CFPB Highlights Financial Risks in Online Games and Virtual Worlds

Introduction

The Consumer Financial Protection Bureau (CFPB) recently released a report highlighting the growing financial activities within online video games and virtual worlds. This report, published on April 4, underscores the bureau's concerns regarding the embedded banking and payment systems within these platforms[^1^].

 

CFPB's Stance on Gaming Industry Oversight

The report indicates a significant shift, signaling that video game companies are within the CFPB’s regulatory scope. Game publishers and tech giants are now on notice that their financial services will be closely monitored for compliance with federal consumer financial protection laws.

 

Key Findings and Concerns

The CFPB's report points out that the financial services integrated into game marketplaces are becoming indistinguishable from traditional financial services. This evolution includes the use of game assets that resemble fiat currency, raising concerns about consumer protection, data privacy, and potential financial risks for players.

 

 Implications for Game and Virtual World Operators

Game and virtual world operators, who may not be used to CFPB oversight, are advised to read this report carefully. The bureau highlights the lack of consumer protections compared to traditional banking and payment systems, emphasizing the need for these operators to enhance their consumer protection measures.

 

 Market Participants and Areas of Focus

The report focuses on companies that allow the buying and selling of in-game assets, including in-game currencies, virtual items, and crypto-assets. It also highlights the role of third-party systems, such as marketplaces and crypto exchanges, which facilitate the transfer of game assets to fiat currency.

 

 Risks Highlighted by the CFPB

The report details several risks, including:

• Fraud and Privacy Risks: As game assets accrue significant monetary value, there is a rise in hacking attempts, account theft, scams, and unauthorized transactions. Game companies collect vast amounts of data, including purchasing history and biometric data, which can be monetized in ways that may harm gamers, particularly young people.
• Data Breaches:Third-party systems collecting personally identifiable information have experienced numerous data breaches and hacks, increasing the risk to consumers.

 

 Evolution of Gaming Business Models

The business models of games have significantly evolved. Traditional closed-loop economies, where gamers could not cash out virtual items, have given way to models where players can buy, sell, and trade virtual currencies and items. These new models have brought gaming platforms under the potential application of money transmission and electronic funds transfer laws.

 

 CFPB’s Future Actions

The CFPB is likely to continue its scrutiny of nontraditional markets, with possible market monitoring orders for certain participants, similar to its previous actions with large technology companies, buy-now-pay-later providers, and auto lenders[^2^][^3^][^4^]. This increased scrutiny could lead to investigations and enforcement actions against game companies lacking adequate consumer protections.

 

 Recommendations for Game Companies

Game companies should:

 

1. **Assess Harmful Practices:** Evaluate the potential financial losses due to theft and scams related to game asset transactions.

2. **Review Privacy Compliance:** Ensure compliance with privacy rules and transparency about data collection and usage, especially for young consumers and their parents.

3. **Evaluate Regulatory Compliance:** Determine if their services fall under various consumer financial services laws, such as the Electronic Fund Transfer Act and state money transmission laws.

 

 Conclusion

With this report, the CFPB has made it clear that the gaming industry's financial activities will be closely monitored. Game companies must take proactive steps to align with federal consumer financial protection laws to avoid regulatory actions.

 

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 References

 

1: CFPB, "Banking in video games and virtual worlds," April 2024, available at [CFPB Report](https://files.consumerfinance.gov/f/documents/cfpb_banking-in-video-games-and-virtual-worlds_2024-04.pdf).

2: CFPB, "Orders tech giants to turn over information on their payment system plans," available at [CFPB Orders](https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-tech-giants-to-turn-over-information-on-their-payment-system-plans/).

3: CFPB, "Inquiry into buy-now-pay-later credit," available at [CFPB BNPL Inquiry](https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-opens-inquiry-into-buy-now-pay-later-credit/).

4: CFPB, "Our auto finance data pilot," available at [CFPB Auto Finance](https://www.consumerfinance.gov/about-us/blog/our-auto-finance-data-pilot/).

5: CFPB, "Federal supervision for installment lender following contested designation," available at [CFPB Supervision](https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-federal-supervision-for-installment-lender-following-contested-designation/).

6: CFPB, "Launches inquiry into the business practices of data brokers," available at [CFPB Data Brokers](https://www.consumerfinance.gov/about-us/newsroom/cfpb-launches-inquiry-into-the-business-practices-of-data-brokers/).