WASHINGTON The Consumer Financial Protection Bureau Wednesday said it will take a harder look into mobile financial services to see the potential for consumer harm and determine the impact on the underbanked.
Mobile technology is a new area for regulators but has garnered significant attention in recent years as more consumers use their smartphones to download mobile banking applications. The CFPB says about 74,000 new customers per day joined mobile banking last year alone, citing industry research.
The agency is now seeking information on whether mobile banking opens access to those who cannot otherwise get traditional banking services; how it helps consumers check and manage their accounts immediately; and potential protections against lost phones or data breaches that may be needed.
"In this modern age where people can manage their money on the go, there is great potential to provide access to more consumers and allow them to take greater control of their financial lives. At the same time, using mobile devices for all sorts of banking services can make some transactions cheaper or faster or both," said CFPB Director Richard Cordray, in prepared remarks for a field hearing on the topic in New Orleans Thursday. "But we need to make sure that the legal and regulatory framework can keep up effectively, so that all consumers can remain protected whether they are opening their wallet or scanning the screen on their smartphone."
The CFPB pointed to research from the Federal Reserve that said one-third of cell phone users and more than half of smartphone users utilize mobile banking. And among 90% of consumers in the nation who own a cell phone, about 60% of them have smartphones. Even Cordray noted in his remarks that he just switched from a flip phone to a smart phone last year "at the encouragement of his teenage children."
"Now all the answers to be found anywhere in the world are readily available at my fingertips or at the sound of my voice," Cordray said. "Look around any room and you will find that the single most knowledgeable thing in that room is no longer a human being but any one of the smartphones in their pockets."
The broad access to mobile banking has also raised concerns and studies by other banking agencies. However, the CFPB has sweeping authority to regulate the space, particularly in the non-bank area. For example, part of the agency's inquiry includes how underbanked consumers who typically go to untraditional sources like payday lenders are using mobile banking to save costs. Cordray noted industry research that found the average cost of an in-branch transaction was $4.25 while the average cost of a mobile transaction was 10 cents.
"These are significant cost savings, much of which can and should be passed on to consumers," he said.
While Cordray said he recognized the importance of mobile banking, he was also concerned about privacy issues and data breaches that arise when a phone is stolen or loses access to the internet. Because of this, the agency is looking at whether more consumer protections are needed for mobile banking. The CFPB is also seeking information on what sort of data companies are collecting about consumers and how that information is being disclosed to them, particularly to low-income consumers.
"For example, we want to know if low-income consumers are getting the benefits of better-priced products," Cordray said. "And we want to know if providers are using their data to target them for higher-cost products, which would keep these consumers stuck in the same vicious cycle of tricks and traps that the Consumer Bureau is working hard to stamp out in the consumer financial marketplace."
In connection to the inquiry, the CFPB also posted consumer tips online about identity protection when using mobile banking. The CFPB will take public comments through Sept. 9.
"The worthy challenge for any system of financial regulation is how to make sure our oversight of the marketplace can keep up with these far-reaching shifts. We must grasp the pace and direction of fundamental change," Cordray said. "And we have to understand and encourage the tremendous benefits of innovation without undermining the equally important goal of protecting consumers in the marketplace."