Class Action Lawsuit Alleges Visa Subsidiary Violated Privacy And Data Protections Of Venmo, Stripe, Square’s Cash App, Robinhood & More
A new class action alleges that Plaid, which Visa recently bought for over $5 billion, had unparalleled access to the financial information of millions of users. Class Action Lawsuit Alleges Visa Subsidiary Violated Privacy And Data Protections Of Venmo, Stripe, Square’s Cash App, Robinhood & More
June 25, a new class action was filed in California against fintech startup Plaid, which was acquired by Visa for $5.3 billion earlier this year. The plaintiffs allege that Plaid violated privacy and data protections by accumulating and monetizing financial transactions of millions of users.
The complaint alleges that the company accumulated this data by “data plumbing” popular services like Venmo, Stripe, Square’s Cash App and Robinhood. It purports that Plaid knew:
“Every dollar you deposit or withdraw, every dollar you charge or pay to your credit card, and every dollar you put away for retirement, within hours after you make the transaction. Imagine this includes every book or movie ticket or meal you purchase, every bill you pay to a doctor or hospital, and every payment you make (or miss) on your mortgage, student loan or credit card bill.”
Coinbase’s “Data Plumber” Denies All Allegations
Coinbase’s “data plumber” denies storing users’ login credentials in plain text, and all the other allegations in a new class action complaint.
A source close to Plaid, the company that serves as a “data plumber” to Coinbase, Robin Hood, Square’s Cash App and many others, denied all allegations of the class action complaint that was recently filed.
The entire complaint hinges on the allegation that Plaid sells user data to the “highest bidder”. A Plaid spokesperson called this allegation “baseless”.
A Money-Making Operation?
A source close to Plaid’s legal team, speaking to Cointelegrpah on the condition of anonymity, reaffirmed that the company has never sold user data in any shape or form. They also opined that this is just a “money-making operation” for the lawyers:
“They see companies in a particular position, like getting acquired or having an investment. And that’s a big money-making operation for them.”
This statement refers to the fact that Plaid is in the process of being acquired by Visa — a deal which has not yet been finalized. This puts Plaid in a vulnerable position.
Visa did not respond to Cointelegraph’s request for comment.
PNC Bank Blocked Plaid In 2019
The complaint alleged that Plaid collects data going back five years and going forward “in perpetuity”. They also allegedly collect health-related data without storing it in compliance with the Health Insurance Portability and Accountability Act, or HIPAA.
Our source assured Cointelegraph that Plaid only stores the amount of data necessary for the services it provides. They also said that the company does not intentionally collect users’ health data.
The source also denied the allegation that Plaid stores users’ login credentials in “plain text”, making it vulnerable to hackers. On the contrary, the company takes “security very seriously”, the source said.
The complaint mentioned a case from 2019, when PNC Bank blocked Plaid. They state that the reason was that “aggregators access account numbers, many store them indefinitely, often unbeknownst to customers”. Our source declined to comment on this case.
Coinbase Relies On Plaid
Coinbase’s website confirms that the company relies on Plaid for account verification and the data is never shared with the exchange, but stays with its “data plumber”:
“For US customers, you can verify your account in just a few minutes by entering your bank credentials. You may be familiar with this process if you’ve ever verified a bank account on Paypal or similar services.
These banking credentials are never sent to Coinbase, but are shared with an integrated, trusted third-party, Plaid Technologies, Inc., to facilitate instant account verification. This service may store the provided credentials for verification purposes or use them on a per-transaction basis for fraud prevention, and to help verify a sufficient balance is available to process your transaction.”
Coinbase has not replied to our request for comment in time for publication.
As we have learned from numerous legal cases, a resolution may take some time. On the other hand, Plaid’s unfinalized acquisition places it in a vulnerable position. That may lead this case to a settlement sooner than would be otherwise expected.
The plaintiff’s legal team did not respond to Cointelgraph’s inquiry.
Visa Faces Antitrust Investigation Over Debit-Card Practices
Justice Department probe focuses on whether Visa’s actions allow it to maintain a dominant market share unlawfully.
The Justice Department is investigating whether Visa Inc. is engaging in anticompetitive practices in the debit-card market, a probe that casts a cloud over a core part of its business.
The department’s antitrust division has been gathering information and asking whether Visa, the largest U.S. card network, has limited merchants’ ability to route debit-card transactions over card networks that are often less expensive, according to people familiar with the matter.
Many of the department’s questions have focused on online debit-card transactions, but investigators have asked about in-store issues as well, the people said.
The probe highlights the important role of the so-called network fees that are invisible to consumers, lucrative for card companies, but a weight on merchants, who often pass on the fees in the form of higher prices to customers.
It comes as Justice Department antitrust enforcers across administrations have placed an emphasis on scrutinizing digital-marketplace activities, including in the financial sector, and on investigating the business practices of dominant firms.
In the new probe, the department is considering whether Visa’s practices are allowing it to maintain a dominant market share unlawfully, the people said.
A Justice Department spokeswoman declined to comment.
Visa confirmed the probe in a regulatory filing Friday afternoon after The Wall Street Journal reported the investigation. It said it is cooperating with the Justice Department. The company said it hasn’t yet received a civil subpoena from the department but “we have received a notice to preserve relevant documents related to the investigation.”
“We believe Visa’s U.S. debit practices are in compliance with applicable laws,” the company added.
Visa’s share price fell more than 6% Friday.
Antitrust investigators have asked questions beyond just the debit-card routing issue, some of the people said. The department also has asked about Mastercard Inc.’s role in the debit-card marketplace, and whether financial-technology firms are real competitors to Visa and Mastercard, one of the people said.
A Mastercard spokesman didn’t provide a comment.
The new civil investigation, launched in recent weeks, follows on the heels of the department’s investigation of Visa’s proposed acquisition of financial-technology firm Plaid Inc., the people said. The department sued Visa in November over the Plaid deal, alleging that the acquisition would allow Visa to unlawfully maintain a monopoly in online debit, where the department said it holds a roughly 70% market share.
Plaid was developing an innovative, cheaper payment technology that could have been a threat to Visa, the government alleged. Visa called the lawsuit misguided, saying Plaid wasn’t in fact a competitor.
The companies dropped the deal in January, citing the potential length and complexity of litigation.
How debit-card transactions are routed is a longstanding point of contention between merchants and card companies. The Durbin amendment, a part of the 2010 Dodd-Frank Act, requires that merchants have the ability to choose from at least two unaffiliated debit-card networks to route transactions.
Merchants have for years alleged that they are often unable to route online debit-card purchases over smaller networks, such as Shazam or NYCE, when Visa or Mastercard’s name is on the front of a card. The merchants say that as a result, they often end up paying higher network fees compared with what they would pay to lesser-known networks.
The Justice Department is seeking information about the financial incentives that Visa provides to banks that issue cards on its network, according to one of the people familiar with the matter. It is looking at whether those incentives encourage banks to not enable routing on other networks, the person said.
The DOJ also has asked about debit-card routing practices tied to newer payment methods, one of the people said. That includes when debit cards are used with mobile wallets like Apple Pay and separately when in-store customers pay by tapping debit cards on payment terminals rather than inserting them.
Separately, the Federal Trade Commission has been investigating Visa and Mastercard over debit-card routing. Sen. Richard Durbin and Rep. Peter Welch also raised the issue in a letter to the Federal Reserve last summer.
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