid the same trouble.
- Under Cal Fin. Code Section 561, all financial institutions and banks must be registered with the California Department of Finance and Innovation to advertise to consumers as a bank.
- If you are not registered with the California Department of Finance and Innovations, it is critical that you make a disclaimer on all platforms and in all of your advertising.
- The disclaimer should clearly state that you are not, in fact, a registered bank under California law but work with other registered banks as a partner. This disclaimer should be in bold, larger font, or some other method to make it conspicuous on all of your platforms and advertising.
- You must also be extremely careful as to the terminology you use on your website and/or application and in your advertising when dealing with consumers.
- Part of the reason why Chime was investigated is that their primary URL was www.chimebank.com, and they advertised themselves as if they were offering banking services to consumers. These choices led to the recognition of Chime advertising as inherently misleading to consumers.
We recommend that companies in similar services conduct an audit of the website and/or application to ensure that you are not using the term "banking" or refer to yourself as a banking institution, unless you are registered with the California Department of Finance and Innovation.
Conclusion and Takeaways
Although the settlement does not include a financial penalty, financial services companies must ensure they comply with the regulations set forth by the California Department of Finance of Innovation. Compliance requirements include:
- Registering with the California Department of Finance and Innovation, or
- Avoiding advertising your company as a bank or calling your business a bank, and
- Making it clear you are partnered with compliant banks by using more accurate descriptions, such as the words "through" and "partnered with"