Mobile Banking in the 21st Century: More Freedom for Consumers, More Red Tape for Financial …

CFPB  •  Enforcement  •  FinTech  •  Mobile Banking  •  Privacy/Data Security

Mobile BankingOn June 11, as a result of the growing use of mobile banking services across the country, the CFPB announced that it was conducting a request for information into the benefits and consequences of expanding mobile financial services.  Its focus is underserved and remote communities, but any actions the CFPB takes due to its new-found interest would have far-reaching effects on both consumers and financial institutions around the United States.

Pros

The CFPB identified two benefits that expanding mobile financial services would have on society:

(1)it would provide access to communities across the United States that historically have not participated in the banking system, permitting tens of millions of unbanked, under-banked, and underserved communities to access financial institutions from their mobile device by saving them the cost of transportation, and service fees; and

(2)it would provide consumers with “real-time money-management,” which Federal Reserve research has shown helped 69 percent of mobile banking users avoid making large purchases when their account balance or credit limit is close to exceeded.

Cons

The CFPB also identified two concerns it had regarding the effect of such an expansion of mobile banking services:

(1)it noted that customer service may be negatively affected by consumers using mobile banking, and could cause more users to have trouble speaking to someone when they encounter an error or any other issue.

(2)it noted that consumers using their mobile devices to access highly sensitive and private financial information could expose themselves to individuals seeking to steal their financial data, passwords, and identities.

While the CFPB is focused on the effect of greater mobile banking availability to consumers right now, financial institutions should prepare for the effect of providing mobile banking access to a larger group of consumers as well.  Mobile banking could expose financial institutions to severe liabilities and potential class action lawsuits should any financial information get into the wrong hands.

In its press release, the CFPB identified serious privacy concerns that accompany mobile banking access.  The recent outbreak of the Heartbleed virus in April 2014 already affected millions of consumers whose private information was likely taken by hackers, and financial institutions were duly warned once to be careful.  See Ryan Tracy and Saabira Chaudhuri, “U.S. Regulators Tell Banks to Plug ‘HeartBleed’ Security Hole”.  The CFPB will likely take steps to reduce privacy concerns to consumers by requiring financial institutions to comply with certain new regulations, or by placing liability on financial institutions should private information be stolen.

As such, financial institutions should be ready for the coming “red-tape” that the CFPB will likely implement in the wake of its request for information from the public regarding mobile banking.  Financial institutions may be responsible for ensuring that they are following all of the new regulations or risk a CFPB investigation into their practices.  They could also be subject to consumer class action lawsuits, individual suits, or arbitration.

Nevertheless, providing access to mobile financial services to millions more Americans will also be a boon to financial institutions in the form of new customers who may have never had a banking relationship in their lives.  Overhead costs will likely decline as more and more consumers start using mobile banking and their need to go into a branch location declines.  Provided financial institutions work with the CFPB to develop more access and safeguards to this new technology, mobile banking will be a positive step towards access and interconnectivity.

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