Overview
The U.S. Public Interest Research Group recently published a report on consumer complaints regarding digital wallets filed with the CFPB (the “Report”). Digital wallets are online payment tools or apps that store a customer’s debit card, credit card, account information, and/or digital assets, which are the types of information that can be used to facilitate online (or even in-person) payments with a wide variety of merchants. Complaints about digital wallets recently have skyrocketed, jumping from about 250 complaints per month pre-pandemic, on average, to almost 1,000 complaints per month at the height of the pandemic. The Report highlights that most consumer complaints are focused on digital wallet providers. The CFPB complaints largely center on: (1) customer service issues; (2) privacy issues and unauthorized transactions; and (3) irrevocable transactions. According to the Report:
First, digital wallet providers sometimes have thinly staffed customer service departments, the contact information for which may prove difficult to locate. When customers experience problems with digital wallet providers, they often cannot speak to someone who can assist them, exacerbating customer frustration. Some digital wallet providers even encourage customers to contact their banks first—even when the issue stemmed from the digital wallet provider’s service, not the bank’s service.
Second, most digital wallet providers’ default privacy settings allow for the collection, or even publicizing, of certain information. President Biden famously found this out the hard way when Buzzfeed located his friends list from a popular digital wallet service. This information, moreover, can provide additional intelligence to would-be cybercriminals—bad actors who frequently target digital wallet customers because, as described below, the transactions are often irrevocable.
Third, digital wallet providers offer instantaneous (or near instantaneous) payments, and merchants have flocked in droves to enable these apps. But faster payments bring risk that many consumers fail to appreciate. Specifically, the terms of use for most digital wallets establish that payments are final, immutable, and irrevocable. If a customer sends a payment to the wrong party, it is often lost forever. Likewise, if a fraudster induces a customer to send them a payment, those funds will be difficult, if not impossible, to recover.
These issues are all addressable, and banks should consider a variety of measures to inform and protect their customers. Specifically, banks should consider the following:
Disclaimers & Information: Some banks tout integration with digital wallet providers on their websites, but neglect to mention the risks of using digital wallets. Regardless of whether they mention digital wallet providers, banks can proactively inform their customers about the risks of integrating bank-issued credit or debit cards, or linking a bank account to a digital wallet provider. They also can highlight proactive steps that customers can take to keep their information private, and to guard against fraudsters or erroneous payments.
Customer Service: Banks would be wise to train their customer service personnel to address customer concerns resulting from integration with digital wallet providers.
Check your contracts: Some banks have taken the additional precaution of including specific contract terms addressing use of a bank-issued credit or debit card with (or linking a bank account to) digital wallet providers. This is an added layer of security should your customer misdirect their anger at the bank for issues stemming from digital wallet providers’ platforms.
Justin C. Steffen is a nationally recognized FinTech and cryptocurrency attorney who helps financial institutions navigate the legal and regulatory obstacles to innovation. Justin regularly advises clients on the intersection of technology and the law, including on issues related to cryptocurrency, licensing, and regulation.