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Consumers Union calls for NFC regulation

Network operators can't be trusted, not like banks

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As America wakes up to the idea of pay-by-phone the Consumers Union is calling for greater regulation, concerned that proximity payments may not receive any protection at all.

Various pay-by-phone operations, based on Near Field Communications technology, are being tested in the US at the moment, with a consortium of US network operators committed to creating an interoperable system. But the Consumers Union reckons that such payments need to be as protected as debit cards, at the very least.

The problem is that while credit cards come with a $50 limit on customer liability - and even users of debit cards risk a maximum of $500 - the kind of pre-payment mechanisms proposed by the current crop of proximity payment systems offer no protection to the customer at all.

That might not matter when you load up your phone with $25 and pay for a cup of coffee or two - if you end up in dispute with the coffee shop you can just take your custom elsewhere or badmouth the place on Yelp. But if pay-by-phone goes mainstream then there could be a lot more money changing hands with users unaware of the risks they are taking.

Should you find yourself in dispute with an internet retailer then threatening to take the matter to your credit card company is remarkably effective - the credit card will refund your money and take over the dispute, though the retailer will generally capitulate before that happens. Debit cards aren't quite so effective in such circumstances, but users are generally familiar with their limitations.

Equally well protected are direct fund transfers, direct debits as we know them here in the UK. The smallest disagreement over a direct debit results in an instant refund, with the parties left to argue it out later.

The complete opposite applies in the case of pre-payment systems, under which the consumer has no more protection than would apply if they had paid cash - once the (virtual) money is in the merchant's (virtual) hands then it can't be easily retrieved.

The Consumers Union points out that it's not clear which of these mechanisms will apply to proximity payment systems, but that imposing some rules would be an ideal start for the new-fangled Consumer Financial Protection Bureau that got voted into being last month. It might seem overkill for the price of a cup of coffee, but there is an argument for sorting out the regulation before it becomes a bigger issue. ®

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