Mobile payments raise consumer protection worries


Tapping your smartphone to pay for things instantly sounds convenient, but consumer advocates worry that the boom in mobile finance will make it easier for others to target your phone to snoop on your buying habits or even clean out your mobile wallet.

"There's a lot of unscrupulous companies out there that just want to make a buck," said Jeff Chester, executive director of the Center for Digital Democracy.

The privacy rights organization joined with consumer advocate U.S. Public Interest Research Group Sept. 10 in asking consumer financial regulators to write new rules governing mobile financial services. On the same day, the Federal Trade Commission made a regulatory filing that spelled out broad risks to consumers from mobile financial dealings.

On Tuesday Apple announced a mobile payment service, Apple Pay, which will allow iPhones to complete wireless transactions via credit cards programmed into the device. The announcement marked another potential leap in the use of phones as financial tools, joining mobile banking and retailers' loyalty apps.

Although few people use smartphones to pay at checkout registers now, Apple has a history of bringing new technologies to the masses. The company said it will not collect information on what users buy with the Apple Pay system, or where they shop. But consumer advocates expect retail partners to use data generated by the payments to track buyers.

While it is not new for businesses to track customer habits, mobile technology gives marketing techniques new muscle, Chester warned.  Technologies including location tracking and the buy-it-now immediacy of smartphone apps can be used to leverage the preferences and habits already in your consumer profile.

"Say they know that you're searching for a refrigerator or a new washer -- all of a sudden on your phone up pops an ad for a high cost payday loan saying, 'come in now, you're five blocks away from the store, we'll give you a special deal and a free toy for your kids,"  Chester said. "I think it's prudent for someone to say, you don't just offer someone a payday loan in real time, and give them only a few minutes to decide."

The FTC added its concerns in a comment to the federal Consumer Financial Protection Bureau, which has launched an inquiry into mobile financial services. In its comment, the FTC noted that while mobile financial services offer many benefits, they have drawbacks.

"... [C]onsumers using mobile financial services may be at risk for liability for unauthorized charges or unfair billing, as well as the increased collection, use, and sharing of consumers' personal and financial data," the agency said. "These issues may raise particular concerns for the underserved or economically vulnerable consumers using these services."

In its filing, the FTC's list of dangers in mobile finance included:

  • Lack of loss limits for unauthorized charges using prepaid or stored value cards, which may be used to make mobile purchases and which are not covered by protections for debit card and credit card purchases.
  • Unfair billing practices on mobile carrier bills, such as "cramming" unwanted charges on the telephone account by unauthorized service providers.
  • Privacy violations and security breaches of personal and financial data in mobile apps.
  • Possible use of consumer information by data brokers and other, unrelated companies.

Mobile payments involve not just banks, merchants and card networks, but also software and hardware makers, phone carriers, app developers and loyalty program administrators, the FTC said.

"When a consumer makes a mobile payment, any or all of these parties may have access to more detailed data about a consumer and a consumer's purchasing habits," the agency said.

[C]onsumers using mobile financial services may be at risk for liability for unauthorized charges or unfair billing, as well as the increased collection, use, and sharing of consumers' personal and financial data.

-- Federal Trade Commission

Some of the FTC's enforcement efforts highlight dangers of mobile finance that are already playing out. In 2012 the agency sent warning letters to makers of mobile screening apps, saying they could be violating the Fair Credit Reporting Act.  Apps that screen people for credit, employment or housing must comply with the consumer protections under the FCRA, the agency warned.

As for privacy and security, the FTC charged that apps from Fandango and Credit Karma exposed users' sensitive data, contradicting the companies' security promises.

And the FTC said it has launched six actions at companies that inserted unauthorized charges on consumers' mobile phone accounts. The practice known as "cramming" often involves unwanted ringtones or subscriptions to recurring text messages.

Beyond smartphones, new mobile devices may further transform financial services. Apps being developed for Google Glass, for example, would let bank customers locate a nearby ATM, check their account balance and videoconference with customer service.

With more people relying on mobile financial tools, regulators should act quickly to build consumer safeguards, Ed Mierzwinski, consumer program director for U.S. PIRG, said in a press statement. "Otherwise, unfair business practices will become entrenched in the marketplace and hard to stop."

See related: CFPB seeks lower-cost ways to serve up mobile banking, Apple Pay rolls out, but poll says consumers leery

Published: September 13, 2014

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