The regulatory framework and supervisory regime applicable to a payment initiated over a mobile device depend in large part on whether the payment services are provided through traditional banking channels or through other service providers. Please see last week’s Banking Brief for a summary of the three basic operating models for mobile payments: bank, mobile network operator, and money transmitter driven.

Mobile payments processed through the banking system are subject to the well‐established regulatory and supervisory regime for bank payments. Applicable regulations include the Truth in Lending Act (TILA) for credit card payments and the Electronic Fund Transfer Act (EFTA) for payments initiated out of the payer’s bank deposit account. Federal laws designed to promote specific public policies, including prohibitions against money laundering, also apply. Additionally, banks typically receive at least one full‐scope, on site examination each year, and the examination process is supported by extensive supervisory guidance. Finally, the Senate Banking Committee and the House Financial Service Committee provide Congressional oversight of the regulatory and supervisory processes for bank payment activities.

Mobile payment services offered by money transmitters are often only governed by state money transmitter laws with respect to consumer protection issues. Federal anti‐money laundering requirements also apply. If the money transmitter offers the customer an account to hold funds, that offering of the
account could result in coverage of the service under the EFTA. Additionally, the CFPB has broad authority to regulate unfair, deceptive, or abusive acts or practices by money transmitters and to adopt a supervisory regime for enforcing any such requirements. Although the CFPB has identified money transmitters as a market that is likely to be a focus of its supervisory efforts, the supervisory process that might eventually apply to larger participants is, as of yet, unspecified. In any event, the extensive management technology and operational guidance promulgated by the bank regulators does not apply to money transmitters. Finally, the Senate Banking Committee and the House Financial Service Committee do not have oversight over state laws applicable to money transmitters and the state agencies that administer and enforce those laws.

Payments through mobile phone networks are today not very common in the U.S. and appear, although it is not yet entirely clear, to be subject to a completely different regulatory and supervisory regime than bank payments and even money transmitter payments. For example, billing disputes, instead of falling under TILA or the EFTA, could be resolved by the Federal Communications Commission or Federal Trade Commission. A mobile phone account against which a phone customer can charge payment transactions might be considered a charge card covered by the TILA rules. But as in the case of money transmitter payments, the supervisory guidance and federal bank examinations that strengthen the platform for payments though the
banking system would be absent. Further, the anti‐tying rules under the Bank Holding Company Act that prohibit banks from conditioning the availability of a payment service on the customer’s use of the bank’s affiliated broker dealer or insurance company would not apply, which could provide a mobile phone network with both a marketing advantage and significant leverage over a customer using its payments services.

In our next issue, the Banking Brief will examine what risks consumers and the payments system as a whole may face due to the varying regulatory frameworks and supervisory regimes applicable to mobile payments.

The Clearing House, established in 1853 to bring order to clearing and settlement between banks, is the nation’s oldest banking association and payments company.