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Consumers Union Warns About Mobile Payment Security

December 15, 2011 by Mobile Payment Magazine

Most cell phone and tablet users can purchase digital goods and charge them to their monthly bill or prepaid phone account. But they may not get the protections they need to limit their financial liability if something goes wrong with the transaction. The protections consumers receive will vary depending on their wireless carrier’s policies and what?s in their cell phone contract, according to a new analysis by Consumers Union.

“Consumers using mobile payments should get the same strong protections they currently enjoy when they make purchases with a credit card or debit card,” said Michelle Jun, senior attorney for Consumers Union, the nonprofit advocacy arm of Consumer Reports. “But we found that consumer rights can vary widely between wireless carriers and the protections carriers claim to provide are often nowhere to be found in customer contracts.”

In May 2011, Consumers Union called on the top wireless carriers to strengthen their contracts to protect consumers in the event that their phone is lost or stolen or if a merchant makes a billing mistake or the customer is not satisfied with a purchase. The consumer group urged the carriers to provide the same strong protections guaranteed by law when consumers use a credit card or debit card. In addition, Consumers Union pressed the companies to provide consumers across the country with the same protections California phone customers are entitled to receive as a result of regulations issued by the state’s Public Utilities Commission (PUC).

Since May, Consumers Union has been in communication with representatives from AT&T, Sprint, T-Mobile, and Verizon Wireless to find out how they handle disputed mobile payment transactions. All four carriers maintain that they provide ample protections for consumers.

However, Consumers Union found that the protections these carriers provide fall short of what consumers get when they use credit cards and debit cards or when California consumers report a disputed charge on their phone accounts. In addition, many of the protections that wireless carrier representatives described to Consumers Union are not disclosed in customer contracts, making it difficult to know whether consumers can count on these safeguards when problems arise.

“As new mobile payment options become available, consumers are better off sticking to services linked to credit cards or debit cards, which come with strong protections required by law,” said Jun. “If wireless carriers want consumers to have confidence in direct carrier billing programs, they should strengthen their contracts with the protections consumers need.”

Below is a summary of the protections that Consumers Union analyzed and what is provided by the top wireless carriers:

Limit liability when phones are lost or stolen: A credit card customer’s liability is limited to no more than $50 for unauthorized charges. In practice, credit card issuers usually shield customers from any financial liability for fraudulent charges. Verizon Wireless? contract makes clear that its customers are not liable for charges related to a lost or stolen phone. Contracts for AT&T, Sprint, and T-Mobile protect customers from fraudulent charges made after a phone is reported lost or stolen but consumers may be on the hook for charges made before making a report.

Limit liability for disputed charges: If a billing error appears on a monthly credit card statement, there is no liability for the customer as long as the customer reports the error within 60 days. “Billing error” also includes a dispute with a merchant about the delivery or acceptability of goods or services. While all four wireless carriers insist they provide refunds for billing errors or when customers are unhappy with purchases, these rights are not clearly disclosed in their contracts.

Re-credit pre-paid customers within 10 days for disputed charges: After a consumer reports a fraudulent transaction involving a debit card, the bank must either complete its investigation within 10 business days or provisionally re-credit the consumer’s funds within that time. AT&T, Sprint, and T-Mobile indicated that they strive to provide prompt refunds but none guarantee in their contracts that pre-paid customers will get a provisional refund within ten days after reporting fraudulent charges. Verizon Wireless does not allow customers with pre-paid phone accounts to make mobile payment charges.

Give customers the right to withhold payments for disputed charges: California’s PUC rule gives phone customers in that state the right to withhold payment of disputed charges while an investigation is conducted and requires investigations to be completed within 30 days. Sprint’s contract indicates that customers don’t have to pay for disputed charges as long as they are reported within 60 days. AT&T said that it gives all customers the right to withhold payments during an investigation but its contract only discloses this right to Californians. T-Mobile discloses these rights for California customers but not for customers living in other states. Verizon Wireless’ contract allows customers to withhold payment for charges related to lost or stolen phones but it does not indicate that consumers have this same right for other kinds of disputed charges.

Enable customers to set a cap on mobile payment charges: The California PUC rule allows consumers to block third party charges on their accounts. All four wireless carriers allow customers to block third party charges but AT&T and Sprint do not disclose this right in their contracts. AT&T, Sprint and Verizon Wireless set their own dollar limits on allowable charges (AT&T has a $100 limit per month per line while Sprint and Verizon Wireless limit charges to $25 per month per line). AT&T enables consumers to set their own limits but charges $4.99 per line each month to do so.

For more details, see How Top Wireless Carriers Compare on Consumers Protections for Mobile Payments.

For Consumers Union’s mobile payment tips for consumers, see: Mobile Payments Tip Sheet: What Can Consumers Do Now

Source: Consumers Union

Filed Under: News Tagged With: Consumer Reports, Consumers Union, Fraud Prevention, Michelle Jun, Mobile Fraud

Consumer Reports Warns of Potential Risks of Mobile Payments

June 15, 2011 by Mobile Payment Magazine

Mobile payments are being touted as the next big thing for consumers but could pose a financial risk when mistakes are made by merchants or if a phone is lost or stolen and used to make fraudulent charges. Consumers Union, the nonprofit publisher of Consumer Reports, is calling on wireless carriers to make sure consumers are protected from mobile payment fraud and mistakes by adopting strong safeguards in customer contracts.

In a recent report on mobile payments, the group highlighted how consumer protections vary widely for different mobile payment methods, how wireless carrier contracts fail to provide needed safeguards, and tips for consumers using mobile payments. Consumers Union has launched a Facebook campaign to encourage wireless carriers to adopt stronger contractual protections for mobile payments linked to wireless accounts.

“As more Americans start using mobile phones to make purchases, we need to make sure that consumer protections keep pace with all the new technological advances,” said Michelle Jun, senior attorney for Consumers Union’s Defend Your Dollars campaign. “Consumers shouldn’t have to worry that a lost or stolen mobile phone or billing error could turn into a costly financial headache.”

On May 23, 2011, Consumers Union sent letters to 18 wireless carriers urging them to strengthen their contracts so consumers using mobile payments are provided protections similar to those offered to credit card or debit card users. CREDO Mobile is the only wireless carrier that has responded to the letter to date. CREDO maintains that it provides ample safeguards, although Consumers Union believes its contract could be strengthened to more fully protect consumers.

Federal law currently offers protection to consumers in the event that their credit card or debit card is lost, stolen or misused. Credit cards provide the strongest protections that help limit a consumer’s liability, while debit cards provide some, but not all, of these protections. If mobile payment transactions are linked to credit cards or debit cards, then consumers are entitled to the same guaranteed federal protections that apply when a credit card or debit card is used directly in a transaction.

Unfortunately, mobile charges linked to other forms of payment don’t enjoy any of these legal protections. For example, if a mobile payment transaction is funded by a prepaid card or gift card, consumers are not entitled to any federal protections that limit how much money they can lose to unauthorized transactions or errors. If the payment service is provided directly by the wireless carrier and the charges appear on the customer’s cell phone bill, the product might escape consumer protections entirely unless the contract provides them. If the wireless carrier asks the consumer to make a prepaid deposit to cover future charges, protections also will be missing unless they are included in the contract.

Consumers Union reviewed the contracts of 18 wireless carriers to find out what kind of baseline protections they provided to consumers regardless of the kind of mobile payment method used to make charges:

  • None of the wireless contracts provided protections for mobile payment transactions that are as strong as those guaranteed by law when consumers make purchases using a credit card or debit card. Consumers making mobile payments linked to wireless phone accounts, prepaid cards, or gift cards run the risk of losing funds to fraudulent or erroneous charges.
  • 16 of the 18 wireless contracts require consumers to pay for charges resulting from merchant mistakes or other errors while an investigation of disputed charges is pending. One wireless contract did not address this issue. Consumers using mobile payments linked to credit cards have the right to withhold payments for all disputed charges, including merchant mistakes. Consumers using other forms of mobile payments, including those whose charges are linked to wireless accounts, would not have this same legal right.
  • Only four of the 18 wireless contracts explicitly protect consumers from being held liable for disputed charges when a mobile device is lost or stolen. Consumers using mobile payments linked to credit cards and debit cards can limit their financial liability by promptly reporting a lost or stolen phone. Mobile charges linked to other forms of payment, including those billed to wireless accounts, do not receive these same legal protections.
  • Seven of the 18 wireless carrier contracts explicitly require consumers to pay late fees if they decide to withhold payments for disputed charges. Consumers using mobile payments linked directly to wireless phone accounts would be subject to late fees if they failed to pay for disputed charges by the due date.

Consumers Union has called on wireless carriers to strengthen their contracts by adding a number of protections against unauthorized or erroneous mobile payment charges, including:

  • Limit a consumer’s liability for unauthorized transactions to $50 when false charges are made due to a lost or stolen mobile device
  • Limit a consumer’s liability for erroneous charges to a prepaid wireless phone deposit or a wireless phone bill
  • Give consumers the right to have missing funds from disputed transactions re-credited within 10 business days
  • Give consumers the right to withhold payment of any disputed charges while an investigation is pending and protection from penalties for withholding payment on these charges
  • Enable consumers to set a cap on the dollar amount for mobile payments which can be directly made to wireless accounts

“Ultimately, the new Consumer Financial Protection Bureau will need to enact mandatory protections for consumers that cover all forms of mobile payments,” said Jun. “In the meantime, wireless carriers should provide strong mobile payment safeguards in their contracts so consumers don’t lose money to mistakes or fraudulent charges. Other mobile payment service providers should adopt similar protections.”

More information:

  • Defend Your Dollars
  • REPORT – Mobile Pay or Mobile Mess: Closing the Gap Between Mobile Payment Systems and Consumer Protections (PDF)

Source: Consumer Reports

Filed Under: News Tagged With: Consumers Union, Cpnsumer Reports, CREDO Mobile, Michelle Jun, Mobile Fraud

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