PayPal Holdings' (NASDAQ:PYPL) popular Venmo service is the target of an investigation by the federal government. In a regulatory filing the company submitted on Friday, it revealed that the Consumer Financial Protection Bureau (CFPB) sent it a Civil Investigative Demand requesting information, particularly about Venmo's debt collection practices.

The CFPB is concerned about PayPal's conduct toward Venmo users who end up owing the company for certain transactions that go wrong, and on occasion for accounts that fall into negative balances. According to media reports, such users have been threatened by Venmo/PayPal that it would sic debt collection agencies on them.

Dapper man using a smartphone on a city street.

Image source: Getty Images.

Investigators may want to determine if, at times, such threats were made even when Venmo users were the victims of fraud by payment counterparties.

PayPal said it is cooperating with the investigation. In an email to tech-focused news website The Verge, the company wrote that it is working "productively with the CFPB to provide information, as requested, on our practices and processes."

It added that it "remains deeply committed to its compliance obligations and ... works closely with regulators around the world."

Venmo has become one of the most widely used peer-to-peer payment apps. Users are drawn to its convenience; with a few taps on the screen, funds can either be requested from another person, or paid to that individual.

As a result, Venmo is a hot source of growth for its parent company. The app's user base increased by 32% on a year-over-year basis in 2020 to almost 70 million active accounts. Meanwhile, in the fourth quarter alone, the volume of funds transferred rose by about 60%.

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