Consumer protections lacking for mobile payments

If you use your cell phone to make mobile payments, your level of protection against financial liability if something goes wrong will vary depending on your wireless carrier's policies and your cell phone contract, according to a new analysis by Consumers Union, the advocacy arm of Consumer Reports.

Consumers Union wants mobile payments to have the same guaranteed protections that credit and debit card transactions have, and ideally, would like to see the protections afforded to cell phone owners in California applied nation wide.

This past May, Consumers Union called on the big wireless carriers to strengthen their contracts to protect you when you use your phone to make financial transactions, in the event that your phone is lost or stolen, or if a merchant makes a billing mistake or you're not satisfied with a purchase.

"We found that consumer rights can vary widely between wireless carriers and the protections carriers claim to provide are often nowhere to be found in customer contracts," said Michelle Jun, senior attorney for Consumers Union. "As new mobile payment options become available, consumers are better off sticking to services linked to credit cards or debit cards, which come with strong protections required by law."

Below are Consumers Union's suggestions for better protections, and what the top wireless carriers currently offer:

1. Limit liability when phones are lost or stolen: Verizon Wireless' contract makes clear that its customers are not liable for charges related to a lost or stolen phone. Contracts for AT&T, Sprint, and T-Mobile protect customers from fraudulent charges made after a phone is reported lost or stolen but consumers may be on the hook for charges made before making a report.
   
2. Limit liability for disputed charges: If a billing error appears on a monthly credit card statement, there is no liability for the customer as long as the customer reports the error within 60 days. "Billing error" also includes a dispute with a merchant about the delivery or acceptability of goods or services. While all four wireless carriers insist they provide refunds for billing errors or when customers are unhappy with purchases, these rights are not clearly disclosed in their contracts.
   
3. Credit prepaid customers within 10 days for disputed charges: AT&T, Sprint, and T-Mobile indicated that they strive to provide prompt refunds but none guarantee in their contracts that pre-paid customers will get a provisional refund within ten days after reporting fraudulent charges. Verizon Wireless does not allow customers with pre-paid phone accounts to make mobile payment charges.
   
4. Give customers the right to withhold payments for disputed charges: Sprint's contract indicates that customers don't have to pay for disputed charges as long as they are reported within 60 days. AT&T said that it gives all customers the right to withhold payments during an investigation but its contract only discloses this right to Californians. T-Mobile discloses these rights for California customers but not for customers living in other states. Verizon Wireless' contract allows customers to withhold payment for charges related to lost or stolen phones but it does not indicate that consumers have this same right for other kinds of disputed charges.
   
5. Enable customers to set a cap on mobile payment charges: All four wireless carriers allow customers to block third party charges, but AT&T and Sprint do not disclose this right in their contracts. AT&T, Sprint and Verizon Wireless set their own dollar limits on allowable charges (AT&T has a $100 limit per month per line while Sprint and Verizon Wireless limit charges to $25 per month per line). AT&T enables consumers to set their own limits but charges $4.99 per line each month to do so.

"If wireless carriers want consumers to have confidence in direct carrier billing programs, they should strengthen their contracts with the protections consumers need," Jun said.

For more on the dawn of digital wallets and some of the hidden costs of making mobile payments, you can read New ways to pay, which appeared in the September issue of Consumer Reports. And for helpful hints and advice about mobile payment, see Consumers Union's: Mobile payments tip sheet: What can consumers do now.

How Top Wireless Carriers Compare on Consumer Protections For Mobile Payments [Consumers Union's DefendYourDollars.org]

—Maggie Shader