Mobile payment risks highlighted at House hearing
March 22, 2012
Consumer Protections Haven’t Kept Pace With New Technologies
WASHINGTON, D.C. – Suzanne Martindale, staff attorney for Consumers Union, the advocacy and policy arm of Consumer Reports, will testify at a House Subcommittee on Financial Institutions hearing on March 22, about the growing mobile payment options in the U.S. and their impact on consumers.
Martindale’s testimony highlights some of the potential benefits but also how consumers using some mobile payment services are not covered by the same legal safeguards that protect credit card and debit card users.
“The mobile payments market in the U.S. is still developing so it’s hard to predict the ultimate impact on consumers,” said Martindale. “But one thing is clear. Consumer protections haven’t kept pace with new payment options which can leave consumers vulnerable to losing money depending on what kind of mobile payment service they use. The Consumer Financial Protection Bureau should use its authority to make sure consumers get the same strong protections regardless of how they pay.”
Mobile payments allow consumers to buy products or transfer money with a mobile device like a smartphone. Mobile payments in the U.S. are projected to gross $214 billion by 2015, in part due to their potential to provide speed and convenience for consumers and merchants. Paying by phone may have greater appeal for young, tech-savvy consumers, as well as those outside the traditional banking system.
Depending on which service is used, mobile payments can be initiated by sending a text message or using an application downloaded to the device. Other mobile payment services employ a chip embedded in the hardware, which the consumer waves at a store’s contactless reader.
Multiple parties are involved in the transaction. Consumers, merchants, third-party processors, wireless carriers, and financial institutions all play a role. With so many players involved, the risk of confusion increases should something go wrong with a transaction.
Martindale’s testimony notes that not all mobile payment options afford the same protections when it comes to unauthorized transactions or errors. The protections consumers get will depend on whether the mobile payment is linked to a credit card, debit card, prepaid card, prepaid phone account, or phone bill.
Traditional credit and debit cards have mandatory protections under existing law; however, prepaid cards do not. Mobile payments linked to a prepaid phone deposit or phone bill are not covered by those same laws. The protections consumers receive will vary depending on their wireless carrier’s policies and what’s in their cell phone contract.
A 2011 Consumers Union report found that the protections these carriers provide fall short of what consumers get when they use credit cards and debit cards. These protections are not always disclosed in customer contracts, making it difficult to know whether consumers can count on these safeguards when problems arise.
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