A bipartisan group of U.S. senators wants financial regulators to examine whether Robinhood Financial misled its customers by offering what seemed to be checking and savings accounts but were really investment accounts.
Senate Banking Committee lawmakers sent a letter to the Securities and Exchange Commission and the Federal Deposit Insurance Corp. asking them to review Robinhood's announcement last week that it was offering special accounts that would pay high interest and include features associated with traditional banking.
Robinhood's effort -- technically a repurposed brokerage account -- was quickly put on hold after the head of the Securities Investor Protection Corp. made clear that his agency wouldn't backstop the product. SIPC provides up to $500,000 of insurance on brokerage accounts to protect against the loss of cash and securities.
"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," senators including John Kennedy of Louisiana, Jerry Moran of Kansas, Jack Reed of Rhode Island and Mark Warner of Virginia wrote in the Thursday letter. Mr. Kennedy and Mr. Moran are Republicans, while Mr. Reed and Mr. Warner are Democrats.
The letter, which argued that "robust competition should not come at the expense of customer clarity," requested a response from the SEC and FDIC by Jan. 31.
Robinhood's plan was to launch a version of the traditional bank account with a sky-high interest rate of 3%. The firm, which is best known for its no-fee stock trading app, which is popular with millennials, faced a storm of criticism for selling the product as Robinhood Checking & Savings and claiming that customer money would be protected by SIPC.
The senators also commended SIPC for "quickly and publicly explaining these accounts would not be insured."
More than 850,000 people have signed up to use the new Robinhood service. The accounts have since been rebranded as a "cash management" service.