Academic journal article Journal of Law, Technology and the Internet

What's in Your Wallet? Addressing the Regulatory Grey Area Surrounding Mobile Payments

Academic journal article Journal of Law, Technology and the Internet

What's in Your Wallet? Addressing the Regulatory Grey Area Surrounding Mobile Payments

Article excerpt


Of the 87% of the United States Population that owns a mobile phone, 71% have internet-enabled smartphones. (1) Nearly 1/3 of mobile phone owners made purchases with their phones in 2012, and in the same year, consumers spent over $20 billion on mobile browsers and applications. (2) The use of mobile devices is poised to take on a major role in the American economy, as consumers can now use their phones not only to make purchases, but also to send money and transfer money between bank accounts. (3) Despite the potential for mobile payments to take over as the primary payment method in America, many consumers remain concerned about the privacy of their personal information and the security of their data when using mobile payment applications. (4)

The Federal Reserve Bank (FED) conducts an annual survey to gauge American consumers' use of mobile devices for mobile payments and banking. (5) In 2015, the FED reported that 62% of consumers do not use mobile payments due to concerns regarding security of the technology, (6) and only 7% of respondents felt that mobile payment technology was "very safe". (7)

This hesitation is echoed in congress (8) and by federal regulatory agencies. (9) Congress has conducted hearings, (10) regulators have hosted workshops, (11) and agencies have proposed rules, (12) looking for ways to make mobile payment technologies safe and reliable for consistent use in the United States. Though banks may appear to be the entities most responsible for managing these technologies, new apps are constantly breaking into the mobile payments atmosphere, (13) threatening to disrupt the industry. (14) The Federal Deposit Insurance Corporation (FDIC) asserts that, "Financial Institutions should not assume their place in the new mobile payments marketplace is assured [just] because they are an integral part of the existing payments infrastructure." (15) Still, industry leaders are unsure what laws, if any, currently govern mobile payments. (16) An American Bar Association study found that 84% of those banking professionals surveyed ascertain it either very difficult or difficult to identify the laws surrounding mobile payments. (17) With new, non-bank products gaining a foothold in the mobile payments market, the next big questions for legislators and federal regulators moving forward concern which agency should regulate these products, and under what authority. (18)

The Consumer Financial Protection Bureau (CFPB) aims to answer that question by proposing regulatory changes that will better define the legal and regulatory landscape for mobile payments. (19) The CFPB "Prepaid Card Rules" were proposed in the fall of 2014, though the CFPB has been working with federal regulatory agencies and the financial services industry for years to draft the changes they have put forth so far. (20) These rule changes, if adopted, will help to clear up the regulatory grey area surrounding mobile payments, however the next step is to establish an effective agency to take ownership of American consumers' privacy and data security concerns. In light of these concerns, the CFPB should propose more comprehensive rule changes, and clearly identify itself as the agency responsible for regulating mobile payments from that point forward. As the CFPB has the ability to promulgate rules through informal rulemaking, a capability that some other federal regulators lack, the CFPB that should create the laws and guidelines to properly regulate mobile payments in an efficient, responsive manner as the industry explodes.

This note will focus on the current regulatory gaps within the mobile payments industry, while addressing the CFPB's proposed rule changes. Part I will examine how the technologies behind mobile payments work, and differentiate mobile payments from mobile banking, which is currently regulated in the united states. (21) Part II will discuss the existing regulations in the mobile payments marketplace, and where there are gaps. …

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