We support reforms to the financial marketplace to curb bad practices by banks and lenders.
We are regular followers of MSNBC’s Red Tape Chronicles. Recently Red Tape tried out a new iPhone app that allows you to pay for your Starbucks coffee without having to break out cash or your cards. You can simply hold up a bar code on your phone’s screen to the scanner and you are on your caffeinated way faster than you can say “ventinofatdoublecarmelmacchiatolatteholdthewhipcreamtogo”.
While we see the appeal of nifty new payment methods we are concerned, of course, about the lack of consumer protections. Credit cards have the best consumer protections laws for payment options. Every other product is second best.
Red Tape points out that:
“Yes, a criminal could run up a huge coffee bill in your name, particularly if you have linked your credit card to the app. The terms of use clearly say Starbucks won’t be responsible for any fraud that might occur on your account, though consumers would be able to dispute such charges with their credit card issuers.”
You might have protections against unauthorized transactions if your phone is linked to a Starbucks gift card that is also linked to your credit card…but that may depend on whether the unauthorized transactions are paid for with funds that are transferred over to the Starbucks card from your credit card. If an unauthorized transaction shows up on your credit card account, you can dispute the charge with your credit card issuer without having to pay the charge while the dispute process is underway. However, if a thief gets your iPhone and buys goodies using the funds already sitting in your Starbucks gift card account, you may be out all of your money.
Consumers should be afforded the same protections regardless of whether they choose plastic or mobile as their payment method. The fact is regulation is not keeping up with technology. A priority of the consumer watchdog, coming on July 21, should be to keep consumer protection in pace with new technologies.
In the meantime, consumers should be careful how they set up any mobile payment features on their phones. Consumer protections vary depending on the method you choose to link to your app. Check out our tips for consumers on mobile payments. Consumers should also continue to call on companies and regulators to give them the same consumer protections across the board for all payment products.
