Financial connectivity provider Plaid has settled a $58 million class action lawsuit over claims that the fintech firm passed on personal banking data to third party firms without user consent.
The settlement encompasses five separate lawsuits combined as one. Each claims that Plaid used consumers’ banking login credentials to gather and distribute detailed financial data without prior consent.
The estimated class size is 98 million people.
Plaid’s technology connects users bank accounts with third-party finance apps, creditors and small business lenders. This platform, sometimes called a data transfer service, enables users to invest money, digitally pay individuals and other businesses and transfer funds straight from their bank account.
“Plaid has agreed to implement meaningful business practice changes designed to remediate alleged privacy violations, improve user control over their private login information and financial data, and safeguard their privacy going forward,” the plaintiffs’ lawyers wrote in the filing.
According to the lawsuit, filed Thursday in California federal court, the plaintiffs alleged that Plaid has “exploited its position as middleman” to obtain app users’ banking login credentials and use that information to gain access to and sell their transaction histories. Allegedly, these actions occurred without users knowing about Plaid’s role is a variance of “deceptive tactics.”
The plaintiffs recounted that they signed up for fintech apps including Venmo and Square‘s Cash App, linked their bank accounts, and were not aware of Plaid’s role or that the company would collect banking information.
A California federal magistrate judge in May dismissed a number of the claims in the case, including with prejudice the plaintiffs’ claims under the Stored Communications Act, the federal Computer Fraud and Abuse Act and its California equivalent, the Unfair Competition Law, and a claim for declaratory and injunctive relief.
The judge did however find the plaintiffs sufficiently allege invasion of privacy, violation of California’s anti-phishing law and other claims.
Claimants will be given the option to receive the settlement money automatically through payment platforms such as PayPal and Venmo.
If all 98 million people were to file a claim, each would receive just 60 cents.
“The claims raised in the lawsuit do not reflect our practices,” a Plaid spokesperson said in a statement.
“We help consumers safely connect their financial accounts to the apps and services they rely on. As Plaid has evolved from backend infrastructure for developers to also providing front-end solutions, we have become an industry leader in consumer privacy practices.
“We do not, nor have we ever, sold data. We make our role and practices clear, and provide services that give consumers control over how and where they share their data. We believe settlement of this matter is best in light of the cost and burden associated with protracted litigation. Moving forward, we will continue to focus on empowering millions of people with control over the data they share across the thousands of applications Plaid supports,” the spokesperson for Plaid said.
In November, the Department of Justice (DOJ) sued to block Visa’s proposed purchase of Plaid based on antitrust grounds. The DOJ complained that Visa was buying Plaid to eliminate a competitor in the lucrative business of online debit transactions. Visa had objected to the DOJ suit, arguing that Plaid is not a payments company and, therefore, is not a direct competitor.
Almost exactly a year after announcing their $5.3 billion merger, the two called off the proposed marriage and the antitrust suit was dropped.
But the company is still thriving on a large scale. The San-Francisco based platform raised a $425 million funding round in April, valuing Plaid at close to $13.4 billion, Reuters reported at the time.