Plaid just agreed to settle a class-action lawsuit for $58 million as financial data becomes a top p
- Plaid has agreed to pay $58 million to settle a class-action lawsuit centered on data privacy.
- The suit alleges users were unaware of Plaid's role in accessing banking data for apps like Venmo.
- Plaid committed to featuring its consumer privacy portal more prominently on its website.
Fintech Plaid agreed to pay $58 million to settle a class-action lawsuit centered around consumer privacy.
The settlement comes as regulators and consumers show increased interest in privacy around financial data.
The case, filed in California, was a consolidation of five lawsuits brought by consumers in 2020 that alleged Plaid violated their privacy rights by accessing their bank account data without their knowledge. Plaid works behind the scenes, connecting third-party apps like Coinbase and Venmo with the financial data they need (like account numbers) to run.
As consumers' financial lives grow beyond their primary banks, banks and third-party apps are increasingly sharing financial data, known as open banking. Conversations among regulators and consumers around how that data is managed and secured are also on the rise.
The Consumer Financial Protection Bureau is currently weighing rules that would establish consumers' rights to access and permission their financial data. President Joseph Biden alluded to and encouraged those efforts in a July executive order focused on competition.
The plaintiffs argued that clients, when connecting to their bank accounts via third-party apps like Venmo, were unaware of Plaid's involvement in accessing and providing financial data to the apps.
"The claims raised in the lawsuit do not reflect our practices," a Plaid spokesperson said in a statement.
Each of the 11 consumers represented in the suit will receive $5,000, payable via ACH, physical checks, or PayPal/Venmo, reflecting the growing popularity of fintech apps, many of which are helped by Plaid and other data aggregators. The plaintiffs' lawyers will earn $14.5 million.
That leaves around $44 million in settlement funds for the total class, which is estimated to be 98 million users in the US. Any remaining settlement funds will be donated to the Privacy Rights Clearinghouse and Consumer Reports.
The original suits alleged several violations of California regulations, including anti-phishing, competition, and fraud regulations. The suit also alleged Plaid sells users' financial data, which Plaid said it does not. Judge Donna Ryu dismissed many of those claims in May.
But Ryu sustained claims including violation of California's anti-phishing law, which makes it illegal to misrepresent oneself in order to induce someone to hand over their sensitive financial information.
"We believe settlement of this matter is best in light of the cost and burden associated with protracted litigation," the Plaid spokesperson said.
Plaid's profile is rising as it makes a push to be more consumer facing
While Plaid has historically operated under the radar, it's increasingly visible to consumers. It created an account-linking screen in 2018 that shows an app is accessing bank data, powered by Plaid. It's also been building a dashboard for consumers to monitor and manage their data connections, Plaid Portal, which is expected to come out of beta later this year.
As part of the settlement, Plaid has committed to speeding up existing efforts around data security and consumer privacy, an area where Plaid is aggressively hiring.
In late 2020, Plaid publicly committed to migrating 75% of its data volumes to application programming interfaces, as opposed to screen scraping, by the end of 2021. That commitment still stands, and requires Plaid to sign data sharing agreements with banks, which it already has with the likes of JPMorgan Chase and US Bank.
ncG1vNJzZmivp6x7o8HSoqWeq6Oeu7S1w56pZ5ufonyxuMCim2abnJbAtHnAnKuip55ivbO11ZqasmWclsS0wcitZKydpKm5prnEp6tmbWhiuqq4y6Kmp2WUlsGiecCgnqudl5bBsL6Ma2draV1s