PayPal, the company responsible for the popular mobile payments app, Venmo, recently agreed to voluntarily bolster its privacy and security disclosures—and pay a $175,000 penalty—in response to an enforcement action brought by the Texas Attorney General. The Attorney General alleged that PayPal "caused confusion" to consumers by failing to disclose the manner in which Venmo collected and shared its users' data.

Specifically, it was alleged that the Venmo app accessed users' phone contacts without properly disclosing that it would do so, and without adequately explaining how such information would be used once collected. The app also published a "news stream" of users' financial transactions among their friends.

Although PayPal ultimately settled without admitting any wrongdoing, the company agreed to take the following remedial measures:

  • Clearly and conspicuously disclose to users: (1) what information is being collected by the Venmo app; (2) the purpose for which it is authorized to use such information; (3) how the app's auto-friend feature works (and how to disable it); and (4) the default "public" audience sharing setting of transactions unless the user affirmatively changes the setting;
  • Ensure security disclosures accurately reflect the security measures that are actually provided by the Venmo service (and not represent it provides "bank-grade security" unless that statement is true);
  • Disclose any optional features "available to secure" the service (such as a passcode to lock the account); and
  • Provide easy access to all disclosures, including the ability to view such disclosures in the app itself.

The Texas enforcement action is just one proceeding that involves PayPal and the Venmo app. The Federal Trade Commission is also investigating whether PayPal, through the Venmo app, engaged in deceptive or unfair practices. And, that is not the first time this year that federal regulators have focused on payment processors' adherence to their privacy policies. Earlier this year, Dwolla, a mobile payments company, entered into a consent order with the Consumer Financial Protection Bureau regarding the adequacy of its disclosures to consumers regarding its data privacy and cybersecurity practices.

This recent wave of enforcement actions offers important lessons to financial services providers: namely, that cybersecurity and data privacy disclosures will continue to be an area of increasing scrutiny for regulators. Specifically, companies in the fin-tech space must regularly reevaluate their privacy disclosures to ensure they accurately and adequately describe their current data privacy and cybersecurity practices. Moreover, the disclosures should be stated in a manner that can be comprehended by a reasonable consumer and should be made available in a conspicuous manner. Finally, companies in this market must not overstate the security of their data. Accuracy and precision are the keys to avoiding the ire of regulators.

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