CFPB warns banks of video game money laundering and fraud risks

of Consumer Financial Protection Bureau released report Last week, we discussed the inadequate consumer protections that video game manufacturers provide their players, particularly against fraud and account theft. The agency also warned of data collection practices that it said publishers could use to “exploit players' proclivities to induce more spending.”

The department said in its report: 2019 Papers We analyzed 13 patents related to in-game purchases. According to the paper, the systems studied “optimize offers to encourage continued spending” and potentially lure vulnerable players, such as adolescents and problem gamers, without promising them the right to a refund. It was discovered that he was being exploited.

video game Represents a large sector of the US economy. According to the bureau's report, U.S. consumers will spend nearly $57 billion on gaming in 2023, including hardware, software, and in-game purchases such as converting dollars into virtual currency and other gaming assets. Also includes transactions.

The video game economy includes companies other than game publishers, including many large technology companies.For example: 2021 Court Decision In a lawsuit between Apple and game publisher Epic Games, 70% of the revenue Apple collects from its app store comes from gaming apps. The court added that 70% of this revenue is generated by less than 10% of app store users.

“As more banking and payment activities occur in video games and virtual worlds, [bureau] We are looking at ways to protect consumers from scams and scams,” said CFPB Director Rohit Chopra. press release Regarding the station's game report.

Chopra added statement The report explores how these worlds can become a haven for scams, scams, financial losses, and unexpected purchases that can deplete a family's real-world financial assets, including how The report said it focuses on the potential harms associated with gaming to people such as and other vulnerable groups.

This report documents the various ways value is stored and transferred within games, including interactions with fiat currencies. If a game does not allow players to convert in-game value into fiat currency, third-party systems may act as a bridge.

One of the games that allows exchange for fiat currency is Second Life, owned by Linden Labs. Players can use Linden Dollars to purchase virtual items, pay other players, and purchase services within the game. Players can buy Linden Dollars with USD or exchange Linden Dollars back into USD. Withdrawals from the game he charges a 5% fee and may take approximately 30 days.

Value can also be stored and transferred within the game in the form of virtual items. Virtual items are usually decorative items or cosmetics that only have an aesthetic impact on the game. These items may be traded between players as payment, sometimes for large amounts of money. In one case last year, a player sold a set of knife and gun skins in the game Counter-Strike. Over $500,000.

Where there is value, there is also fraud and money laundering. The bureau's report cited a 2023 financial report by Roblox, the publisher of the popular game of the same name, that showed the company had total chargebacks equal to 3% of its total bookings that year. It is shown that. In other words, the game generated him $3.5 billion in in-game transactions, but the company lost $110 million due to fraud.

The report advised financial institutions to be aware of the potential risks associated with gaming assets, the potential for fraud and money laundering in the gaming market, and the role of gaming-specific financial products that resemble traditional financial services. .

The report concludes that “consumer protection laws apply to banking and payment systems that facilitate the storage and exchange of valuable assets,” and therefore the bureau requires that gaming platforms on which financial products and services are offered I'm monitoring it. The bureau's report recommended that video game makers provide consumer protections similar to those provided by traditional banks and payment systems.

When reviewing the report, attorneys at the law firm Shepard Mullin advise gaming companies to carefully review the report and analyze their current practices to minimize the risks described in the report. They advised players to identify immediate steps that can be taken to reduce the risk of abuse, and in particular to ensure that players are aware of how gaming companies are using their games. Collect data and assess whether a product is subject to laws such as the Electronic Funds Transfer Act.

“The CFPB continues to demonstrate that it will monitor non-traditional markets and go wherever financial products and services (regardless of infrastructure) may be provided,” the company's lawyers wrote in a blog post. mentioned in. “The Bureau has not hesitated to use its risk-based supervisory powers to scrutinize nonbank institutions that offer products that may pose a ‘risk to consumers.’”