CFPB Makes Example of Dwolla Inc. in Monmouth County

CFPB Makes Example of Dwolla Inc. in Monmouth County

CFPB Makes Example of Dwolla Inc. in Monmouth County

Monmouth County businesses have another “cybercop” to worry about. The Consumer Financial Protection Bureau (CFPB) recently pursued its first cybersecurity enforcement action, alleging that Dwolla, Inc., an online payment platform, misled consumers about its data security practices.

The CFPB’s Allegations

Dwolla operates an online payment system with more than 650,000 users and conducts transactions of more than $5 million per 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 unique 4-digit PIN.

According to the CFPB, Dwolla failed to employ reasonable and appropriate measures to protect data obtained from consumers from unauthorized access, although it represented to consumers that its data-security practices “surpass” or “exceed” industry standards. Most notably, the company allegedly failed to encrypt sensitive consumer information stored on its servers and released applications without conducting sufficient security testing. Although Dwolla maintained that its transactions, servers, and data centers were compliant with the Payment Card Industry (PCI) Security Standard, the CFPB alleged that Dwolla’s data security practices in fact, fell far short.

In pursuing the enforcement action, the CFPB relied on its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which empowers the agency to take action against institutions engaged in unfair, deceptive or abusive acts or practices, or that otherwise violate federal consumer financial laws. The agency based the action on the company’s misrepresentations to consumers rather than any deficiency in its cybersecurity practices.

The Consent Order

To resolve the enforcement action, Dwolla agreed to pay a penalty of $100,000 and entered into a five-year consent agreement. The consent order requires Dwolla to adopt and implement reasonable and appropriate data-security measures to protect consumers’ personal information on its computer networks and applications. More specifically, the company must:

  • Establish, implement, and maintain a written, comprehensive data-security plan that is reasonably designed to protect the confidentiality, integrity, and availability of sensitive consumer information;
  • Designate a qualified person to coordinate and be accountable for the data-security program;
  • Conduct data-security risk assessments twice annually of each area of relevant operation to identify internal and external risks to the security, confidentiality, and integrity of the network, systems, or apps, and to consumers’ sensitive consumer information stored by Respondent, and to assess the sufficiency of any safeguards in place to control these risks;
  • Conduct regular, mandatory employee training on a) the Company’s data-security policies and procedures; b) the safe handling of consumers’ sensitive personal information; and c) secure software design, development and testing.
  • Develop, implement, and update, as required, security patches to fix any security vulnerabilities identified in any web or mobile application;
  • Develop, implement and maintain an appropriate method of customer identity authentication at the registration phase and before effecting a funds transfer;
  • Obtain an annual data-security audit from an independent, qualified third-party, which must be submitted to the CFPB.

Pursuant to the consent order, Dwolla’s Board of Directors is tasked with ensuring compliance going forward. The agreement specifically states that the “Board will have the ultimate responsibility for proper and sound management of Respondent and for ensuring that it complies with Federal consumer financial law and this Consent Order.”

The Message for Monmouth County Businesses

The CFPB will be policing businesses under its purview to make sure they have “reasonable” cybersecurity policies and procedures in place. As highlighted in the consent order, the CFPB believes that businesses should be conducting bi-annual risk assessments, regularly reviewing customer-facing privacy policies to ensure they match current practices, and involving the highest levels of management, including the board of directors, in all cybersecurity-related decisions.


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CFPB Makes Example of Dwolla Inc. in Monmouth County

CFPB Makes Example of Dwolla Inc. in Monmouth County
Author: Fernando M. Pinguelo

Monmouth County businesses have another “cybercop” to worry about. The Consumer Financial Protection Bureau (CFPB) recently pursued its first cybersecurity enforcement action, alleging that Dwolla, Inc., an online payment platform, misled consumers about its data security practices.

The CFPB’s Allegations

Dwolla operates an online payment system with more than 650,000 users and conducts transactions of more than $5 million per 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 unique 4-digit PIN.

According to the CFPB, Dwolla failed to employ reasonable and appropriate measures to protect data obtained from consumers from unauthorized access, although it represented to consumers that its data-security practices “surpass” or “exceed” industry standards. Most notably, the company allegedly failed to encrypt sensitive consumer information stored on its servers and released applications without conducting sufficient security testing. Although Dwolla maintained that its transactions, servers, and data centers were compliant with the Payment Card Industry (PCI) Security Standard, the CFPB alleged that Dwolla’s data security practices in fact, fell far short.

In pursuing the enforcement action, the CFPB relied on its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which empowers the agency to take action against institutions engaged in unfair, deceptive or abusive acts or practices, or that otherwise violate federal consumer financial laws. The agency based the action on the company’s misrepresentations to consumers rather than any deficiency in its cybersecurity practices.

The Consent Order

To resolve the enforcement action, Dwolla agreed to pay a penalty of $100,000 and entered into a five-year consent agreement. The consent order requires Dwolla to adopt and implement reasonable and appropriate data-security measures to protect consumers’ personal information on its computer networks and applications. More specifically, the company must:

  • Establish, implement, and maintain a written, comprehensive data-security plan that is reasonably designed to protect the confidentiality, integrity, and availability of sensitive consumer information;
  • Designate a qualified person to coordinate and be accountable for the data-security program;
  • Conduct data-security risk assessments twice annually of each area of relevant operation to identify internal and external risks to the security, confidentiality, and integrity of the network, systems, or apps, and to consumers’ sensitive consumer information stored by Respondent, and to assess the sufficiency of any safeguards in place to control these risks;
  • Conduct regular, mandatory employee training on a) the Company’s data-security policies and procedures; b) the safe handling of consumers’ sensitive personal information; and c) secure software design, development and testing.
  • Develop, implement, and update, as required, security patches to fix any security vulnerabilities identified in any web or mobile application;
  • Develop, implement and maintain an appropriate method of customer identity authentication at the registration phase and before effecting a funds transfer;
  • Obtain an annual data-security audit from an independent, qualified third-party, which must be submitted to the CFPB.

Pursuant to the consent order, Dwolla’s Board of Directors is tasked with ensuring compliance going forward. The agreement specifically states that the “Board will have the ultimate responsibility for proper and sound management of Respondent and for ensuring that it complies with Federal consumer financial law and this Consent Order.”

The Message for Monmouth County Businesses

The CFPB will be policing businesses under its purview to make sure they have “reasonable” cybersecurity policies and procedures in place. As highlighted in the consent order, the CFPB believes that businesses should be conducting bi-annual risk assessments, regularly reviewing customer-facing privacy policies to ensure they match current practices, and involving the highest levels of management, including the board of directors, in all cybersecurity-related decisions.