Consumer Groups Decry The Lack Of Safeguards

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SAN FRANCISCO-Banks, credit unions' and credit card networks' mobile payment systems will be more secure than plastic cards, but a consumer advocacy group says these systems lack vital safeguards.

Consumers Union, the nonprofit publisher of Consumer Reports, said last week that it is urging wireless carriers to strengthen their customer contracts to ensure consumers are protected in the event of fraud, according to American Banker, an affiliate of Credit Union Journal.

"As more Americans start using mobile phones to make purchases, we need to make sure that consumer protections keep pace with all the new technological advances," Michelle Jun, a senior attorney with Consumers Union, said in a press release. "Consumers shouldn't have to worry that a lost or stolen mobile phone or billing error could turn into a costly financial headache."

Credo Mobile, a carrier based in San Francisco, was the only company that responded to Consumers Union. The carrier said it provides enough protection, but Consumers Union suggested in its report that the Credo's customer wireless contract could be strengthened.

A Verizon Wireless representative said in an emailed statement that "before we roll out any products or payment services, they will need to meet stringent security, safety and privacy thresholds, as well as be easy for consumers to use."

Mobile Providers Tout Security

Banks, card networks and other mobile payment stakeholders, such as Google Inc. and Isis, argue that mobile systems will be more secure than paying with a physical card because a consumer's account credentials will be stored in encrypted chips inside phones, making it harder for hackers to gain access. Mobile payment apps being tested now also allow consumers to use passwords and PINs to guard access.

In addition, many services would be based on existing credit and debit card accounts, making them subject to existing consumer protections under federal law. However, Consumers Union argues that because some mobile payments will be backed by prepaid and gift cards, which are not subject to the same rules, consumers are vulnerable.

Also, services that enable consumers to charge purchases to their cell phone bill could be missing key protections. A study the organization conducted found that 16 of 18 wireless contracts it reviewed require consumers to pay for charges stemming from merchant error while an investigation is pending. Four of the 18 contracts state that consumers are protected from having to pay for disputed charges made when a mobile phone is lost or stolen, American Banker reported.

Consumers Union urged carriers to limit customers' liability for unauthorized transactions to $50 when false charges are made with a lost or stolen phone, re-credit consumers' missing funds from disputed transactions within 10 business days and allow consumers to limit the dollar amount they can charge directly to their wireless bills.

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