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Federal agency takes action against company for false statements about data security

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The Consumer Financial Protection Bureau took action Wednesday against online payment platform Dwolla for deceiving consumers about its data security practices and the safety of its online payment system.

“Consumers entrust digital payment companies with significant amounts of sensitive personal information,” said Richard Cordray, director of the bureau. “With data breaches becoming commonplace and more consumers using these online payment systems, the risk to consumers is growing. It is crucial that companies put systems in place to protect this information and accurately inform consumers about their data security practices.”

Since December 2009, Dwolla has collected and stored consumers’ sensitive personal information and provided a platform for financial transactions.

As of May 2015, it had more than 650,000 users and had transferred about $5 million a day.

For each account, Dwolla collects personal information including the consumer’s name, address, date of birth, telephone number, Social Security number, bank account and routing numbers, a password, and a 4-digit PIN.

From December 2010 to 2014, Dwolla claimed to protect consumer data from unauthorized access with “safe” and “secure” transactions. On its website and in communications with consumers, Dwolla claimed its data security practices exceeded industry standards and were Payment Card Industry Data Security Standard compliant. It also claimed that it encrypted all sensitive personal information and that its mobile applications were safe and secure. 

But rather than setting “a new precedent for the payments industry,” Dwolla’s data-security practices fell far short of its claims, Cordray said, adding deception about security and security practices is illegal.

Enforcement action

This is the bureau’s first data security action. Under the terms of the order, Dwolla is required to:

  • Stop misrepresenting its data security practices.
  • Train employees properly and fix security flaws.
  • Pay a $100,000 civil money penalty.
Copyright 2016, Rita R. Robison, Consumer Specialist

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