FTC Releases Report Outlining Mobile Payment Concerns

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  • 1. MARCH 12, 2013 TECHCOMM/FINANCIAL SERVICES CLIENT ALERT This Alert provides only general information and should not be relied upon as legal advice. This FTC RELEASES REPORT OUTLINING Alert may be considered attorney advertising under court and bar MOBILE PAYMENT CONCERNS rules in certain jurisdictions. On March 8, 2013, the Federal Trade Commission (FTC) released a staff report, entitled “Paper, Plastic…or Mobile? An FTC Workshop on Mobile Payments,” For more information, contact your addressing its consumer protection concerns in the mobile payments area. The Patton Boggs LLP attorney or the FTC’s preliminary review is a follow-up to the Board of Governors of the Federal authors listed below. Reserve System report, entitled “Consumers and Mobile Financial Services,” that focused on the growth of mobile payments and banking. Paul C. Besozzi pbesozzi@pattonboggs.com The FTC staff report, available here, examines mobile payments as a proven new Deborah M. Lodge technology which consumers are expected to adopt widely in the next few years. dlodge@pattonboggs.com Thus, the FTC emphasized “its mandate to protect consumers in the commercial marketplace” and “broad jurisdiction over many of the companies that participate Michael Drobac in the mobile payments ecosystem.” These include hardware manufacturers, mdrobac@pattonboggs.com operating system and application developers, data brokers, coupon and loyalty Carol R. Van Cleef program administrators, payment card networks, advertising companies, retailers cvancleef@pattonboggs.com and other merchants and in certain cases telecommunications carriers. Monica S. Desai The report’s analysis includes technologies and products to facilitate mobile mdesai@pattonboggs.com payments using various funding sources (e.g., credit card, debit card, bank and mobile phone accounts), such as Near Field Communications (NFC), mobile apps, online checkout wallets and mobile carrier billing ABU DHABI The report underscores the FTC’s ongoing interest in the mobile payments area. ANCHORAGE While the agency shares enforcement powers with the Federal Communications DALLAS DENVER Commission and Consumer Financial Protection Bureau (CFPB) over some DOHA mobile payment methods, the FTC clearly intends to ensure that consumers have NEW JERSEY adequate protections and information they need to make informed choices NEW YORK regarding mobile payments. As a result, the report commits the agency to RIYADH continued evaluation of the mobile payment marketplace as new services and WASHINGTON DC products are developed.PattonBoggs.com Client Alert 1
  • 2. CONSUMER PROTECTION CONCERNSThe FTC staff identifies three primary areas of focus relating to mobile payments: (a) dispute resolution, particularlywith mobile carrier billing, (b) data security, and (c) privacy. The report addresses each, provides suggestions andoutlines the FTC’s primary concerns in each area.DISPUTE RESOLUTION IN THE MOBILE PAYMENTS CONTEXT: EXTENDED PROTECTIONSA most significant concern is the resolution of disputes in the case of fraudulent or unauthorized charges. The FTCstaff notes that mobile payment users may not recognize that protections against such charges can vary based on theunderlying funding source. For example, transactions involving credit and debit cards are afforded statutory liabilityprotections (e.g., credit card cap liability for unauthorized use at $50) that do not apply to other payment methods(e.g., general purpose reloadable card (GPR), also known as a prepaid debit card).The general protections of the FTC Act do apply; and some companies have filled the gap with contractualprotections in the event of payment disputes involving GPRs. The report cites the FTC’s support for the CFPBpossibly extending legal protections to GPRs to (a) limit liability, (b) require disclosure for fees and expiration dates,(c) establish error resolution procedures, and (d) set authorization standards for recurrent payments (the CFPB issuedan advanced notice of proposed rulemaking last year to extend Regulation E to GPRs in 2012 although final action isnot expected until at least 2014).The report’s message is clear: Companies should “develop clear policies regarding fraudulent and unauthorizedcharges and clearly convey these policies to consumers” so that consumers can understand their rights and protectionswhen deciding whether to pay with a particular mobile device and particular funding mechanism.MOBILE CARRIER BILLING: A PARTICULAR CONCERNThe FTC staff expresses a special concern about mobile carrier billing (i.e., charging payments directly to a mobilephone bill). As a result, the report calls for carriers to: (a) enable consumers to block all third party charges on their mobile accounts; (b) “clearly and prominently” inform customers about possible third-party charges and how to block them; and (c) establish a clear and consistent process for consumers who wish to dispute such charges and obtain reimbursements.The report outlines other potential approaches, including standardizing and highlighting third-party billingdescriptions, providing notifications to consumers, imposing contractual obligations regarding maintenance andaccess to customer authorization records, implementing standard dispute policies and allowing consumers to delayPattonBoggs.com Client Alert 2
  • 3. payment in good faith dispute situations, without penalty. In the staff’s view, additional protections, such as thosealready mandated for credit cards, are needed to protect consumers in the mobile payments field.Interestingly, the report does not address state money transmitter licensing issues that may be raised by mobile carrierbilling. However, the FTC staff is organizing a separate roundtable on mobile carrier billing issues for May, 2013.CONSUMER DATA SECURITY IN MOBILE PAYMENTSThe report finds that a key concern for consumers when making mobile payments is the security of their sensitivefinancial information. The FTC staff concludes that although the technology to provide enhanced security in themobile payments market is available (e.g., end-to-end encryption, dynamic data authentication), “it is not clear that allcompanies are employing it.”The report recommends that mobile payment providers should “increase data security” and “encourage adoption ofstrong security measures by all companies in the mobile payments chain.” The FTC staff notes that many federal andstate laws also impose data security requirements on businesses that collect and use financial information and othersensitive data. Finally, the report outlines practical steps that consumers themselves can take to secure their sensitivedata in the mobile payments marketplace (e.g., password protections, particularly for any payment apps).PRIVACYThe FTC staff finds that mobile payments raise significant privacy concerns, due to the growing number ofcompanies involved in the transactions and their access to detailed consumer data. The report expresses concernabout “multiple players within the mobile payments ecosystem” who gather, consolidate and purchase data in a waynot possible under traditional payments regimes.As a result the FTC staff encourages companies in the mobile payments marketplace to implement the three basicprinciples put forth in the agency’s March 2012 report on “Protecting Privacy in an Era of Rapid Change,” availablehere: (a) Privacy by design: companies should consider and address privacy at every stage of product development; (b) Simplified choices: consumers should be given specific, clear choices about data collection and use in the mobile payments arena; and (c) Transparency: Companies in the mobile payments field should be transparent about their data collection and use, to increase consumer trust in this growing marketplace. This topic was a key focus of an earlier FTC staff report, released in February, on mobile privacy disclosures, available here.PattonBoggs.com Client Alert 3
  • 4. The world is “going mobile” – a movement that includes making payments through mobile devices and apps. Thefocus of the Commerce Department’s National Telecommunications and Information Administration on mobileprivacy in its multi-stakeholder approach to mobile privacy is likely to include mobile payment companies as theydraft principles for industry to adopt. This effort, combined with the Worldwide Web Consortium’s (W3C) TrackingProtection Working Group, and the Digital Advertising Alliance signal a broad focus on data security, privacy andnew legal and self-regulatory regimes to address advancements in technology and exciting new innovations, includingmobile payments.The rapid adoption of such new innovations, notably in the mobile payments industry, will lead to ease in commercebut will undoubtedly raise additional questions about whether the government or third party groups must createmechanisms to protect consumers. This latest FTC staff report is further evidence that the agency will continue to bevigilant in protecting consumers using mobile payment methods.PattonBoggs.com Client Alert 4