US senators are calling for regulators to inspect whether Robinhood misled customers in launching its new investment accounts.
The investing app last week unveiled new checking and savings accounts with a whopping 3% interest rate. Checking rates are barely above zero at many banks.
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But after the announcement, the Securities Investor Protection Corporation, an industry nonprofit, said the product might not be insured. Robinhood has since pivoted to calling the service a "cash management program."
"We are concerned that rebranding Robinhood's original announcement to cash management may simply be a way to circumvent regulatory scrutiny without offering full transparency to its customers," seven Republican and Democratic lawmakers said in a letter dated Thursday.
The memo asks the Securities and Exchange Commission and the Federal Deposit Insurance Corporation to provide an "update" on how these agencies will "carefully monitor fintechs who, intentionally or not, blur financial products for competitive advantage."
It's signed by Senators John Kennedy, Jack Reed, Robert Menendez, Mark Warner, Brian Schatz, Jerry Moran and Doug Jones.
Robinhood did not immediately respond to a request for comment.
The letter states that the senators aren't looking to side with incumbent banks, but do want to ensure fintechs have sufficient oversight.
"Competition with traditional servicers like banks and credit unions can ultimately benefit consumers, but we must continue to maintain the integrity of our financial system as the digital revolution expands," it reads.
Robinhood has made waves in the financial services industry, prompting many big banks and brokerage firms to start offering lower-cost investing accounts. Vlad Tenev, the company's co-founder, wrote in a blog post in October that Robinhood has more than six million customers.
But the rollout of its new "cash management" accounts has been a large stumbling block.
"As a licensed broker-dealer, we're highly regulated and take clear communication very seriously," said Tenev and Baiju Bhatt, the company's other co-founder, in a blog post last week. They conceded that the "announcement may have caused some confusion."
Robinhood will "work closely with regulators" as the app readies the "cash management program," they added. The company is revamping its marketing materials and will give the product a new name, they said.