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Mobile payments continues to get a critical eye from U.S. legislators. Last week a House subcommittee held a hearing on the topic. This week it was the upper house's turn. On Thursday, the Senate Committee on Banking, Housing and Urban Affairs convened a hearing entitled "Developing the Framework for Safe and Efficient Mobile Payments” at the Dirksen Senate Office Building.
The U.S. Senate Committee on Banking, Housing and Urban Affairs has jurisdiction over banking, insurance, financial markets and securities. Witnesses called before the committee included Sandra F. Braunstein, the director of the Division of Consumer and Community Affairs (DCCA) of the Board of Governors of the Federal Reserve System, and Kenneth C. Montgomery, first vice president and COO of the Federal Reserve Bank of Boston.
In his opening remarks, committee Chairman Tim Johnson (D-SD) said the hearing represented an opportunity for the committee to learn about the growth of mobile payments and the current framework of rules this market operates under. He said that as the committee's jurisdiction extends over all financial services and payment systems, the committee needs to ensure there are no gaps in the rules and that the mobile payment market is safe and efficient.
Johnson said the committee will study any regulatory gaps mobile payments may fall into and noted that the various mobile payment methods may present some challenges to the way they are regulated.
"The current framework of laws that govern mobile payments depends on how the payment is modeled," Johnson said. "If the payment is made through a bank, then the existing set of banking and consumer protection laws apply. If the payment is made through a money service business, then at a minimum, federal consumer financial, anti-money laundering and state laws apply." Payments made through SMS text messages, Johnson noted, don’t fall under the banking framework, he said.
"The bottom line is that as the mobile payment system evolves, it is important for this committee to provide proper oversight so that these payments can be secure and convenient," Johnson said. He explained that the foundation for rules to oversee mobile payments was laid in the Wall Street Reform Act, with authority to apply federal consumer laws to these transactions falling to the newly created Consumer Financial Protection Bureau (CFPB).
As director of the DCCA, Braunstein testified to expansion of the use of mobile financial services. Among other things, the DCCA conducts analysis on financial policies and practices to gauge their effects on consumers.
In her opening remarks before the committee, Braunstein warned that the scale of mobile payments, and its impact on consumers, is still to be determined.
"The evolution of new technologies that enable consumers to conduct financial transactions using mobile devices has the potential to affect their financial lives in important but, as of yet, not fully known ways," Braunstein said.
Braunstein said that although mobile financial services offer a number of benefits, especially to the under- and unbanked, consumers have serious questions about their safety and security when using such products.
"Beyond banking and payments, mobile devices have the potential to be useful tools in helping consumers track their spending, saving, investing and borrowing, and in making financial decisions," Braunstein said. "Such technologies also hold the potential to expand access to mainstream financial services to segments of the population that are currently unbanked or underbanked. That said, the technologies are still new, and important concerns, such as consumers’ expressions of unease about the security of these technologies, must also be addressed for consumers to feel confident adopting these new services."
Montgomery's testimony covered how the Federal Reserve is working to create a solid mobile payment system in the U.S. He highlighted the work of the mobile payments industry workgroup (MPIW), an organization convened by the Federal Reserve Banks of Boston and Atlanta to address mobile payments.
According to Montgomery, the group was created to facilitate discussion between mobile payment stakeholders such as banks and mobile network operators. Montgomery said the MPIW includes among its members representatives of banks, credit card companies, mobile carriers and payment processors.
"The overarching goal of the Federal Reserve in convening the MPIW was to encourage growth and innovation in the mobile payments market while minimizing risk to consumers and the payment system," Montgomery said in his prepared remarks.
Montgomery said the Federal Reserve and the MPIW have already fostered collaboration among mobile industry stakeholders, the Federal Reserve, and interested government agencies and that it will continue to be a forum to discuss issues and barriers as they arise with an objective of more timely resolution.
"(W)orking with mobile carriers, banking and payments industry participants and government regulators, the Federal Reserve hopes to help mobile payments in the United States evolve in an efficient and safe manner and provide a convenient payment option to all consumer segments," Montgomery said.
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