Friday, July 13, 2012
Jason Oxman, ETA Chief Executive Officer, said "We urge Congress to take care to avoid regulation that could stifle the innovation that gave birth to mobile commerce and will drive its future growth."
The subcommittee heard testimony from two witnesses, James H. Freis Jr., Director of the Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury and Stephanie Martin, Associate General Counsel for the Board of Governors of the Federal Reserve System.
Freis said mobile payments are regulated by FinCEN under anti-money laundering and counter-terrorist financing laws and rules. However, more regulation may be needed. Freis testified that a 2008 study from The World Bank, Integrity in Mobile Phone Financial Services: Measures for Mitigating Risks from Money Laundering and Terrorist Financing, maps out a good approach to regulating the various roles found in mobile financial transactions.
"FinCEN's regulations take a comprehensive approach in this area, focusing more on the activity at issue as opposed to the particular electronic communication vehicle," Freis testified. He said any business participating in transactions involving the transfer of "currency, funds, or other value that substitutes for currency" from one entity to another is considered a money services business subject to FinCEN regulation – no matter how small the amount transferred. This applies to prepaid transactions also.
Freis said FinCEN is noticing "an interesting trend in the mobile payments industry where different telecommunication systems and/or financial mechanisms may merge and become interwoven in the same overall mobile payments transaction." He concluded FinCEN regulations covering prepaid access and money transmission can apply to the participants in mobile payments depending on the business model being used. He told the subcommittee FinCEN is charting a course that "helps financial services providers to focus on serving their customers, not criminals."
The Federal Reserve's Martin said regulators must ensure consumers are protected from unauthorized transactions, theft of confidential payment information or personal identification data, and other such threats. In many cases these problems arise because payment laws are outdated having been enacted well before mobile payments were even imagined. "Those laws may not be well-tailored to address the full range of mobile payment services," Martin testified.
Martin also told the subcommittee that using new communication channels for payment "generally does not result in changes to the basic rights afforded to consumers" or "to a bank's responsibility to ensure the security of that communication channel." However, she cautioned that making payments through nontraditional arrangements, such as settling payments as part of a telephone company bill, "may change the legal protections related to the purchase, depending on the details of the arrangement and the applicable federal or state statutes and rules."
A legal framework regulating mobile payment services provided by financial institutions already exists under the Electronic Fund Transfer Act and other regulations, Martin said. These regulations also cover prepaid mobile services and are enforced through the rulemaking and interpretive authority of the Consumer Financial Protection Bureau.
The application of regulation to nonbanks depends on the nonbank's role in the transaction, Martin noted. "A nonbank can have a more independent role, such as a manager of a prepaid value program, a money transmitter or a telephone company that bills customers for payment transactions,: she said. “In these cases, it is necessary to examine the specific provisions of law to determine their applicability to the nonbank's particular role in the transaction."
Martin said it is difficult to make broad generalizations about the applicability of current regulation to mobile payments due to the different types of service providers (bank and nonbank) and the wide variety of payment arrangements available and under development. "Further analysis of existing laws may be needed to ensure that consumers are adequately protected," she testified. Martin called for more fact-finding and analysis to be sure any new regulation does not "stifle the very innovations that would benefit consumers overall." 
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