Dive Brief:

• The Consumer Financial Protection Bureau has informed digital payments company Block that the bureau may take “legal action” against the company related to a probe of the company’s peer-to-peer payment unit Cash App.
• San Francisco-based Block learned in December that the bureau’s office of enforcement is considering recommending the CFPB take legal action against the company, Block disclosed in its annual filing with the Securities and Exchange Commission on Thursday.
• That disclosure is tied to civil investigative demands from the CFPB and subpoenas from attorneys general in multiple states, the filing said. In a prior annual filing, Block said it received CIDs from those regulators in 2021, demanding information related to Cash App’s handling of customer complaints and disputes.

Dive Insight:

The CFPB’s notice and opportunity to respond and advise process, which began in December in the Block matter, affords a company being investigated a chance to present its position to the bureau before enforcement action is recommended or taken, Block noted in the filing. 

Block “is unable to predict the likely outcome of this matter and cannot provide any assurance that the CFPB will not ultimately take legal action against the Company or that the outcome of any such action, if brought, will not have a material adverse effect on the Company,” the filing said. “The Company is cooperating with the CFPB and the state Attorneys General in connection with these inquiries.”

The CFPB sued Block in August 2022, accusing the company of “slow-walking” its responses to the Cash App probe, Reuters reported. That November, a federal judge ordered Block to comply with those investigative demands made by the CFPB.

The Financial Crimes Enforcement Network is exploring whistleblower allegations that Cash App and companies it works with to process transactions conducted inadequate due diligence on Cash App customers, NBC News reported last week. Those flaws potentially left the door open to illegal activities such as money laundering and terrorism financing, whistleblowers said, according to the media network. 

Block was also the subject of a short seller report last March that mainly took aim at Cash App. Following that report, the company received inquiries from the SEC and the Department of Justice that it believes “primarily relate to the allegations raised in the short seller report,” Block said in its latest annual filing. 

Cash App, which had 56 million monthly transacting active users as of December, was a focus of discussion during Block’s fourth-quarter earnings call Thursday. Block Head Jack Dorsey said he envisions Cash App becoming “one of the top providers of banking services” to U.S. households. 

“We’re never going to build a perfect system, we can only focus on velocity and speed,” Dorsey told analysts when asked about compliance. “Any errors that we’ve had in the past, our goal right now is to make sure that we correct them quickly and that we continue to build those learnings into the future.” 

The company is putting more emphasis on that endeavor now, “because we do want to earn more trust, with the use case of banking, and being that primary bank for people,” Dorsey said.

For the quarter, the company posted net income of $178 million, according to Block’s quarterly shareholder letter. Its net revenue climbed 24%, to $5.77 billion. Excluding bitcoin revenue, Block’s revenue rose 15%, to $3.25 billion.

A CFPB spokesperson declined to comment. A spokesperson for Block didn’t immediately respond to a request for comment.