Compliance Blog

Written by Eliott C. Ponte, Law Clerk

Mobile technology in banking is new to federal regulators.  Within the last year, several federal regulators have become interested in mobile banking due to its popularity among consumers.  Most recently, Director Richard Cordray, while making a statement on mobile banking in Louisiana, stated that “in this modern age where people can manage their money on the go, there is great potential to provide access to more consumers and allow them to take greater control of their financial lives.  At the same time, using mobile devices for all sorts of banking services can make some transactions cheaper or faster or both.”  While hailing the benefits of the melding of technology and banking, Director Corday also advocated caution and concern:  â€œwe need to make sure that the legal and regulatory framework can keep up effectively, so that all consumers can remain protected whether they are opening their wallet or scanning the screen on their smartphone.”

These remarks from Director Cordray come after both the Federal Reserve and the Federal Deposit Insurance Corporation announced the completion of their own studies on mobile banking.  The Federal Reserve’s study on mobile banking, which was released in March of 2014, looked the trends in adoption and use of mobile banking and payments, and the emergence of mobile financial services affect how consumers interact with financial institutions.  The Federal Reserve concluded that mobile phones are changing the way consumers access financial services and make payments.  Specifically, the Federal Reserve noted that in the last 12 months:  more than half of all consumers with smartphones used mobile banking, 93% of mobile banking users used mobile banking is to check account balances or recent transactions, and about 20% of all mobile phone users (smartphone and non-smartphone users) have made mobile payments.  

Shortly after the publication of the Federal Reserve Survey, the FDIC released a white paper on mobile banking using the data from its 2011 National Survey of Unbanked and Underbanked.  According to the FDIC, the key finding from their white paper is that mobile banking “is best positioned to have an economic inclusion impact through its ability to meet day‐to‐day financial services needs of underbanked consumers as well as consumers at risk of account closure” in the short run.  Moreover, the white paper concluded that the significant gap in banking services to the underserved could be bridged by the use of mobile banking. 

As evident by Director Cordray’s remarks, the CFPB is seeking to pick up where the Federal Reserve and the FDIC left off.  â€œOur colleagues at the Federal Deposit Insurance Corporation and the Federal Reserve have already done laudable work in this area.  Both have taken important steps to address the subject of mobile banking.  Today the Consumer Bureau is issuing a formal Request for Information that touches on a wide array of issues related to mobile banking and financial management services.  We want to know more about how emerging technologies are affecting the opportunities and challenges that consumers are facing.  The inquiry also specifically addresses how the use of mobile payment products can be used to improve the financial lives of underserved consumers.” 

It is unclear what the CFPB will do with the information it receives and if/how the CFPB seeks to regulate mobile banking.  Usually, statements by the Director Corday foreshadow new regulations and compliance burden.  I am hoping that this study is solely aimed at check cashing services, as some check cashing companies have also moved into remote capture services to expand their reach to more consumers.  Regardless of the CFPB’s intentions, however, credit unions are very aware that the CFPB does not take into account how their regulations affect smaller institutions (or it appears that they do not).  Thus, credit union compliance officers should be aware that regulations on mobile banking may follow in the near future.

For more information regarding the CFPB’s request or to respond to the CFPB’s request, click on this link.  Submissions and responses to the CFPB’s request must be received on or before September 10, 2014, either electronically or by mail.