WASHINGTON-Financial regulators told Congress they are reviewing the need for expanded regulations over mobile payments, as the mass migration from paper money to electronic payments accelerates over smartphones and other personal devices.

Stephanie Martin, associate general counsel for the Federal Reserve, told members of the House Financial Services Committee that while a framework already exists for regulating mobile payments, like the Electronic Funds Transfer Act or Truth In Lending Act, emerging technologies may require additional rules to adequately protect consumers and intermediaries alike, like banks, credit unions and third-party processors.

"With any type of payment system, including mobile payment systems, regulators have two key concerns: whether consumers are protected if something goes wrong, such as an unauthorized transaction; and whether the system provides appropriate security and confidentiality for the transmission and storage of payment instructions and the personal financial information of consumers," the Fed counsel told lawmakers.

The congressional committee was holding the hearing to weigh how the government should regulate mobile payments, transactions conducted via smartphones or other portable devices.


CFPB Also Looking At Issue

The Consumer Financial Protection Bureau, which is reviewing regulations over credit cards, mortgages and insurance, said it is also looking at the need for regulating the mobile payments arena.

"To the extent that technology companies begin to play roles traditionally performed by banking institutions, we may need to reconsider how well our existing regulations apply to a changed environment," Marla Blow, the bureau's assistant director for card and payment markets, told the House panel in a written statement.

"Innovation in mobile payments may yield numerous, significant benefits for consumers," she told the House panel. "At the same time, it may present unique challenges. We are engaging with innovators to understand how these new technologies may transform consumer finance so that we can determine how our regulatory structure intersects with these changes.


Thoughts On Risk

"While innovation and the disruption it engenders may introduce risk to consumers, there may also be risks created by the very nature of mobile payments," she said. For example, mobile devices often have small screens that make meaningful disclosure difficult. This is compounded by consumers having become inured to "Terms and Conditions" that are often dozens of pages long and frequently bypassed with a single click.

In another scenario, a mobile wallet could steer customers to suboptimal decisions due to vested interests of the mobile wallet provider or other underlying motives. The nature of mobile handsets, operating systems, and mobile networks may provide serious interoperability challenges that could restrict consumer choice, she noted.

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