The Staff Report on mobile payments recently issued by the Federal Trade Commission (FTC) focuses on areas of concern discussed at the FTC’s April 2012 workshop. The report does not break much new ground, but it does reinforce the FTC's intention to be an active regulator in the mobile payments arena.
As the report notes, the FTC has jurisdiction over many of the companies that are involved in this arena. They include telecommunications companies when engaged in non-common carrier activities; according to the FTC, such activities include third-party mobile carrier billing. FTC jurisdiction also extends to nonbank providers of various types of goods and services, such as hardware manufacturers, operating system and application developers, data brokers, coupon and loyalty program administrators, payment card networks, advertisers, merchants, and payment processors.
The four areas of concern highlighted in the report are described below.
Payment cards linked to mobile payment apps, such as stored value cards, credit cards, and debit cards, are regulated differently. The report observes that stored value cards, such as gift cards and prepaid cards, are not subject to the Electronic Fund Transfer Act and its implementing regulation, Regulation E. This regulation includes limits on a cardholder's liability for disputed charges to $50 for credit and debit cards, as long as cardholders follow certain reporting procedures and time limits.
Regulation E also requires a bank to investigate dispute charges and limits a bank from asking for certain forms of proof from cardholders. While acknowledging that many stored value card issuers provide Regulation E protections, the FTC staff believes such protections should be mandated. As the report notes, the Consumer Financial Protection Bureau has been examining whether Regulation E protections should be extended to general purpose reloadable cards.
Mobile Carrier Billing
The FTC staff endorses a number of guidelines for wireless carriers to protect consumers against crammed charges. "Cramming" is the practice of third parties placing fraudulent charges on a consumer's telecommunications carrier bill. Although the Federal Communications Commission has adopted an "anti-cramming" rule, that rule does not apply to wireless carriers if they are conducting non-common carrier activities like delivering payments over the Internet. The report urges carriers to:
- Block all third-party charges to wireless bills if requested by the consumer (emphasis in the original)
- Provide clear and prominent disclosure that third-party charges may be added to consumers' bills and explain how to block these charges
- Establish a dispute and reimbursement process
The report also states that carriers should highlight third-party charges on billing statements, notify consumers of recurring charges, provide an opportunity to cancel a subscription or other service before a recurring charge is imposed, and conduct more due diligence of third parties, including affirmative content monitoring.
The report states that mobile payment participants have the tools to improve the security of consumer information, such as end-to-end encryption and dynamic data authentication. The report observes that mobile payment technology, in theory, allows encryption to be present from the swipe of a card or the touch of a phone through each processing stage. It also says that virtual payments can provide unique authentication factors for each transaction so that even if one transaction is intercepted, the attacker can only misappropriate that transaction instead of the underlying payment card.
Using its unfair and deceptive practices authority outside the realm of mobile payments, the FTC previously initiated a number of enforcement actions. These actions targeted companies for allegedly using consumer information in ways that were inconsistent with or not disclosed in their privacy policies, or that were otherwise harmful to consumers.
Consistent with the FTC's February 2013 report on mobile privacy disclosures and the FTC’s recent update of the Dot-Com Disclosures, the report identifies choice and transparency as the touchstones for consumer privacy. This means companies should be clear about how they use customer information and provide choices regarding how information is used, at least when the context of the transaction would not make a company's use of the information obvious to the consumer.