Overview
On April 4, 2024, the Consumer Financial Protection Bureau issued a report titled Banking in Video Games and Virtual Worlds (Report), showing its growing scrutiny of the gaming industry, particularly on the complex ecosystem of financial transactions occurring within online video games and virtual worlds. The Report underscores that the Bureau views the industry's operations as increasingly bank-like since gaming now facilitates billions in transactions, including the exchange of virtual currencies. In the Report, the Bureau explains the flow of money in these digital realms and raises concerns about consumer protection, data privacy, and the potential financial risks impacting players, including minors and other vulnerable populations.
Key Insights from the CFPB Report:
- Financial Transactions Resemble Traditional Banking: The Report explains the Bureau’s view that gaming platforms facilitate transactions in a way similar to banks, e.g., by exchanging and storing valuable assets like virtual currencies and in-game items. The Bureau compared in-game experiences where gaming assets accrue significant monetary value as gamified financial markets.
- Data Privacy Concerns: The Report also illuminates the extensive data collection practices within the gaming industry, including the collection of sensitive financial and personal information. The Bureau expressed concern about this data being misused to manipulate prices or for unauthorized sales in violation of privacy and data security laws and regulations.
- Regulatory Oversight and Compliance Risks: The CFPB has signaled its intent to monitor these non-traditional markets more closely for compliance with federal consumer financial protection laws. This increased scrutiny could lead to investigations and enforcement actions against gaming companies that fail to provide adequate consumer protections or engage in unfair, deceptive, or abusive acts and practices.
- Broader Regulatory Scope: The Report highlights the CFPB’s intent to oversee consumer financial transactions in gaming environments. Financial institutions, gaming companies, and service providers must recognize the expanding boundaries of what the Bureau believes constitutes a consumer finance service or product under federal law.
CFPB Director Rohit Chopra emphasized that"the report offers a window into how money moves in and out of gaming and virtual worlds, [and while] some might argue that these assets are simply gaming credits akin to a gift card or gift certificate—gaming currencies can also be converted back to fiat currency through various means, giving companies the ability to assign and extract considerable value to these currencies that can then be leveraged by conventional financial products."
Director Chopra’s statement highlights a crucial difference between in-game currencies and traditional gift cards, underlining the tangible economic impact and value extraction possible within gaming ecosystems. These characteristics introduce a spectrum of risk and regulatory considerations for gaming companies.
Risk Areas and Mitigation Strategies
- Financial Transaction Risks: To mitigate risks associated with the handling of in-game currencies and financial transactions, companies should consider implementing robust security measures, transparent transaction processes, and clear terms of service that include consumer protections akin to those in the financial industry.
- Data Privacy and Security: Companies should consider adopting stringent data privacy policies that include regular audits, ensuring compliance with existing privacy laws, and clearly disclosing their data collection practices to users.
- Consumer Complaints and Support: Establishing responsive customer support channels to address consumer complaints and disputes effectively is crucial. Companies, in particular, should develop clear procedures for investigating and resolving issues related to scams, account theft, and unauthorized transactions.
Oversight by Other Agencies and Takeaways
Recent enforcement actions taken by the Federal Trade Commission (FTC) against a major video game developer in 2022 and 2023 provide a compelling backdrop to the CFPB’s growing scrutiny of financial transactions within the gaming industry and underscore a stark reminder of the critical importance of adherence to consumer protection laws for gaming companies to comply with federal consumer protection laws, including those aimed at protecting privacy and preventing deceptive practices.
The developer settled with the FTC over allegations of Privacy violations under the Children's Online Privacy Protection Act (COPPA) and engaging in deceptive practices through the use of so-called "dark patterns," which the FTC describes as digital design and psychological tactics that can impair consumer decision making. With regard to allegations of deception, the FTC alleged the company tricked players, including children, into unwanted and often unauthorized purchases and ignored more than one million consumer complaints, internal warnings about unauthorized charges, and locked consumer accounts improperly while reviewing complaints. As the CFPB extends its oversight to financial transactions in gaming, the principles the FTC has espoused of privacy, transparency, and consumer consent remain critical. Further, the FTC's consent order here makes clear the need for gaming companies to fortify their compliance management systems, especially complaint response systems.
With consumer finance embedded in the digital lives of so many Americans, it is no surprise to see that the Bureau has begun to focus more attention on the gaming sector. Now is the time for clients in that space to stress-test their readiness for such additional scrutiny.
