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Mobile Shopping Apps Fall Short on Consumer Disclosures

As consumers increasingly shop with a smartphone or tablet, many mobile commerce applications lack mechanisms to resolve payment disputes and protect user privacy, according to a new report by the Federal Trade Commission.

Staffers at the FTC evaluated 121 popular mobile apps available through Google Play and Apple’s App Store, combing through the tools that shoppers are turning to to compare prices, access coupons and discounts, and make in-store purchases.

That review uncovered what the FTC described as significant shortcomings in the disclosures the apps offered concerning consumers’ rights and liability limitations in the event of unauthorized, fraudulent or disputed transactions, as well as ambiguous descriptions about how users’ information is collected and used.

“As mobile apps become more central to the shopping experience, it’s important that consumers have meaningful information about how those apps work before they download them,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement. “Consumers should not be left in the dark about their potential liability for erroneous or unauthorized charges or about the way shopping apps handle their data.”

The FTC’s report follows an inquiry into mobile commerce dating back at least to April 2012, when the commission held a workshop evaluating the emerging sector, an event that raised a number of concerns involving payment disputes, security and “cramming,” the practice of billing consumers for hidden charges that they did not knowingly authorize.

The FTC’s ongoing review comes amid a spike in shopping activity on mobile smartphones and tablets, an emerging platform where retailers are scrambling to engage with customers. Last year, mobile commerce in the U.S. retail sector surged 70 percent to more than $42 billion, according to eMarketer. In 2014, the research firm projects mobile commerce will top out at nearly $58 billion, amounting to a more than 37 percent gain. If that forecast bears out, the mobile channel would account for one-fifth of overall ecommerce.

But some of that growth could flag if mobile shopping apps don’t take steps to shore up confidence in their payment services.

FTC staffers noted that mobile apps often failed to provide disclosures about dispute resolution procedures prior to being downloaded, leaving customers in the dark about their potential liabilities if something goes wrong with the transaction. Those concerns are heightened when using a stored-value method of processing payments, the report cautioned, recommending that developers of in-store purchase apps make clear and up-front disclosures about the mechanism for resolving disputes and the limitations on consumers’ liability.

“While a few of the in-store purchase apps that staff reviewed extended liability-limiting protections to consumers through pre-download representations, many provided no such disclosure. Some placed all liability for unauthorized charges on the consumer,” the authors of the report wrote. “Consumers should be able to know what their potential liability is for unauthorized transactions, what, if any, protections are available based on the method of payment, and whether procedures are available for resolving disputes, before committing to use one of these services.”

In the area of privacy, a subject of keen interest at the FTC for years, staffers found that while most mobile apps they reviewed had formal policies stipulating how they handled sensitive data, many contained vague and overly broad language about how users’ information is collected, used and shared. The report called for more specific disclosures regarding data usage that would enable consumers to make more informed decisions as they compare one app to another.

The authors of the report also called on mobile commerce providers to take a stronger stance on security, urging them to “ensure that their strong data security promises translate into strong data security practices.”

Kenneth Corbin on Linkedin
Kenneth Corbin
Kenneth Corbin
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn.