By Peter Rudegeair 

Venmo has fostered a compassionate public image during the pandemic, touting the popular payments app as a way to virtually tip out-of-work bartenders and give to hospitals.

Yet it has taken a harder line against users who ended up overdrawing their accounts. In some cases, it has threatened to dispatch debt collectors against victims of scams, according to emails reviewed by The Wall Street Journal and communications with 10 Venmo users.

Scams can leave victims with negative balances. In some cases, Venmo, a unit of PayPal Holdings Inc., has told customers they owe it that money.

Venmo's main competitor, Cash App, says it doesn't report or threaten to report users with negative balances to debt collectors "under any circumstances."

Venmo acknowledges that it uses collection agencies, but a spokeswoman said it has taken measures to "address situations where customers are experiencing any type of hardship related to the pandemic." That includes suspending for 30 days collections-related calls to customers who say they were affected by the economic fallout from the coronavirus. Venmo also agreed not to take funds from customers with negative balances who had their stimulus checks deposited directly into the app.

The pandemic has turbocharged digital payments. About $37 billion was transferred via Venmo in the second quarter, a 52% increase from the year before. The number of active Venmo users topped 60 million in July.

Venmo's tactic of referring users to debt collectors isn't new, but those wrangling with the company face a choice: possibly having their credit score damaged for years or paying debts they say they don't owe. Their predicament is sharpened by a recession that has left many Americans struggling.

Rachel Karpen-King said she used Venmo in April to pay for what she believed was computer hardware and software for a new job at a publishing company. The so-called recruiters who interviewed Ms. Karpen-King sent her orientation paperwork and checks to cover the equipment costs, asking her to pay their preferred supplier for them via Venmo.

She found out she was being duped when she emailed an employee at the publishing company and was told the people she spoke with were impostors. Their checks turned out to be fake. Ms. Karpen-King asked her bank to halt the $2,500 in payments before the money left her account and notified Venmo about the scam, she said. Venmo had already advanced the money and told her by email that she was at risk of being reported to a collection agency.

"It felt so gross," said Ms. Karpen-King, who was unemployed at the time and eventually had to dip into savings to pay off Venmo. "There's nothing worse than knowing that you messed up and asking for help and they shut the door in your face."

Venmo transactions appear instantaneous in the app, but it can actually take a day or more for the money to leave the sender's bank account. Venmo often fronts the payment to the recipient, who can then send the money to others on Venmo or pay a small fee to transfer it to their bank account in a few minutes.

If scammers move the money to their bank account, or if a sender's bank stops a transaction before it is settled, Venmo can be left holding the bag. That is one reason Venmo tells users to send money only to people they know. Venmo also says on its website that it can't cancel a payment to an existing Venmo account.

Venmo usage initially decelerated during the pandemic because users didn't need the app to split tabs at bars and restaurants. In response, the company started publicizing new uses. Customers could have their stimulus checks directly deposited into Venmo, and the company introduced a #VenmoItForward giveaway where it rewarded users who had posted about donating money.

"I would not underestimate how zealous the customers of Venmo are about living their financial life on the platform," PayPal Chief Executive Dan Schulman said on a call with analysts in July.

Unlike many other financial firms, Venmo deactivated general customer-service telephone lines during the pandemic. Customers looking for help sometimes faced dayslong lags in email communication.

Raquel Arias was distraught when she couldn't get anyone at Venmo on the phone in August. The company had emailed her teenage daughter, saying she owed $1,980 and could be reported to a collection agency. A Snapchat user posing as a friend asked for the money. Her daughter sent it over Venmo, though Ms. Arias froze her daughter's checking account before Venmo could withdraw anything.

Venmo's user agreement requires account holders to be at least 18 years old, but Ms. Arias says her daughter was able to open an account anyway without her knowledge. She thinks Venmo should do more to ensure minors stay off the platform.

"Can they sue a 16-year-old?" said Ms. Arias, who lives in Alamogordo, N.M. "I'm thinking now they're going to come after me."

The spokeswoman said Venmo "offers live phone support for certain specialized support needs" and live online chat support. She added that the company wouldn't take legal action against Ms. Arias's daughter but that it is required to close her account since she is underage.

PayPal doesn't disclose the number of Venmo users who carry a negative balance or the amount it says they owe. Across PayPal, though, as of June 30, there were $221 million in negative customer balances that the company didn't expect to be repaid, according to a securities filing. PayPal writes off as a loss any negative balances in the month that they become outstanding for 120 days.

Setareh Rafatirad has carried a negative $1,500 balance on her Venmo account since April 2019. In July, she received a phone call from SIMM Associates, a debt-collection agency working for Venmo. The representative said he would alert credit-reporting agencies that Ms. Rafatirad was delinquent unless she paid it off promptly, she said.

The transactions at issue occurred last year when Ms. Rafatirad, a university professor living in Vienna, Va., listed some furniture on Craigslist. A man mailed her a check for more than the agreed-upon price and asked her to send the surplus via Venmo to a mover he hired.

When Ms. Rafatirad learned the check was fraudulent, she called the police and froze her outgoing Venmo payment before the money left her bank account. Venmo had already advanced the payment, though.

Although she believed Venmo was in the wrong, Ms. Rafatirad has been paying off the balance in installments. She was in the middle of refinancing her mortgage. "I didn't have any other choice," Ms. Rafatirad said. "If they reported it, my home loan would fall apart."

After being contacted by the Journal, Venmo said it "brought the balance to zero" in the accounts of Ms. Arias's daughter and Ms. Rafatirad.

Write to Peter Rudegeair at


(END) Dow Jones Newswires

September 24, 2020 05:44 ET (09:44 GMT)

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