We frequently hear that regulations take a long time to catch up with the technology. On June 29, the House Subcommittee on Financial Institutions and Consumer Credit held a hearing to determine whether regulations need to catch up to cover consumer payments made using mobile devices. According to written testimony submitted by the CFPB’s Marla Blow, Assistant Director for Card and Payment Markets, the answer seems to be “yes.” In her Statement for the Record, Ms. Blow states that regulations addressing disclosures on mobile phones may be necessary and that it may also be appropriate to issue regulations applicable to mobile wallet operators. Given the CFPB’s enhanced authority to regulate unfair, deceptive, or abusive acts and practices as well as its authority to enforce other financial consumer protection laws, the CFPB may be well suited to write such regulations.
In contrast, the witnesses at the hearing, FinCEN Director Jim Freis and Federal Reserve Board Associate General Counsel Stephanie Martin seemed to indicate that regulatory changes to address mobile payments may not be necessary, at least not yet. Accordingly, Mr. Freis and Ms. Martin expressed a “wait-and-see” approach. Although they believe that existing regulations are broad and flexible enough to cover most of the current transactions and participants in mobile payments, they were careful to highlight that the field is still immature and evolving.
The Subcommittee members were focused on whether mobile payments presented new risks to consumers. Mr. Freis and Ms. Martin were specifically asked what consumers should do if they dispute a transaction following a mobile payment, if they lose the phone they use for mobile payments, and if they are charged additional fees on their wireless bills. Ms. Martin delicately and correctly responded that each of these situations is well covered by existing, technology-neutral laws and regulations. For example, Regulation E governs a disputed credit card transaction regardless of whether the transaction was initiated with a plastic card or a virtual card stored in a mobile wallet.
Ms. Martin did indicate that more regulation may be necessary in the mobile payments space where nonbanks, who might not be subject to existing financial regulations, are participants in the mobile payment transaction. Applying financial regulations to nonbanks can be a complex exercise, but regulators have addressed similar concerns by writing such regulations as the Safeguards Rule (administered by the FTC), which protects financial data, regardless of who is holding the data, and the Prepaid Access Rule (administered by FinCEN), which applies broadly to nonbanks engaged in prepaid card programs.
And the big question: Who should be the primary regulator for mobile payments? Given that mobile payments cover a range of transaction types and participants, the Fed’s Stephanie Martin understandably declined to identify just one regulator in her oral testimony. Although she ackowledged that the CFPB would be responsible for interpreting and enforcing consumer financial laws and regulations, she stated that the mobile payments space is so broad that a range of regulators should continue to “consult and coordinate” as the field develops.