Robinhood Lawsuit Alleges Cash Sweep Program Benefits Company at Customers’ Expense

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A proposed class action lawsuit accuses financial services platform Robinhood of breaching its contractual duties to customers by “sweeping” their cash deposits into interest-bearing accounts that pay unreasonable, below-market interest rates.

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The 29-page lawsuit against Robinhood explains that in a cash sweep program, a client’s uninvested cash balance from their brokerage account is automatically “swept” into an account at one or more affiliated banks, where the deposit can generate interest for the accountholder over time. However, despite Robinhood’s contractual obligations to act in customers’ best interests, the company has secured unreasonably low interest rates for clients and quietly generated significant profits for itself from their deposits, the case alleges.

Indeed, the class action suit claims that Robinhood Markets, Inc. and subsidiaries Robinhood Financial, LLC and Robinhood Securities, LLC have pocketed “nearly all” the returns generated by customers’ cash through the defendants’ IntraFi Network deposit sweep program.

As of October 2024, the complaint says, the interest rate Robinhood paid or secured for clients’ cash deposits was 0.01 percent—“astonishingly low” compared to the Federal Reserve, whose benchmark federal funds rates were between 4.75 and 5 percent as of the date of the filing, and other financial institutions with similar sweep programs that pay rates up to 450 times higher than Robinhood, the lawsuit contends.

Notably, customers who pay a monthly fee to obtain a “gold” account—approximately eight percent of Robinhood clients—receive a much higher interest rate of 4.5 percent on their cash deposits, the suit relays.

This demonstrates that Robinhood can indeed secure higher rates of return than it pays to the rest of its customers and highlights the unfair nature of the “consistently low” interest rates they receive, the case alleges.

Moreover, the complaint claims that Robinhood’s customer contracts and other documents include misleading statements about the offered interest rates and fail to adequately disclose the benefits the company receives through the sweep program.

According to the filing, in 2023 alone, Robinhood generated more than $120 million in revenue from cash deposits held in its sweep program.

Per the case, the banks participating in Robinhood’s program include Goldman Sachs Bank USA; HSBC Bank USA, N.A.; Wells Fargo Bank, N.A.; Citibank, N.A.; Bank of Baroda; U.S. Bank, N.A.; Bank of India; Truist Bank; M&T Bank; First Horizon Bank; EagleBank; CIBC Bank USA; BNY Mellon, N.A.; Morgan Stanley Bank, N.A. and Morgan Stanley Private Bank, N.A.

The lawsuit looks to represent any Robinhood accountholders who had cash deposits in one or more program banks pursuant to Robinhood’s deposit sweep program, excluding those with Robinhood Gold accounts.

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