Cash App owner Block to pay $45 million after states say it made false security promises

Cash App owner Block Inc. has agreed to pay $45 million to settle allegations brought by regulators in nearly every U.S. state after prosecutors said the company failed to adequately protect customers from fraud and misled users about the app's security.

In a statement released Wednesday, the New York Attorney General's Office said Jack Dorsey-led Block marketed Cash App as offering protections comparable to those of a traditional bank, leading customers to believe their funds were safeguarded in the same way. Regulators also alleged the company lacked a consistent fraud detection system and failed to provide a functioning customer hotline for reporting scams.

"New Yorkers were promised that Cash App was a safe and secure platform to send money, but in reality, the app exposed them to rampant fraud," said Attorney General Letitia James in the statement. "For years, Cash App users lost money to costly scams because Block cared more about profits than protecting its users."

Attorneys general said Block knew that fraud was rising, but didn't warn users and instead pivoted to marketing. They also allege that Block targeted unbanked and underbanked people, where in some cases Cash App was used as their main financial account. 

The states also criticized Block's promotion on social media called 'Cash App Friday,' which allowed users to win prizes if they posted their unique app identifier. 

"Fraudsters would then contact those users, tell them they had won, and trick them into handing over their login information," according to the statement. "Attorney General James and the coalition’s investigation found that Block was aware of these scams but kept running the promotion, training staff to expect defrauded customers to contact them." 

As part of the settlement, Block must maintain customer support services to resolve fraud complaints and other issues, as well as offer live support 24 hours a day and to stop making claims about Cash App's purported safety. 

The company denies wrongdoing, according to the consent judgment. 

In an emailed statement, a Block spokesperson said the agreement "resolves a previously disclosed legacy matter that primarily relates to historical aspects of our business."

"Cash App has made significant investments in consumer protection, customer service, and compliance in order to safeguard and serve the tens of millions of Americans who rely on Cash App to meet their banking and credit needs," the spokesperson said. "We share the commitment of the attorneys general to addressing industry challenges and continue to invest in operations and technology to promote a safe and healthy financial ecosystem." 

Shares of Block (Nasdaq: XYZ) were down roughly 1.5% on the day according to The Block's crypto equities data.