If you think virtual reality has no real-world regulations, think again. On April 4, 2024, the CFPB released an issue spotlight that takes a deep dive into video games and virtual worlds, an area the agency has not previously explored. The CFPB signaled a particular focus on the gaming market, including issues of fraud and money laundering, the impact on young consumers, and the potential for gaming companies to collect vast amounts of sensitive consumer data. The CFPB said this activity calls into question gaming companies’ compliance with applicable laws, including the federal Consumer Financial Protection Act. The agency’s focus on gaming is consistent with recent actions and statements by the CFPB and Director Rohit Chopra regarding emerging technologies and reflects a shift in the agency’s approach to innovation.
Issue spotlight content
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Issue Spotlight provides an extensive overview of the games and virtual worlds market. This describes the rise in the value of gaming assets and the consequent emergence of markets and infrastructure for trading and exchanging these assets. Although these marketplaces resemble traditional banking and payment systems, gaming companies and virtual world operators currently do not offer the consumer protections typically associated with such systems.
The CFPB makes clear that Issue Spotlight does not impose legal obligations or provide an official interpretation of any law or regulation. Because a gaming company’s liability under existing applicable law will be determined on a case-by-case basis, the CFPB encourages these companies to consider their legal obligations and liability accordingly. The focus on these issues may be due in part to the huge size of the gaming market, which is expected to reach $321.1 billion by 2026. The CFPB also “expects” that emerging trends in the gaming market will attract the attention of policymakers and other governments. The statement is seen as urging Congress and other regulators to take action against the government agencies responsible for addressing the issues highlighted.
fraud and money laundering
The ability to transfer and convert gaming assets into fiat or crypto assets has led to money laundering and fraud on gaming platforms. Regarding money laundering, the CFPB notes that illegally obtained fiat currency may be used to purchase gaming assets and later converted back into fiat currency. Transfers can obscure the traces of the original illegally generated funds. Additionally, scammers often leverage compromised user credentials to gain access to player accounts holding in-game currency and virtual items. Many of these accounts are unsecured and lack the security protections typical of traditional bank accounts. Additionally, consumers are threatened by an emerging market of account recovery scammers advertising the availability of lost gaming assets for victims of theft.
Nevertheless, the CFPB says gaming companies often take a “buyer beware” approach, offering little or no redress for aggrieved gamers. Additionally, many third-party systems facilitate the buying, selling, and trading of in-game currency, virtual items, and even entire player accounts, but the CFPB notes that the data security of these sites is weak and puts players at risk. It points out that you can tempt with possible tactics. You’re at risk for credit card fraud, malware, and identity theft.
young consumers
The CFPB highlights the widespread popularity of gaming among young people and the potential vulnerabilities associated with it. For many of them, games serve as an early introduction to financial activities by providing “opportunities to learn about earning currency, managing assets, and purchasing.” Young people may be particularly susceptible to tactics used by gaming companies to induce spending. Gaming companies may also target younger gamers in order to cultivate a long-term consumer base and take advantage of the social aspects of gaming. Research shows that is a key attraction for young players.
Data collection
The CFPB discusses the extensive collection of personal and biometric data in games, which creates detailed offline personal profiles, and how such data can be used to drive increased player spending. is being discussed. The data collected may include financial data, location data, interactions with games and devices, and other information obtained through social media integration. For alternative reality/virtual reality devices, the information can be even more personal and may include biometric data such as posture, gaze, facial expressions, voice, heart rate, and interpersonal distance. The CFPB specifically criticizes gaming companies’ use of data to offer highly personalized pricing and product and service offerings, which “leads players to question the fairness or neutrality of these opportunities.” This may give a misleading impression.
conclusion
The CFPB emphasizes four points. First, the most popular video games include immersive virtual worlds that provide storage and exchange of valuable assets, and game companies are able to store these assets with limited consumer protection. has created a digital marketplace that facilitates the exchange of , leading to harmful practices including financial losses for players. For theft and fraud. Second, consumer protection laws apply to banking and payment systems that facilitate the storage and exchange of valuable assets. Third, the authorities will monitor non-traditional markets in which consumer financial products and services may be offered, including those offered by or in connection with proprietary gaming platforms. I am. Fourth, the vast accumulation of consumer data by gaming companies raises the question of whether privacy rules are being followed and that young consumers and their parents are concerned about how their data is being collected and used. This raises the question of whether we are fully aware of the current situation. The CFPB has pledged to continue working with other agencies to monitor companies that “collect and sell sensitive consumer data,” including payment history, “especially if this data is hidden beyond the user’s knowledge. Attention is now focused on “if the information is collected and monetized.”
Analysis and key points
The spotlight on CFPB issues may seem sudden at first glance. While an interesting topic, consumer protection concerns related to gaming platforms and virtual worlds do not seem to be a top priority for his CFPB, with the phrases “skins” and “loot boxes” appearing in CFPB communications. This may be the first time. But a close look at the CFPB’s recent statements and actions provides important context.
- FCRA rule creation and data collection: The CFPB has focused its recent policy efforts on collecting and monetizing consumer data. The CFPB is currently working on a Fair Credit Reporting Act (FCRA) rule that would subject data brokers to the FCRA. The CFPB may be informing gaming site and virtual world operators that the agency considers them data brokers subject to the rulemaking. The report’s reference to “data surveillance” also echoes Chopra’s language in a recent White House speech that characterized widespread consumer data collection as a national security issue.
- tech flex: Issue Spotlight is consistent with the CFPB’s proactive and proactive approach to technology issues under Director Chopra. The CFPB is proposing to designate digital wallet and payment app providers for oversight. The CFPB authorities have issued several guidance documents to address consumer protection concerns and ambiguities related to their application to new technology platforms and business arrangements, including some related to digital comparison shopping. Covered in previous legal updates, including recent UDAAP guidance. Previous RESPA guidance on platforms and similar topics. The CFPB is also advertising for the recruitment of technicians to strengthen its position and capabilities.
- Refocus your approach to innovation: Issue Spotlight marks a shift in the CFPB’s approach to innovation. Under the Trump administration, the agency launched an Office of Innovation (OI) and announced new policies that briefly garnered widespread attention. Through OI, his CFPB leadership at the time prioritized working with companies to provide regulatory relief and explore sandboxes to encourage innovative product development. However, in 2022, the CFPB announced that it would be moving away from these policies and rebranding OI as the Office of Competition and Innovation (OCI). Currently, the CFPB’s focus through OCI appears to be on establishing why innovative technology providers and products must comply with existing consumer protections. An earlier example was last year’s report on tap-to-pay technology.
- UDAAP protects young consumers: The CFPB appears to have indicated its intention to use UDAAP authority to protect young consumers from unfair or abusive practices related to gaming and virtual world platforms. While the CFPB’s policy concerns may have merit, we note some interesting historical parallels with decades ago, when the FTC sought to address perceived risks to children in the analog era. I’ll pay attention. During the 1960s and 1970s, the FTC accepted a broad view of his FTC Act’s unfair powers. This culminated in a 1978 rulemaking that sought to ban certain advertising during children’s television programming. The ensuing backlash led to Congressional defunding, and a Washington Post editorial tagged the FTC as “the great national nanny.” It also facilitated the rollback of the FTC’s unfairness powers through a seminal 1980 policy statement that was later codified into law. The CFPB may want to heed the lessons of history to avoid potential overreach in this area, especially as it continues to flesh out the contours of abuse of power.
inquiry
Husch Blackwell’s attorneys help companies navigate the CFPB’s approach to innovation issues in general and gaming and virtual worlds in particular. One of the co-authors of this legal update spent over 12 years at the CFPB, where she led several innovation-related initiatives. If you have any questions, please contact Mike G. Silver, Leslie Sowers, Alex McFall, Jacob Huston, or a Husch Blackwell attorney.
