Consumer protections vary a lot when paying by mobile phone

What are your consumer protections when you make a purchase through your mobile phone? The answer is murkier than you'd think.

According to Michelle Jun, staff attorney for Consumers Union's Defend Your Dollars campaign, it all depends on the payment system behind your mobile purchase. If you're paying with a credit card, you're only responsible for $50 of an unauthorized purchase. But fraud on debit cards can expose cardholders to $500 or more in liability, depending on how soon consumers report it. Voluntary payment network "zero liability" policies offered by debit card issuers contain significant loopholes. Prepaid cards, where funds are pooled from many cardholders, may lack even the protections that apply to traditional debit cards.

Consumer rights involving disputes with merchants can be even more confusing. Credit cards provide protections in case of bank errors, unauthorized use, and disputes with merchants, but debit cards provide only protections for bank errors and unauthorized use, not for disputes with the merchant. (In "Debit or credit: Which card to use?" Consumer Reports Money Adviser  details the protections—or lack thereof—of each form of payment)

"Consumers should not be expected to figure out what protections apply to each competing new payments venture," Jun says.

Defend Your Dollars, an advocacy arm of Consumers Union, is proposing that companies offering mobile payment systems give consumers who pay by mobile phone the protections afforded to both debit- and credit-card purchases, and that all consumers be given full "zero liability" assurance without loopholes.

The Federal Reserve, says Jun, could start the ball rolling now by offering debit-card-like protections for purchases by prepaid cards. Barring that development, Jun says CU will be making the case to the new Bureau of Consumer Financial Protection (CFPB) when it begins operation within the next 18 months.

Notes Jun: "Now that mobile payment ventures are emerging in the U.S., it's time to harmonize and extend consumer protections for all payment services."