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THE FUTURE OF MONEY: WHERE DO 

MOBILE PAYMENTS FIT IN THE 

CURRENT REGULATORY STRUCTURE? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JUNE 29, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–142 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

June 29, 2012 .................................................................................................... 1 

Appendix: 

June 29, 2012 .................................................................................................... 17 

WITNESSES 

FRIDAY, JUNE 29, 2012 

Freis, James H., Jr., Director, the Financial Crimes Enforcement Network 

(FinCEN), U.S. Department of the Treasury ..................................................... 4 

Martin, Stephanie, Associate General Counsel, Board of Governors of the 

Federal Reserve System ...................................................................................... 5 

APPENDIX 

Prepared statements: 

Freis, James H., Jr. .......................................................................................... 18 

Martin, Stephanie ............................................................................................. 32 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Written statement of The Clearing House Association L.L.C. ..................... 39 

Written statement of the Consumer Financial Protection Bureau (CFPB) . 45 

(1) 

THE FUTURE OF MONEY: WHERE DO 

MOBILE PAYMENTS FIT IN THE 

CURRENT REGULATORY STRUCTURE? 

Friday, June 29, 2012 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 9:30 a.m., in room 

2128, Rayburn House Office Building, Hon. Shelley Moore Capito 

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Renacci, Pearce, 

Luetkemeyer, Huizenga, Canseco; Maloney, Baca, and Scott. 

Also present: Representative Green. 

Chairwoman CAPITO. This hearing will come to order. Ranking 

Member Maloney is on her way, and she said to go ahead and 

start, so I will start with my opening statement. 

First, I want to welcome the witnesses. This morning’s hearing 

marks the final installment in a series of hearings that this subcommittee has had on the future of money. In March, we held a 

hearing that served as a primer for Members on the current landscape of mobile payments. 

Earlier this week, the ranking member and I had a dinner, bipartisan dinner that afforded Members and staff the opportunity to 

learn more about the different technological developments in mobile payments. And I for one can say it is an exciting future and 

I wish I had the brain depth to be able to invent some of these 

things myself. 

This morning, we will learn about the current regulatory structure for the payment system and how new developments in mobile 

payments can fit into this regulatory structure. 

The past decade has seen tremendous growth and innovation to 

technology that will no doubt influence the payment system in this 

Nation and abroad. We can’t really imagine what the technology 

may be 6 years from now. For that reason, it is important for this 

committee to understand the rules of the road for mobile payments. 

Does today’s regulatory structure provide seamless protection for 

consumers, easy dispute resolution, and protect against money 

laundering and the financing of terrorism, or do we need to make 

changes and, if so, what changes should be made, minor or major? 

This morning, we have two very important voices to talk about 

today’s regulatory structure. The Federal Reserve has been the exVerDate Nov 24 2008 18:40 Oct 04, 2012 Jkt 076113 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\76113.TXT TERRIE
2 

pert on the payment system for a long time and the Boston and Atlanta Feds combined to do much of the best early examination of 

the promise and potential pitfalls of mobile payments. 

While their consumer protection duties were transferred to the 

Consumer Financial Protection Bureau (CFPB) 2 years ago, the 

Fed will continue to be an important player. As witnesses at our 

first mobile payment hearing warned, some of the forms of payment available, including those tied to phone bill billings, may not 

fall under current payment law as we understand it. 

Meanwhile, the Treasury’s Financial Crimes Enforcement Network, or FinCEN, prescribes the regulations that help our law enforcement agencies fight money laundering and the financing of 

terrorism and is in the best position to tell us if any parts of the 

newer forms of payment might fall outside of our current requirements for financial institutions to report suspicious activities. We 

need to make certain we get this latter part right. A senior economist at the World Bank has warned explicitly that it would be 

much harder to follow the future of money and to establish the 

sender and receiver of money as the transactions move towards anonymity. 

We also have, and I will ask for unanimous consent to insert into 

the record, a statement from the CFPB. Also, I want to thank both 

of our witnesses for their work that they have done in preparing 

for today’s hearing and for their years of steady government service. In particular, the committee would like to thank Director Freis 

for his more than 5-year service as head of FinCEN. That is the 

longest tenure of anyone in what we know is a very difficult job. 

We are aware that you are transitioning to another job and could 

have declined this invitation to testify, so we especially want to 

thank you for coming today. 

Mrs. MALONEY. Good morning. 

Chairwoman CAPITO. There she is. I thought I heard her coming 

in. 

Mrs. MALONEY. I apologize, but we had a Democratic Caucus 

meeting on health care. 

Chairwoman CAPITO. I recognize the ranking member. 

Mrs. MALONEY. I want to thank so much the chairwoman, and 

welcome the Federal Reserve and FinCEN. This is our third look 

at the issue of mobile payments, and I have to commend the chairwoman and the committee for holding this series of hearings on 

this new technology, and literally, we have cohosted a dinner to 

look at it and expose the new technology to Members of Congress. 

We saw this earlier in the week and I am pleased that we are trying to get out ahead of the issues rather than finding ourselves reacting but not being proactive. 

I really think that I would like to put my opening statement in 

the record. Believe me, it is very interesting, but I would like to 

hear the testimony today and have the opportunity to ask questions, particularly in the area of identity and security and maintaining the security of consumers with these new products. 

Thank you. I yield back. 

Chairwoman CAPITO. I now recognize Mr. Canseco for 2 minutes. 

Mr. CANSECO. Thank you, Madam Chairwoman. The growth of 

the mobile payment industry represents a tremendous opportunity 

3 

for everyone, from consumers and merchants to financial institutions and other providers. Mobile payments have already proven to 

be the most significant development in consumer payment methods 

since the move away from checks to debit cards. This should bring 

a great number of benefits, particularly in the form of competition 

and lower costs for consumers. 

Yet, it is essential that policymakers and regulators structure a 

regulatory framework that helps protect the private information of 

mobile users, but also encourages investment and innovation within the industry. 

It is very relevant to mention that the last significant policy initiative in this area, which was price fixing in the debit card market, was the exact opposite of what Congress and regulators should 

be doing, and I hope we have learned from that very significant 

mistake. 

And so, Madam Chairwoman, my hope is that today’s hearing 

helps Congress and regulators embrace these new innovations and 

that it leads to a properly constructed regulatory framework that 

works for everybody involved. 

I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Scott for 3 minutes. 

Mr. SCOTT. Thank you very much, Madam Chairwoman. Let me 

commend you and the ranking member for putting this very important and timely hearing together. Certainly, nothing could be more 

timely than the rapid advancement of technology. No area is that 

more profound than the mobile phones we use. We basically have 

become pleasantly captive to the cell phone. And we need to make 

sure that the American people are adequately protected from 

abuses from invasions of identification theft. 

Many people may not know this, but 92 percent all the American 

people now use mobile phones. The pay phone has gone by the way. 

And with that comes all other types of services that are connected 

with it. Many times people have their bank accounts, their bank 

statements on their mobile phones. They have medical information, 

pharmaceutical information, and prescription drug information all 

on their phones. It has become an integral part of our physical 

beings. 

And so, we really have to make sure that adequate protections 

are there, and half of these phones are what we call Smartphones, 

which are capable of processing mobile payments, credit card payments. So when you look at the entire scope of the significant 

amount of impact that mobile phones have on our entire existence, 

particularly very vital and pertinent information regarding our financial accounts, our health care, all very important issues, it is 

very important that we make sure that proper regulations are in 

place to protect the American people, and I look forward to hearing 

the panel. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you, Mr. Scott. With that, I believe 

opening statements are completed, and I would like to turn to the 

panel. Our first presenter is Mr. James H. Freis, Jr., Director of 

the Financial Crimes Enforcement Network (FinCEN) at the Department of the Treasury. Welcome. 

4 

STATEMENT OF JAMES H. FREIS, JR., DIRECTOR, THE FINANCIAL CRIMES ENFORCEMENT NETWORK (FINCEN), U.S. DEPARTMENT OF THE TREASURY 

Mr. FREIS. Thank you, and good morning, Chairwoman Capito 

and Ranking Member Maloney. 

I am Jim Freis, Director of FinCEN, and I am pleased to be here 

today to discuss FinCEN’s efforts to establish a meaningful regulatory framework for mobile payments and other emerging payments methods. My testimony today will focus on some of the most 

important regulatory and analytical work being done to prevent 

criminal abuse of the financial system as technological advances 

create innovative ways to move money. 

At the outset, I would like to make a distinction between mobile 

banking and mobile payments. Mobile banking involves communication and direction from an account holder about their account 

at a depository institution. Mobile payments essentially involve the 

direction of funds outside of a bank account to effect payments or 

other transfers. Let me emphasize that both types of activity are 

subject to relevant FinCEN regulations for anti-money laundering 

and counterterrorist financing purposes, either as part of the requirements on banks or as part of the requirements on money 

transmitters. 

Recognizing that payment systems evolve rapidly, FinCEN took 

a comprehensive approach in this area, revising its regulations 1 

year ago specifically to cover mobile payments and other innovations. The rule was developed to be technologically neutral and 

hopefully cover new developments for years to come. Specifically, 

the rule focuses more on the underlying activity as opposed to the 

particular electronic communication vehicle. If a mobile phone allows person-to-person payments or payments that cross borders in 

or out of the country, then the provider must identify the customer, 

keep records of transactions, and have procedures in place to report 

to FinCEN possible money laundering or other suspicious activity. 

In furtherance of that, FinCEN’s regulations make it clear that 

the acceptance of funds from one person and then the transmission 

of those funds to another person or location by any means constitutes money transmission and that any person doing business in 

whole or in part in the United States who engages in money transmission, regardless of other business lines such as telecommunication services, would likely be a money services business subject 

to FinCEN’s regulations, and as such must register and comply 

with all requirements applicable to a money transmitter. 

Shortly after publication last year of the final prepaid access regulation, and as part of FinCEN’s commitment to engage in dialogue 

with the industries we regulate, FinCEN held a series of town hall 

meetings with representatives from the prepaid access industry. 

FinCEN has already released a number of pieces of guidance with 

respect to the prepaid access regulation, and we anticipate that additional guidance will be forthcoming related to some of the issues 

raised by industry attendees during those town halls, as well as ongoing requests for clarification and guidance on the new regulatory 

framework. 

I would like now to briefly mention some of FinCEN’s analytical 

work in the mobile payment space. As part of our ongoing support 

5 

to law enforcement, FinCEN regularly provides reference manuals 

to help better understand the workings of various payment mechanisms and to provide steps to utilize its understanding in specific 

criminal investigations. One recent such manual focused on mobile 

payments. In preparing the manual, and in subsequent law enforcement outreach, we have seen an interesting trend in the mobile payments industry where different telecommunication systems 

and financial mechanisms merge and become interwoven in the 

same overall mobile payments transaction. 

For example, a customer might choose to initiate a remittance to 

a physical money service business location, with the transaction 

then being processed through the MSB’s internal system, the payment of the funds then going to a recipients mobile account. Upon 

completion of the transaction, the recipient typically receives a text 

message notification on their mobile phone that indicates the funds 

have been credited to their mobile account. 

This transactional overlap results in multiple informational 

chokepoints that may assist law enforcement’s efforts to follow the 

money trails and identify other accounts and transactions associated with a given subject. Fortunately, FinCEN’s prepaid access 

regulation was specifically designed to be flexible and to accommodate new technologies as they emerge, but also to capture innovative payment methods currently being used by U.S. institutions 

such as aspects of the scenario I just described. 

In the area of new payments methods, the Administration has 

made appropriate oversight of prepaid access products a priority, 

and FinCEN is very encouraged by the progress we have made 

thus far. Moving forward, we are dedicated to continuing to build 

on these accomplishments as we encourage legitimate consumer 

and commercial activity to flourish, but also help financial services 

providers to focus on serving their customers, not criminals. 

Thank you for inviting me to testify before you today. I would be 

happy to answer any questions you may have. 

[The prepared statement of Director Freis can be found on page 

18 of the appendix.] 

Chairwoman CAPITO. Thank you, Director Freis. 

We will now hear from Ms. Stephanie Martin, who is Associate 

General Counsel for the Federal Reserve Board of Governors. Welcome. 

STATEMENT OF STEPHANIE MARTIN, ASSOCIATE GENERAL 

COUNSEL, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Ms. MARTIN. Thank you, Chairwoman Capito, Ranking Member 

Maloney, and members of the subcommittee. Thank you for inviting me to appear before you today to talk about the regulation of 

mobile payments. 

The evolution of technologies that enable consumers to conduct 

financial transactions using mobile devices has the potential to affect their financial lives in important and new ways, including by 

expanding access to mainstream financial services to segments of 

the population who are currently unbanked or underbanked. But 

with any payment system, including a mobile payment system, regulators have two key concerns: one, whether consumers are proVerDate Nov 24 2008 18:40 Oct 04, 2012 Jkt 076113 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\76113.TXT TERRIE
6 

tected if something goes wrong such as an unauthorized transaction; and two, whether the system provides appropriate security 

and confidentiality for the transmission and the storage of payment 

instructions and the personal financial information of consumers. 

In many mobile payments, at least some parts of the transaction 

are settled through existing payment systems, such as card networks, and are subject to the statutes, rules or procedures that are 

already in place. The evolving aspects of mobile payments typically 

are related to new consumer interfaces and new payments or settlement arrangements which can involve service providers that 

have not traditionally been in the payments business, for example, 

a telephone company. 

Making payments through nontraditional arrangements may 

change the legal protections related to the purchase, depending on 

the details of the arrangement and the applicable statutes and 

rules. 

There is a legal framework to address the payment activities of 

banks, and Federal bank regulators have the tools to ensure that 

banks offer mobile payment services in compliance with the consumer protection provisions of any applicable laws or rules, such as 

the Electronic Fund Transfer Act (EFTA). The application of most 

Federal consumer laws to mobile payment transactions is subject 

to the rulemaking and interpretive authority of the Consumer Financial Protection Bureau. 

As part of the supervisory process, the banking agencies review 

bank security protections for new payment interfaces, as well as for 

compliance with rules on information security, identity theft prevention, and anti-money laundering. 

Many of the questions that have arisen with respect to mobile 

payments, however, relate to the involvement of nonbanks. 

Nonbanks can have a variety of roles in a transaction, such as an 

agent of a bank, a manager of a prepaid value program, a money 

transmitter or a company that bills customers for payment transactions. The applicability of existing consumer protection laws or 

security requirements to nonbanks generally depends on the 

nonbank’s role in the mobile payment and the specific provisions 

of a particular statute. 

In conclusion, it is difficult to make broad generalizations about 

the applicability of existing statutes and rules to mobile payments. 

This is due to the different types of service providers, bank and 

nonbank, the wide variety of payment arrangements and the potential applicability of both banking and nonbanking laws to any given 

arrangement. Given recent technological developments in mobile 

payments, further analysis of the adequacy of existing laws may be 

appropriate in order to ensure that consumers are adequately protected. 

At the same time, given the fast-paced nature of changes in this 

area and the potential for significant improvements in consumer financial services through mobile payments, further fact-finding 

would aid that analysis and would be helpful to ensure that any 

legislative or regulatory proposals would not stifle the very innovations that would benefit consumers overall. 

Thank you again for inviting me to appear today. I am happy to 

answer any of the committee’s questions. 

7 

[The prepared statement of Associate General Counsel Martin 

can be found on page 32 of the appendix.] 

Chairwoman CAPITO. I want to thank you both and I will begin 

with my 5 minutes of questioning. I would like to make a comment 

on something, Ms. Martin, you said at the end of your statement, 

because of the dinner that we had last night, I think we had five 

presenters who had a whole range of forward-thinking mobile payments, some that are currently in the system, some that are innovating into the system. And one of the concerns that they have and 

I think we share the concern and you did through your comments 

is that we don’t get ahead of the curve here regulatorily, with regulation, and stifle the innovation and cut off what could be an ease 

of payment, bringing in people who are not in the bank or underbanked. And so, the point of this hearing is to really see where are 

we and where do we need to be, not so much where do we as lawmakers need to come in and clamp down. I don’t think that is an 

issue, but I think it is something to keep our eye on. 

I would like to ask a general question. Are there in existence now 

informal or formal agreements between banks on the mobile payments issues? Is this a structure that banks have formally recognized through specific agreement along the lines of mobile payment 

and conflicted consumer protections that are contained within or 

does it fall within just a general— 

Ms. MARTIN. I would say for particular new arrangements that 

are using new technologies, usually you see a partnership. Often, 

you see a partnership between a bank and a nonbank service provider, sometimes the telephone company would be involved. So in 

a particular mobile payment arrangement, they would have contracts and agreements in place as to how that will work. But many 

of these arrangements ultimately get funding (into a mobile wallet, 

for example), using existing, I will call them, ‘‘payment rails.’’ So 

a consumer with a virtual wallet who wants to put in that wallet 

a credit card or debit card would be funding those credit or debit 

card transactions through the normal card networks. 

Chairwoman CAPITO. Existing. 

Ms. MARTIN. Those arrangements and agreements and rules are 

already in place. Is that responsive to your— 

Chairwoman CAPITO. Yes. I don’t know if you have a comment 

on that, if you are aware, and certainly at FinCEN, you are looking 

internationally, too. Are there specialized agreements for mobile 

payments that you are aware of or do they just fall within the normal bank-to-bank relationship agreements that are already existing? 

Mr. FREIS. I would concur with Ms. Martin that if you are trying 

to transfer between different financial institutions, then it is largely today reliant on existing bank centric networks such as those involving what we commonly know as your MasterCard or Visa card 

for which you need a bank to be an issuer of that card relationship. 

Otherwise, you are talking about proprietary systems, so I am 

going to a specific money transmitter and I must be a member of 

that network. 

Chairwoman CAPITO. Let me ask you this, too, in your statement 

you were talking about nonbank participants in mobile payment, 

and one of the innovators that we saw was talking about being able 

8 

to have a card that you could swap between paying with your Visa 

debit, for example, or maybe your rewards points. That would be 

something that really wouldn’t be covered, because that would really be a vendor. Let’s say you would be using your USAir frequent 

flier miles or something of that nature. Is that something that you 

all have taken into consideration or are looking at? Do you understand what I am asking? 

Ms. MARTIN. I understand that you could have a mobile wallet 

arrangement where you can choose different ways of paying for 

whatever you are purchasing. 

Chairwoman CAPITO. Right. 

Ms. MARTIN. And today you have a credit card with flight miles 

on it that is usually redeemable at a specific merchant. So I can 

use my US Air flight miles at USAir. That is typically within a 

very proprietary system. But if I were to use my debit card, then 

I would have to go get the money from my bank account, so that 

would move over payment card network rails. I think it is going to 

depend on what card you pull out of your virtual wallet as to what 

rails that transaction will follow. 

Chairwoman CAPITO. Right. I think the important thing on that 

is the consumer protection jurisdictions and are they covering all 

sorts of different transactions that may be coming over the same 

virtual wallet. 

Ms. MARTIN. Right. I think one of the issues is to look at the consumer protection laws such as the EFTA and TILA. If is there a 

credit card involved, it is the CFPB that is going to have the rulewriting authority under those laws. But it is not clear that those 

laws do apply in each case where a nonbank is involved. 

Chairwoman CAPITO. Right. I think that is the point you were 

making. 

Ms. MARTIN. Yes. In some cases, those laws were really written 

with a bank-type relationship in mind. And those concepts may or 

may not apply, depending upon what the nonbank’s role is and how 

the system is structured. 

Chairwoman CAPITO. Thank you. Ms. Maloney? 

Mrs. MALONEY. First of all, I want to thank both of the panelists 

today for your testimony, and I agree with the chairwoman that we 

certainly do not want to stifle innovation, which was part of your 

testimony, Ms. Martin, as we move forward to make sure that consumers are protected and that money laundering is prevented and 

that other things are in place. 

As you look at this evolving new technology, I must say in terms 

of privacy and consumer protection, some of the technology really 

identified the person by their voice, by a photograph, very detailed 

ID that would be hard for someone to steal your identity, which is 

regrettably a growing crime in America among many of our constituents. I would like to get a sense from you because this is not 

necessarily a bank, it is not necessarily—it is like new. Who do you 

think would be the primary regulator? Someone has to be in 

charge. Which agency should take the prime role over mobile payments which are not necessarily bank products? And to what extent should the banking regulators be involved and coordinate? 

And who do you see as taking the form of the primary regulator, 

the FCC, the FTC, the CFPB, the Federal Reserve, Treasury? 

9 

Your comments first, Mr. Freis, and then Ms. Martin. How do 

you see this being regulated? We have to have someone to call if 

there is a problem. 

Mr. FREIS. Yes. Thank you for your question. From my perspective at FinCEN, we have a great deal of experience in working with 

a range of different financial service providers and a range of different agencies to ensure appropriate regulation. So for the antimoney laundering counterterrorist financing purposes, the principle is any way that you can move money, any way that you can 

intermediate value can be abused by a criminal actor. So that is 

the reason why FinCEN looks at this aspect centrally. In the example that I have given whether a money transmission is made 

through a bank, whether it is made through a traditional money 

services business or through new providers such as in the mobile 

payment space we have a common interest in making sure that we 

have done as much as possible to mitigate the risk of criminal 

abuse. 

In so doing, we rely on the Federal banking agencies or State 

regulators and money transmission space, and we found that is an 

important working model just as we do in other areas such as insurance, working with the States or with the SEC working in the 

securities industry. Each of them will have a primary responsibility 

with respect to whether it is safety and soundness, consumer protection, but our ability to work with them is on our single mission 

of the anti-money laundering requirements, I think it is central to 

avoiding the regulatory gaps and the balances they must take that 

criminals frankly would abuse. So I think the model we have, at 

least for my purposes, is working. 

Mrs. MALONEY. And Ms. Martin? 

Ms. MARTIN. I agree basically with what Jim said. I think it is 

an interesting strategic question to think about what agency should 

take ownership of this area. It is such a broad area and it covers 

so many different types of entities, it is really hard to point to one 

agency with the right experience and expertise that can cover the 

gamut. So at least as a first step, it certainly seems to me that 

there should be coordination and consultation among all of the 

agencies you named, as well as FinCEN and State regulators, to 

figure out who has what, who is covering what bases, and what 

gaps there are that need to be addressed. And I think you can 

achieve consistent results in that way through interagency discussion and coordination. 

Mrs. MALONEY. That is true, but finally someone has to be in 

charge. Otherwise, everyone is pointing fingers at each other, but 

building on your question or the statement that you had, they were 

testifying to us or telling us at this dinner we had exploring the 

new technologies that they are out there now, tens of thousands of 

people are already using these products. And so, I wanted to know 

what protections have States or actions have States put in place to 

protect consumers from unauthorized transactions and disputed 

charges to prepaid phone deposits or wireless phone bills? I am 

wondering what actions States have taken, if any, in this area? 

Ms. MARTIN. States do have money transmitter laws, where if 

the entity meets the definition of money transmitter, many States 

10 

have registration requirements and some bonding and investment 

limitations. To that extent, I know States do have some laws. 

When you talk about bringing phone companies into the equation, perhaps that is something we might want the FCC to weigh 

in on. I am not sure what kinds of protections exist in telecommunications law for consumers who are billed for particular 

line items on their bill which might represent a payment. I think 

that is worth some further investigation. 

Mrs. MALONEY. My time is up. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Mr. Canseco? 

Mr. CANSECO. Thank you, Madam Chairwoman. Ms. Martin, we 

often talk about the unbanked in our country. It is noted that 10 

percent of mobile payment users don’t have a bank account and 

that roughly 30 million Americans are either unbanked or underbanked. So how do you feel the growth of mobile payments will affect this group and would they be more or less likely to enter the 

banking system? 

Ms. MARTIN. It is hard to predict the second question that you 

asked. I think mobile payments present a good opportunity for the 

banked and unbanked to obtain payments services perhaps that 

are more efficient and perhaps even cheaper than what their alternatives are today, which may be going to a check casher or a 

money transmitter and paying pretty hefty fees. It is also very convenient. As you stated or somebody stated, over 90 percent of people do have a mobile phone, so it is a very ready device for them 

to enter into the financial system. 

To the extent that banks can offer products that are available 

through that mechanism, that might be a way to get people into 

a bank relationship through a mobile phone that is a replacement 

for a check casher or buying a money order. 

Mr. CANSECO. One concern, Ms. Martin, that I have is that we 

adopt a regulatory framework that makes it more costly and more 

prohibitive for market participants to innovate within the space. 

What specific steps should regulators be taking to encourage innovation and investment in the mobile payments space while also ensuring that data security and enforcement of anti-money laundering laws are working? 

Ms. MARTIN. Yes, the walk on the fine line between regulation 

and not stifling innovation is always a tricky one. I think it is important for regulators to set some priorities and some key concerns 

that you would like to see addressed in these mobile payment arrangements regardless of how they are structured. I mentioned a 

couple in my testimony; one basic consumer protection is security. 

You might add anti-money laundering to that list. So if we can look 

across all of these arrangements and make sure that those key concerns are met, then maybe you don’t want to drill down into more 

detailed requirements until you see where the market is going to 

come out. So allow people to experiment, innovate with pilot programs until some industry best practices are established. And then, 

that might be a time where you see particular patterns emerging 

that you think you should address with more regulation. That 

might be the time to do that. 

11 

Mr. CANSECO. Thank you. This next question goes both to you, 

Mr. Freis, and Ms. Martin. Do you believe that international standards should apply to mobile payments? And if so, what type of coordination is going on between regulators in the United States and 

other countries? 

Mr. FREIS. I am happy to address that first. With respect to our 

anti-money laundering counterterrorist financing efforts, we have 

developed international principles in terms of expectations as to 

what the risks are and efforts are to mitigate them. We do that at 

a broad level in terms of different products area, including money 

transmission, not things that are specific to the device of mobile 

payments as opposed to other mechanisms for entering the system, 

and I believe that is the right approach, especially based on the 

concern that you just expressed about rapidly evolving technology. 

It is better for us to define the risk and expectations of how to mitigate them and not to prescribe one specific area. 

By the time we had agreed on any international basis, it would 

already be obsolete in terms of technological advances. That is 

being done on an international basis in particular through the Financial Action Task Force. The United States has been very active 

in guiding those developments and pushing other countries to work 

in that area. I can tell you in my own work in the development of 

these prepaid access regulations, specifically including mobile 

phones as I have described in my testimony, I very actively engaged with my counterparts, both the regulatory side and the law 

enforcement support side, throughout the entirety of this process, 

sending them copies of the documents when we put them out for 

public notice and comment, seeking from them examples of specific 

cases where they might have seen law enforcement abuse to make 

sure we were addressing those specific concerns. 

Mr. CANSECO. Thank you, sir. Ms. Martin? 

Ms. MARTIN. I would agree with that and also add that it seems 

to me that this type of service is so new and rapidly evolving that 

it is a bit early at this point to start thinking about international 

regulatory standards. Generally, those kinds of discussions come 

when systems are more mature and principles and best practices 

have been established, and that really hasn’t happened yet. 

Mr. CANSECO. But we need to start thinking about this. 

Ms. MARTIN. Oh, yes, I do agree with that. 

Mr. CANSECO. Thank you very much. I see that my time has expired. 

Chairwoman CAPITO. Thank you. I would like to ask for unanimous consent to insert 2 statements into the record: one from the 

CFPB; and one from The Clearing House Association. Without objection, it is so ordered. 

I now recognize Mr. Baca for 5 minutes for questioning. 

Mr. BACA. Thank you, Madam Chairwoman, and Ranking Member Maloney for calling this meeting, and I thank the witnesses for 

being here this morning. 

One of the basic goals in reviewing this topic is ensuring that the 

consumers understand the product. I think it is very important 

that they understand the product they are using and the risk involved. With the advancement of technology, we have seen security 

threats grow as well. When it comes to electronic payments specifiVerDate Nov 24 2008 18:40 Oct 04, 2012 Jkt 076113 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\76113.TXT TERRIE
12 

cally in identification, theft is a real concern to a lot of us. What 

recourse do consumers have when they encounter problems with 

unauthorized charges or the amount they are charged is inaccurate? That is a common problem that we have, especially people 

who take advantage of a lot of our seniors, and seniors are the ones 

most vulnerable for this kind of problem, even though they get involved in this technology. 

I open it up for either one of you to respond. 

Ms. MARTIN. To the extent a mobile payment results in a debit 

through a checking account or a charge to a credit line that is covered by the EFTA or TILA, both have error resolution procedures 

which would kick in for consumers. 

Mr. BACA. How would they be informed, because they may be 

covered but they want to recoup their money and that is part of 

the problem. What is the time in delay between the time something 

occurs and the time that their account is reimbursed, because that 

means money lost, and a lot of them are on a fixed income? 

Ms. MARTIN. Right. Under EFTA, the existing timeframes are set 

forth in the statute and should be disclosed to consumers in the 

bank disclosures as well. I believe an investigation has to take 

place within 10 days. If the investigation is not concluded by that 

time, the consumer has to be reimbursed while the investigation 

continues. But in many cases, it gets concluded before 10 days are 

up. 

Mr. BACA. Would the consumer be informed of the process of 

what is going on within that period of time? 

Ms. MARTIN. I can get back to you on that. 

Mr. BACA. If they don’t know, they don’t know you are doing anything— 

Ms. MARTIN. The consumer initiates the process, and then they 

should be advised of what the process is. 

Mr. BACA. ‘‘Should be’’ and ‘‘doing it’’ are two different things. 

Ms. MARTIN. The other point that I wanted to make is that it is 

not clear that those laws apply in all cases where a nonbank is involved. I do know that some nonbank payment providers have incorporated Reg E, EFTA-like, error resolution procedures into their 

rules and their user agreements. It is not quite the same thing as 

having those error resolution procedures applied to them by rule, 

but they are trying to use those procedures within their own arrangements. 

Mr. BACA. Okay. Let me ask another question, along these same 

lines. Consumers sometimes find miscellaneous or added charges 

tacked onto their monthly bills. We used to see this a lot with credit cards. Obviously, this has caused a lot of consumers to dispute 

charges. How consistent are the mobile payments dispute resolutions policies of the various wireless providers? And should Federal 

regulators pursue a minimal national standard? 

Ms. MARTIN. The wireless provider consumer dispute resolution 

process would be something I think that the FCC would weigh in 

on. That is really outside my area of expertise or knowledge. That 

would have to do with if you get billed on your phone bill for a payment that is wrong, what are your rights? And I think that merits 

some further investigation and fact-finding. 

13 

Mr. BACA. And then consumers have expressed concern with 

practice—oh, my time has expired. I am sorry. 

Chairwoman CAPITO. You actually have 58 seconds left, but we 

have just been called for a vote, so I am going to go to Mr. Luetkemeyer because he is the next questioner. And then when he completes his call, we will decide what the will of the committee is if 

we want to come back. We have two votes. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. And thank 

you for the briefing the other night on mobile payment systems. It 

was quite instructional, and after the meeting I told my staff that 

I am going to have to get rid of my rotary phone and get in the 

21st Century here. 

So thank you for being here this morning and I have just a quick 

couple of follow-up questions relating to what my colleague, Mr. 

Canseco here, asked with regard to international standards. Ms. 

Martin, you made the comment that you are going to wait until the 

market is mature before you actually get into the middle of a regulatory promulgation here and that is kind of after the horse is out 

the door if you are going to take that approach. I would think you 

would want to work with those entities that are producing these 

new innovations and find ways to curtail abuses of those right off 

the bat. I was surprised at that comment. 

Ms. MARTIN. My remark there was directed specifically towards 

international standards. 

Mr. LUETKEMEYER. International standards are what I am concerned about. 

Ms. MARTIN. Generally when we work on international standards 

in other contexts, this occurs when we have some rules and 

thoughts in place about how that market is regulated here. All I 

am saying is that I think we need to do further investigation domestically before we start talking internationally. 

Mr. LUETKEMEYER. Are you familiar with the CFPB’s proposed 

rule dealing with international wire transfer services? 

Ms. MARTIN. I didn’t hear the first part. 

Mr. LUETKEMEYER. Are you familiar with CFPB’s proposed rule 

dealing with international wire transfer services? 

Ms. MARTIN. The remittance rule? 

Mr. LUETKEMEYER. Yes. 

Ms. MARTIN. I am somewhat familiar with it. 

Mr. LUETKEMEYER. Okay. Are you for it, against it, think it is 

going to work? How is it going to affect mobile payments, I guess 

is the question? 

Ms. MARTIN. That is a good question. I am not sure there are any 

mobile payment arrangements at this time—and maybe, Jim, you 

can jump in here—that are being used for international remittances. 

Mr. FREIS. Actually, there are some services for which mobile 

payments are a part of that international remittance network, as 

I have mentioned in my written testimony, but that are covered 

from our regulatory framework. And, Congressman, responding to 

your question, I just wanted to reiterate that we at FinCEN recognize the risks of cross-border payments, and it is for that purpose 

that although some of our regulations are subject to thresholds or 

some activity test, any ability to transfer money in or out of the 

14 

country from a zero dollar threshold automatically brings that payment mechanism, including that mobile phone network, into our 

regulatory framework and subject to all of those controls. 

And furthermore, one of the risks that we had concern with is 

that if we impose an important regulatory framework on the 

United States but do not do something with the ability of entities 

from outside the country to access, that would pose a vulnerability. 

So we specifically have also amended our regulatory framework 

last year taking advantage of the full authority that Congress gave 

to us to assert jurisdiction over foreign-based money transmitter 

providers to the extent that they are serving U.S. persons. So that 

also should avoid that type of regulatory arbitrage, people from 

outside the United States. 

Mr. LUETKEMEYER. There were a couple of studies that had been 

done. The Atlanta Fed, Swift, and the World Bank have acknowledged that these new services had a potential to facilitate money 

laundering. And, the Swift study recommends that regulators take 

a proportionate approach, limited amounts that can be transferred, 

advanced financial inclusion and ensure the soundness of financial 

services. 

What are your thoughts on those recommendations or are you 

aware of those? 

Mr. FREIS. Yes, I am, and it is exactly those type of considerations that we took into account in the development and promulgation of this final rule last year, and we will continue to monitor. 

One thing I can say is that something I instituted after joining the 

agency more than 5 years ago is a year after we promulgate a new 

rule, we take a look at whether it is achieving its intended effect 

and then reconsider whether changes are made. That is something 

we will constantly look at and will certainly be doing in this area 

in a very rapidly evolving marketplace. 

Mr. LUETKEMEYER. Thank you. I yield back the balance of my 

time. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Our final questioner will be Mr. Scott, and 

I think then we will dismiss the panel. We have about 10 minutes 

left until votes. 

Mr. SCOTT. Thank you, Madam Chairwoman. Let me just ask 

you this: What advice would you give the American people if one 

of them were to lose their cell phone, their mobile phone? What 

should they do, especially regarding how they protect their vital information? What should they do if they lose their cell phone? 

Ms. MARTIN. I would say two things, and one is, before you lose 

your cell phone, make sure you have a password on it. 

Mr. SCOTT. I am sorry, you said, ‘‘password?’’ 

Ms. MARTIN. Password-protect your cell phone. Also, I think it is 

very important for consumers to understand what is on their phone 

and who to call if they lose their phone. So to have that information somewhere other than on your phone would be a very good 

step in helping you mitigate the problems that could occur if you 

lose your cell phone. 

Mr. SCOTT. Okay. But on your side of things, what steps would 

you as regulators take to make sure consumers know how and 

when and where to complain, to call, what do they do? It is good 

that they put their cell phone, their ID and password and all of 

15 

that, but is there anything specifically they should do? Should they 

just forget it? If for example, I lose my credit card, I am going to 

call somebody and I am going to say, stop payment on that. So 

there ought to be something or some procedure we can communicate to the consumer as to what you do, particularly if that consumer may not have the password on it or they may have—some 

scam artists out there now are capable of doing a lot of things with 

this advance in technology. So if we don’t have a procedure for 

what consumers should do, we ought to get something out so consumers will know how, when, where, and who to contact once they 

lose this precious instrument. 

Ms. MARTIN. I think who you call might depend on what kinds 

of mobile payment applications you have on your phone. If I had 

a mobile wallet with a credit card attached to it, I would do exactly 

the same thing as if I lost my plastic; I would call that credit card 

company. I think many of those procedures that you would follow 

if you lost your real wallet would be the same things you would do 

if you lost your phone. 

Mr. SCOTT. Okay. Mr. Freis, do you have any comment on that? 

What advice would you give consumers? 

Mr. FREIS. I think being aware of the risk is clear. One thing 

that must be said is that part of the reason why these payment 

products, these prepaid whether it is through a mobile phone or a 

card have taken off because do you have recourse to your funds. So 

unlike if you lost your wallet with cash in it, if you have lost a 

card, you do have the ability to contact the provider to shut down 

that old card and get your money back. It is not lost for good. So 

it is exactly that, which has been of benefit to consumers, and I 

agree with you that it is important that they understand these 

steps to take to follow to get the funds back such as Ms. Martin 

described. 

Mr. SCOTT. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. With us being on a vote, and 

no further questions, the Chair notes that some Members may 

have additional questions for this panel, which they may wish to 

submit in writing. Without objection, the hearing record will remain open for 30 days for Members to submit written questions to 

these witnesses and to place their responses in the record. 

I appreciate the witnesses coming today, and I know we will 

have many more discussions on this as the evolving technology 

brings different challenges, but also different opportunities, and I 

appreciate that. This hearing is adjourned. 

[Whereupon, at 10:28 a.m., the hearing was adjourned.] 

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A P P E N D I X 

June 29, 2012 

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