Mark April 4, 2024 in your calendar – it is the day that the Consumer Financial Protection Bureau (CFPB) set its sights on the video game industry. The CFPB issued a Report this week entitled "Banking in video game and virtual worlds[1]." In the Report, the CFPB detailed the many different ways it believes the video game industry is engaging in the provision of "financial services." The CFPB's ultimate conclusion was that: "[c]onsumer protection laws apply to banking and payment systems that facilitate the storage and exchange of valuable assets [such as video games]. The CFPB is monitoring…gaming platforms." In short, the CFPB thinks video game accounts should be treated like bank accounts.
What You Need to Know:
- The Consumer Financial Protection Bureau (CFPB) is laying the groundwork to investigate the video game industry.
- The Bureau believes that many video game developers and publishers are providing "financial services" to their customers.
- The Bureau has taken this approach with various emerging technologies over the years, and the video game industry should be preparing for a 'battle royale'.
We have not seen this kind of governmental focus on the video game industry since Republican Senator Josh Hawley introduced the "Protecting Children from Abusive Games Act" in May 2019[2]. Interestingly enough, the Report raises some of the same concerns about 'loot boxes' that Hawley raised back in 2019. The Hawley bill expired in January 2021, and many thought that was the end of government scrutiny of the industry. The CFPB Report changes all that.
The Report describes multiple ways in which the CFPB believes the gaming industry is engaging in "consumer financial services," including:
- Facilitating person to person (P2P) transfer of in-game assets (i.e., skins and virtual currency);
- Conversion, purchase, and issue of in-game currency;
- Storage of in-game currency and/or assets, including specific mentions of skins; and
- Dynamic pricing of in-game assets, including a specific call-out of "dynamic odds", wherein the odds of obtaining in-game assets by chance may be discriminatory.
In addition, the Report addresses concerns related to data collection and utilization, particularly with respect to younger players. The CFPB questions the way data is collected, the types of data being collected (including biometric and geolocation data), and the ways data may be used by computer algorithms and artificial intelligence mechanisms.
While the CFPB did not express concerns about violations of specific consumer protection statutes in the Report, it specifically targets the vulnerabilities of personal video game accounts to fraud. The Report also references the general lack of recourse for gamers who lose their gaming assets through fraud, manipulations and/or the failure of game developers to take action against unauthorized charges. The CFPB specifically noted that some developers use their terms and conditions to limit consumer recourse, require consumers to dispute charges with the company first, and may terminate accounts of consumers for violating terms and conditions without compensating them for the lost value of in-game assets. Think of the situation of a collectable card game, where a player has potentially spent hundreds or even thousands on rare cards, and then their account is suspended or disabled without compensation.
So as a gamer or a game developer, why should you care? Well, the Report is just the first step in a long process. The CFPB has the power and authority to issue investigational subpoenas known as Civil Investigative Demands (CIDs) when looking into potential violations of law. A CID may demand, among other things, documents, emails, reports, answers to written questions, and oral testimony. So, the CFPB can pretty much delve into a game developer's corporate records, to see what they can uncover. If they find reason to proceed further, the CFPB can issue warning letters and initiate enforcement actions against companies (i.e., litigation in Federal Court). The CFPB lists all the enforcement actions they are currently undertaking on their website[3]. As of January 19, 2024, CFPB enforcement actions have resulted in: (a) $19 Billion in consumer relief, and (b) $4.2 Billion in civil money penalties[4].
The CFPB's jurisdiction, however, is limited in certain ways. The CFPB does not address which of its statutory authorities would allow it to cover the gaming industry, but it announced in 2022 its plans to begin using what it calls its "dormant authority" to examine non-bank companies that it deems to pose risks to consumers. This authority, located at 12 U.S.C. § 5514(a)(1)(C), allows the CFPB to supervise non-bank entities that engage in "conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services." In February 2024, the CFPB publicly released for the first time an Order establishing its supervisory authority over a non-bank entity, a so-called "installment lender"[5]. This Report is likely the first step towards a similar order directed to the video game industry.
So where do we go from here? The Report specifically mentions games such as World of Warcraft, Runescape, Fortnite, Second Life and Roblox, as well as blockchain games like Axie Infinity, The Sandbox and Decentraland – will these games be the focus of the CFPB's initial efforts? That is hard to say, as is whether any investigations will ultimately take place. The Report certainly provides perspective on the CFPB's thought process. The CFPB's Director (Rohit Chopra) issued a formal statement on the Report, noting that the Report "offers a window into how money moves in and out of gaming and virtual worlds" and that the CFPB is "working to understand how these worlds can become a haven for scams, fraud, financial losses, and unanticipated purchases that can deplete a family's real-world financial assets." Serious statements – it seems that a 'battle royale' may soon begin, and the video game industry needs to gear up.
If you have questions about this alert, please contact the authors.
[1] You can read the full Report here.
[2] See "From Gachapon To Video Game DLC: A Brief History of Loot Boxes, Gambling and the Law," Darius C. Gambino, Sept. 28, 2022 here.
[3] See https://www.consumerfinance.gov/enforcement/actions/.
[4] See https://www.consumerfinance.gov/enforcement/enforcement-by-the-numbers/.
[5] See https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-federal-supervision-for-installment-lender-following-contested-designation/.
