For the first time, the Consumer Financial Protection Bureau (CFPB) has publicly expressed interest in regulating video game companies for financial transactions they offer and consumer data they collect.

Opening the Valve of Increased Oversight

Video games offer a range of applications and features, some of which the CFPB believes may be considered financial products and services, but the CFPB asserts that many gaming publishers opt for a “buyer beware approach” and don’t follow consumer protections that apply to traditional banking and payment systems. This, according to the CFPB, can leave players vulnerable to theft, scams, unauthorized transactions, and risks associated with the collection and sale of their data.

A recent Bureau report calls for new or strengthened monitoring standards.

The report raises the possibility that the CFPB may investigate video game companies, a process that can be lengthy, costly, and intrusive for the companies involved. The Bureau also could propose and/or issue regulations or rules applying stricter consumer protection requirements to video game marketplaces.

Don’t Wait a Fortnite to Act: What Video Game Companies Should Consider Now

Video game developers and publishers should be aware of the CFPB’s interest in their industry and view their practices through the lens of potential increased regulatory oversight. They also should:

• Read the CFPB report and understand its findings.
• Determine whether any current or anticipated business practices may attract interest from regulators.
• Review their data collection and retention protocols.

The CFPB Is the Overwatch of Consumer Financial Products and Services

In addition to overseeing traditional consumer financial services companies, such as banks and mortgage lenders, the CFPB has supervisory oversight authority over “larger participants” in markets for consumer financial products or services.

The Bureau has proposed a rule to assume that authority over nonbanks in the market for “general-use digital consumer payment applications,” broadly defined to include most digital payment technologies, which the CFPB could take the position applies to payment-related activities in video game platforms.

Beyond its supervisory authority, the CFPB can investigate and bring suit under federal consumer financial law. It can issue civil investigative demands (CIDs) to seek documents, data, written responses, and testimony as part of an investigation.  

CFPB enforcement actions have resulted in $19 billion in consumer relief and $4.8 billion in civil money penalties since its inception.

A Far Cry From Coins and Mushrooms: Financial Transactions and Assets in Gaming Worlds

Consumers spend billions of dollars a year in gaming and virtual worlds, buying gaming assets and using them to make in-game purchases.

Many video games have transitioned from single up-front payments to microtransactions—a series of smaller, regular payments—for in-game experiences or items.  

Along with microtransactions, various other types of payment-related activities have emerged on online gaming platforms, including:

• Use of cryptocurrency to trade gaming assets.
• Expanding trade in virtual items and digital cosmetic goods called “skins.”
• Facilitation of loans, proprietary payment systems, digital wallets, and credit facilities.
• Implementation of player-to-player secondary marketplaces facilitating the exchange and storage of digital assets.

The increased prevalence of digital assets backed by real world dollars has led to increased reports of account theft, scams and other fraudulent transactions.  The CFPB reports increased complaints from players that received limited recourse from gaming companies after reporting scams and stolen accounts, including reports that some gaming companies routinely terminate the accounts of players pursuing recourse for unauthorized game purchases.   The report also highlights concerns about digital currency exchanges, and complaints alleging the companies are hiding the actual dollar cost of digital goods.

Regulators Are Ready for Mortal Kombat Over Consumer Data Collection

Companies increasingly collect player data, including location and biometric data. They can monetize the data in numerous ways, including by selling it to third parties.

The CFPB’s report expressed concern about how companies collect, store, and sell data.

Game publishers can monitor aspects of player behavior, gleaning insights about financial habits, lifestyle, location, demographics, and other information. The CFPB worries that some companies may exploit this data to adjust prices and control the availability of goods and services—or to target ads to specific audiences—to improve profitability.

The CFPB says it will work with other agencies to monitor gaming companies that collect and sell consumer data. It expressed particular concern about companies that monetize consumer data without the consumer’s awareness (especially minors and their parents) and about practices that otherwise raise data privacy concerns.  The CFPB also noted that both digital marketplaces and large gaming companies have experienced a number of data breaches and hacks, pointing to an industry-wide security issue.

Summing Up 

• The Bureau notes that many video game companies are exploring or providing services that the Bureau believes may resemble traditional financial products. It argues for comprehensive regulations.
• The CFPB expresses concern that online gaming accounts may be vulnerable to loss, fraud, cyberattacks, and other issues. Regulators argue that gamers may have inadequate support in the event of such breaches.
• Consumer protection laws apply to banking and payment systems that facilitate the storage and exchange of valuable assets.
• The CFPB is monitoring nontraditional markets where consumer financial products and services may be offered, including where such products and services are provided by or in connection with proprietary gaming platforms.
• Gaming companies should review their current practices, both with an eye toward addressing potential consumer protection, privacy, and related concerns and also to assess the strength of their arguments that their products and services should not be regarded as financial in nature and, hence, should not fall under the Bureau’s purview.

Want to know more? Reach out to Jay Williams or Olivia Ragoowansi.