Let’s Get Mobile: The CFPB Turns Focus to Mobile Banking

by Manatt, Phelps & Phillips, LLP
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After completing most of its required rulemaking under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) is now looking at a wide array of consumer financial products and services for additional regulation. One such service is mobile banking.

The CFPB issued a notice last month that it intends to consider both “the opportunities and challenges” associated with mobile financial services (MFS), with an emphasis on the trend’s impact upon the underbanked and underserved population.

Citing statistics that 90 percent of the U.S. population own cellphones—with 60 percent of those owners using smartphones—the agency noted that 74,000 customers per day began using mobile banking services for the first time last year, performing tasks such as checking their account balance, depositing checks and transferring money between accounts. With continuing increases in use and the potential to provide access to banking services for those traditionally shut out, the bureau said it was time to ask some questions about MFS.

In a Request for Information to kick off its review, the CFPB defined MFS “to cover mobile banking services and mobile financial services,” excluding mobile point-of-sale payments, except with respect to mobile payment products that are targeted specifically to low-income and underserved consumers. The bureau asked for comment on the general use of MFS, although the agency is clearly focusing on four specific topics:

  • Unbanked and underbanked. Cellphone use is prevalent among those who operate outside of the banking system, the agency noted, asking if mobile technologies could be a way to expand access to this hard-to-reach population, particularly the younger generation and those with low incomes. Could mobile devices open up options in financial services and money management, and possibly do it more cheaply?
  • Real-time management. Do mobile products and services help consumers manage their money in real time? The bureau cited a recent Federal Reserve study that found 69 percent of mobile banking users checked their account balance before making a large purchase (and half of those decided against buying because of their account balance or credit limit). Can mobile technologies impact spending decisions and are certain products or services more promising than others, the agency queried.
  • Customer service. Mobile financial services may have a negative impact on customer service, presenting greater challenges to access help when an error occurs or a consumer has a question. The CFPB asked for input on what type of technical assistance and/or customer service are available to mobile financial customers. Are additional protections necessary if a device is lost or becomes disconnected from the Internet, the agency questioned, wondering about the need to provide access to a call center at all times for mobile customers.
  • Privacy and data breaches. The bureau recognized that mobile banking presents specific privacy challenges. Consumers need to know what kind of information is being collected about them and how it is being used, the agency said, particularly low-income customers. The CFPB expressed concern that data could be used to direct underserved consumers toward higher-cost products and whether they might be less likely to detect hidden fees. Data breaches are also an issue for MFS, and the Request for Information sought comment on whether breaches are more common on mobile devices as compared to traditional computers.

Comments on the agency’s Request for Information will be accepted until Sept. 9.

To read the Federal Register notice of the Request for Information, click here.

Why it matters: “In a world where people can manage their money on the go, there is great potential to serve more consumers and allow them to take greater control of their finances,” CFPB Director Richard Cordray said in a statement. “But we need to make sure all consumers are protected whether they are opening their wallets or scanning the screen on their smartphones.” Financial institutions and other entities involved in providing MFS should consider responding to the CFPB’s notice to inform the bureau’s likely future rulemaking and reduce the risk that the CFPB will unduly restrict developing MFS services.

- See more at: http://www.manatt.com/Financial_Services_Law/GAO__Virtual_Currencies%E2%80%94Emerging_Regulatory,_Law_Enforcement_and_Consumer_Protection_Challenges.aspx?search=1#Article3

After completing most of its required rulemaking under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) is now looking at a wide array of consumer financial products and services for additional regulation. One such service is mobile banking.

The CFPB issued a notice last month that it intends to consider both “the opportunities and challenges” associated with mobile financial services (MFS), with an emphasis on the trend’s impact upon the underbanked and underserved population.

Citing statistics that 90 percent of the U.S. population own cellphones—with 60 percent of those owners using smartphones—the agency noted that 74,000 customers per day began using mobile banking services for the first time last year, performing tasks such as checking their account balance, depositing checks and transferring money between accounts. With continuing increases in use and the potential to provide access to banking services for those traditionally shut out, the bureau said it was time to ask some questions about MFS.

In a Request for Information to kick off its review, the CFPB defined MFS “to cover mobile banking services and mobile financial services,” excluding mobile point-of-sale payments, except with respect to mobile payment products that are targeted specifically to low-income and underserved consumers. The bureau asked for comment on the general use of MFS, although the agency is clearly focusing on four specific topics:

  • Unbanked and underbanked. Cellphone use is prevalent among those who operate outside of the banking system, the agency noted, asking if mobile technologies could be a way to expand access to this hard-to-reach population, particularly the younger generation and those with low incomes. Could mobile devices open up options in financial services and money management, and possibly do it more cheaply?
  • Real-time management. Do mobile products and services help consumers manage their money in real time? The bureau cited a recent Federal Reserve study that found 69 percent of mobile banking users checked their account balance before making a large purchase (and half of those decided against buying because of their account balance or credit limit). Can mobile technologies impact spending decisions and are certain products or services more promising than others, the agency queried.
  • Customer service. Mobile financial services may have a negative impact on customer service, presenting greater challenges to access help when an error occurs or a consumer has a question. The CFPB asked for input on what type of technical assistance and/or customer service are available to mobile financial customers. Are additional protections necessary if a device is lost or becomes disconnected from the Internet, the agency questioned, wondering about the need to provide access to a call center at all times for mobile customers.
  • Privacy and data breaches. The bureau recognized that mobile banking presents specific privacy challenges. Consumers need to know what kind of information is being collected about them and how it is being used, the agency said, particularly low-income customers. The CFPB expressed concern that data could be used to direct underserved consumers toward higher-cost products and whether they might be less likely to detect hidden fees. Data breaches are also an issue for MFS, and the Request for Information sought comment on whether breaches are more common on mobile devices as compared to traditional computers.

Comments on the agency’s Request for Information will be accepted until Sept. 9.

To read the Federal Register notice of the Request for Information, click here.

Why it matters: “In a world where people can manage their money on the go, there is great potential to serve more consumers and allow them to take greater control of their finances,” CFPB Director Richard Cordray said in a statement. “But we need to make sure all consumers are protected whether they are opening their wallets or scanning the screen on their smartphones.” Financial institutions and other entities involved in providing MFS should consider responding to the CFPB’s notice to inform the bureau’s likely future rulemaking and reduce the risk that the CFPB will unduly restrict developing MFS services.

 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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