CFPB has joined the game – Identifies Consumer risks in virtual worlds and video games

The Consumer Financial Protection Bureau (“CFPB”) has vowed to monitor non-traditional markets where financial products and services may be offered, including video games and virtual worlds. In April, the CFPB released an Issue Spotlight identifying a number of concerning issues regarding gaming markets and virtual worlds.

The Issue Spotlight does not impose legal obligations on video game companies or the entities overseeing virtual worlds, nor does it give an official interpretation of any law or regulation.  However, the CFPB encourages those entities to evaluate their legal obligations and responsibilities and act accordingly.

The CFPB estimates that the value of the global gaming industry is $250 billion annually, and that figure is expected to surpass $320 billion by 2026.  As the value of the gaming and virtual worlds industry has increased, digital assets associated with them have become increasingly valuable. The CFPB says operators often take a “buyer beware” approach that leaves aggrieved games little-to-no recourse when problems arise.

Key Findings from the Issue Spotlight

Financial services providers have begun entering the gaming industry in the form of payment processing, money transmission, and even loans as the value of assets flowing in and out gaming marketplaces increase.  With the rise in the value of gaming assets, users report an increasing number of hacking attempts, account theft, scams, and unauthorized transactions that result in lost access; the CFPB is critical of gaming and virtual world operators not providing the kinds of consumer protections that apply to traditional banking and payment systems.

The CFPB also recognizes that gaming publishers often collect huge amounts of surveillance data about from their users.  The data collected includes location data, social media data, and behavioral data, such as how a player responds to personalized incentives.  The CFPB identified consumer risks and potential harm related to user data being sold, bought, or traded between companies, including transferring data for purposes outside of game play.  The CFPB also identified using collected data to monetize game play in a manner that may take advantage of consumers’ proclivities to entice more spending as an area of concern.

The CFPB identified a number of ways operators can make money on user data including microtransactions, discriminatory pricing, and advertising.  The CFPB highlighted the use of behavioral, biometric, and personal data to manipulate prices and availability of goods or services and obscuring the real value of the same as a particular area of concern. The CFPB questioned whether proper privacy regulations are being adhered to and whether consumers were fully aware of how their data is being used by operators. 

Additional Concerns Highlighted by the Issue Spotlight

The CFPB analyzed concerns arising form gaming assets having substantial monetary value and highlighted issues related to account vulnerability, money laundering, and fraud.  The monetary value of player accounts and/or ability to cash-out gaming assets has led to an influx of phishing attempts and reports of account theft.  Industry experts consider young gamers especially at risk to phishing attempts because of both their social media activity and lack of awareness about social engineering tactics.  The CFPB highlighted the limited recourse operators provide for players reporting hacking attempts, account theft, scam, unauthorized transactions or losing access to game currencies and virtual items.  Some gamers have reported that pursuing fraud related recourse from their financial institutions has resulted in play accounts being locked or terminated.

The capacity to transfer and convert crypto assets or gaming assets to fiat currency has given rise to using gaming platforms and virtual worlds as a vehicle for money laundering.  The CFPB notes that ill gotten money can be used to buy gaming assets which can be converted back into fiat currency; the transfers can obfuscate the trail of illegally acquired funds.

The CFPB has explicitly highlighted the wide popularity of video games and virtual worlds with young players as a basis for extra concern regarding these issues.

Conclusion

The role of banks and consumer finance products within gaming is evolving, and as it does the CFPB will seemingly look to expand its regulatory authority to include overseeing the financial services and products available in virtual worlds and video games.