Personal Finance

Beam customers are getting money back, but savings app still faces federal investigation

Key Points
  • Beam says it has processed “98%” of customer withdrawal requests as of last week, and customers confirm to CNBC that they are finally getting their money.
  • Dozens of customers previously complained they were unable to access their deposits, in some cases for months.
  • Despite customers getting their money, the Federal Trade Commission is still seeking a court order against alleged “deceptive acts” by Beam.
Beam users are getting money back, but savings app still faces federal probe
Beam users are getting money back, but savings app still faces federal probe

Customers of mobile savings app Beam, some of whom complained that they had been unable to access their deposits for months, say they are finally getting their money back.

The troubles, however, are far from over for the San Francisco-based startup behind the app. The Federal Trade Commission is seeking a court order against alleged “deceptive acts” by Beam.

A CNBC investigation in October found that Beam promised customers above-market interest rates on federally insured deposits, and "24/7 access" to their funds. However, dozens of customers complained that their withdrawal requests were met with a litany of excuses. Now, even as the company is processing those customer requests, it faces multiple lawsuits, a federal investigation and an uncertain future.

Beam Financial, which had accumulated some $2.4 million in deposits from an estimated 30,000 customers, said in a note to customers last week that it had processed withdrawal requests for "98% of all affected customers" as of last week, with only about $17,000 worth of requests still unresolved.

A company spokesperson wrote in an email that Beam is under "strict obligations" not to comment at this time.

"We have more to share, but it will come through a public statement at the appropriate time," the spokesperson said. "Meanwhile, we are 100% focused on making Beam customers right." 

Among those customers who received their funds is Steve Wolf, who had been trying to access the $15,000 in his account since this summer. Wolf, a marketing executive, lives in Oceanside, California.

"Sure enough, randomly one day there was 10,000 bucks in my bank account," he said in an interview. "And then the next day there was another deposit of a little over $5,000 which pretty much returns to me the money that I put in and a little bit of the interest."

Steve Wolf opened an account with Beam to set aside money for emergencies. "Now I'm having to fight and spend hours of time to get it back," he said.

Other customers who previously reported problems tell similar stories.

Tiffany Chang of Hanoi, Vietnam, said she received a deposit of $4,021.81 on Nov. 19. She said that represents her account balance plus some interest, but only up to the time she submitted her withdrawal request two months ago. Nonetheless, she is happy to put the matter in the past.

"I'm relieved it's over," she wrote in an email to CNBC.

A federal case

So while money is now being returned to customers, it is not over as far as the FTC is concerned.

The agency began investigating Beam in May, and it filed a federal lawsuit on Nov. 18 accusing the company and its 37-year-old CEO, Yinan "Aaron" Du, of "unfair or deceptive acts." The agency said the lawsuit will continue despite customers getting their money back.

"We think it's important to go to court to make sure that someone is holding Beam accountable," Malini Mithal, associate director of the FTC's Division of Financial Practices, said in an interview. "In addition to consumers getting their money back, we are seeking an order against Beam that would prohibit it from ever engaging in this type of misconduct again."

Paul J. Richards | AFP | Getty Images

In addition to the FTC case, Beam faces a proposed class action suit by a Florida depositor, Frederick Chang. The complaint was filed Nov. 10 in federal court in San Francisco by Burlingame, California, law firm Cotchett, Pitre & McCarthy, LLP.

Chang's attorney, Brian Danitz, wrote in an email that his client initially deposited $15,000. He said that last week, Chang received the amount he had on deposit seven weeks ago, but without any of the interest that would have accrued since then. Danitz said the central allegations of the suit are unchanged.

"Beam promised '24/7 access,' 'no lock ups' and that 'Funds will arrive in three to five business days,' but deprived its customers of their hard-earned money for months," he said. "To make matters worse, many of Beam's misleading promises are still out there on the web.

"A brick-and-mortar bank would never be allowed to conduct business in this way."

Chang is the only customer named in the complaint, but it says that thousands of others are in the same situation. The complaint accuses Beam of negligence, false advertising, deceit by concealment and breach of contract, and seeks unspecified damages.

Meanwhile, three of Beam's vendors are seeking a judgment from an Ohio court that they acted properly, after the company sought to blame some of its problems on third-party providers.

The vendors — financial service providers Dwolla and Stable Custody Group, as well as Huntington National Bank, which had custody of Beam's deposits — also asked the court to order Beam to cooperate in getting the funds back to depositors.

Beam's spokesperson has previously declined to comment on the substance of the lawsuits, and the company has yet to respond in court.

Clearing a logjam

According to Beam's note to customers, which appeared on its customer blog on Nov. 20, a stopgap agreement with those vendors may have helped clear the backlog of withdrawal requests, though the letter does not say why the action is only now occurring when some requests have been pending for months.

The note says that Dwolla — which has acknowledged it terminated its relationship with Beam on Oct. 1 after it learned of the customer complaints — agreed to temporarily reactivate its transaction processing gateway on Nov. 12, "allowing funds to finally be released from Huntington National Bank where the funds were placed back to Dwolla and from there being returned to Beam customers."

The vendors declined to comment to CNBC for this story.

The note said Dwolla would only agree to continue processing transactions until today, Nov. 27, and urged customers to make certain that Beam had their current banking information.

"We have tried very hard, but were not able to negotiate for anything longer," the note says.

While most customers were receiving their funds by electronic bank transfers, others are apparently being offered alternatives.

Beam aimed to let users earn higher interest rates on their money by engaging with its mobile savings app.

Jim Wilson, a customer who lives in Concord, California, said Beam offered him three options to get back the $5,000 he invested in early August — an Amazon gift card, a transfer via PayPal or a check to be issued by the end of the year.

"I chose the PayPal option; however, I have not yet received the money," Wilson wrote in an email in CNBC on Nov. 23.

Wilson requested to withdraw all of the money from his account in late August. Not having access to the funds has been a "huge pain," he previously told CNBC, as he and his wife recently welcomed their first child.

For customers who receive checks, Beam cautioned them in a second blog post on Nov. 21 to deposit or cash them within 180 days, "or they may no longer be good."

Fintech under scrutiny

Beam is one of a growing number of so-called "fintech" companies — technology businesses that handle customer funds but are not banks and are not regulated as financial institutions. The FTC says it is devoting increasing resources toward policing this new industry.

"We absolutely understand why these kinds of companies promise attractive benefits to consumers," FTC's Mithal said. "But we want to remind these companies that they have to make sure to observe certain baseline consumer protection principles.

"That means keeping your promises, paying attention to your customers to make sure that you're keeping an eye on early warning signs, and making changes when things go wrong instead of continuing to make promises that you can't keep," he explained.

Meanwhile, Beam customer Wolf said he has learned his lesson about entrusting money to an unknown financial app.

"It would be nice if there's a physical location or at least some kind of a national brand — you know, a recognizable national bank that you've got some recourse if things go haywire," he said.

 Additional Reporting: Lorie Konish, Dawn Giel, Jennifer Schlesinger, Scott Zamost

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