Banks have been much maligned of late for nickel-and-diming their customers, but in another area - cardholder fraud protections - they are being praised as consumer champions.
A Consumers Union report released recently shows that protections for purchases that consumers make using their mobile phone numbers are much weaker than those consumers get from standard cardholder agreements regulating their credit or debit card purchases.
"Things are very different between bank payment methods and the mobile carriers," says Peter Ho, vice president of the product innovation group for Wells Fargo & Co.
Mobile payment is a diverse and growing universe, and competing companies facilitate such payments in a variety of ways. Banks tend to enable them through credit or debit cards linked through an online banking application. Mobile carriers frequently allow customers to make purchases that are billed directly to a recurring phone bill.
Most banks cap consumer liability for card fraud at $50. But many of the top banks, Wells Fargo included, have zero-liability and "make the customer whole" policies built into card and online banking agreements, which quickly credit customers back any losses due to fraud.
These protections came about from decades of regulation and consumer advocacy.
Consumers Union in may asked the top wireless providers to provide the following protections traditionally provided for credit and debit card accounts:
- Limit consumers' liability for unauthorized transactions when false charges are made with a lost or stolen phone.
- Limit consumers' liability for disputed charges to a prepaid wireless phone deposit or a wireless phone bill.
- Give consumers the right to have missing funds from disputed transactions re-credited within 10 business days.
- Give consumers the right to withhold payment of any disputed charges while an investigation is pending and protection from penalties for withholding payment.
- Enable consumers to set a cap on the dollar amount for mobile payments that can be directly made to wireless accounts.
Over the past few months, Consumers Union has been in communication with representatives from AT&T, Sprint, T-Mobile, and Verizon Wireless to find out how they handle disputed mobile payment transactions and whether the carriers are willing to adopt the protections outlined above in their customer contracts. All four carriers told the group that they provide ample protections for consumers.
However, in an analysis of the top four carriers conducted over the last six months, Consumers Union found the companies' contracts are vague or misleading about consumer protections when fraudulent charges are made on lost or stolen phones.
"Consumers need the same protections that existing card payment [contracts] have," says Michelle Jun, senior attorney for Consumers Union, in Yonkers, N.Y. "Consumers are familiar with them, they are reliable and they are guaranteed."
Consumers Union says rights and procedures are not clearly disclosed when consumers discover billing errors on mobile bills or when consumers are unhappy with their purchases and want a credit back.
Among the report's other findings, mobile carriers are often unclear about whether consumers will be credited back for fraudulent purchases made before phones are reported lost or stolen.
Contracts are also frequently vague about the length of time in which prepaid customers will get a refund after reporting fraudulent charges, the report says. (Verizon Wireless does not allow its prepaid customers to make mobile payment charges.)
Generally speaking, the contracts are also vague about whether consumers must pay for disputed charges during the investigation, the report says. Most credit card agreements allow consumers to withhold payment on disputed charges until investigations have been settled.
Cardholder agreements as they stand today are decades in the making, having moved through a crucible of consumer complaint, card brand requirements, state and federal laws.
Most recently, the Credit CARD Act of 2009 established new regulations about the levying of consumer fees and changes to consumer bank contracts. Regulation E, passed over 30 years ago, provides a broad and ever-growing regulatory framework for card transactions.
Compared to card-based mobile commerce, the transactions that take place today using mobile phone numbers are still quite limited, and the products that consumers purchase are small - ring tones and mobile games, as opposed to high-ticket items like televisions and computers.
The report points out that most of the carriers let consumers block third-party billing altogether, or set caps on purchases that range between $25 and $100, though here again the contracts often don't explicitly state consumers' rights to do so.
"Carrier billing today is not really a serious competitor" to credit card payments, says Rick Oglesby, senior analyst with Aite Group.
That could change as mobile payments take off. Certainly some alternative payments providers like PayPal Inc. are making a bet they will. In July PayPal, a San Jose, Calif., unit of eBay Inc., purchased Zong for $240 million. Zong allows consumers to charge digital content to their phone bills.
Similarly, American Express Co. invested $19 million in startup Payfone Inc., a New York company that routes payments over the carrier networks.
Mobile-carrier payment contracts will have to get more explicit about consumer protections, particularly as mobile transactions increase in value and as the range of merchants that accept such payments also increases, Christophe Uzureau, a research director for banking and investment services at Gartner Inc., wrote in an email.
The growth of mobile payments will increase the risk for consumers, mobile operators and merchants alike.
"A failure to address issues of trust, fraud and risk management will fundamentally undermine the potential for many mobile operator led schemes," Uzureau wrote.
