Whether Apple Pay is the mobile payment service everyone’s been waiting for, or something no one wants, won’t be known until it’s formally rolled out and given time to either thrive or wither away.

But Adam Levitin, a financial regulation expert at Georgetown University law school, raises a question that Apple itself may not have pondered: does Apple Pay make the company a financial institution subject to regulation by the Consumer Financial Protection Bureau?

If so, that’s a huge deal, because the CFPB has the authority to delve into the operations of regulated companies far beyond specific financial products. The agency could look into allegations of “unfair, deceptive and abusive acts and practices” anywhere in Apple’s operations: there’s nothing in the law, Levitin observes, that says “the unfair, deceptive or abusive acts and practices has to have any relationship with the consumer finance business.”

And not only the CFPB can weigh in. “Read literally,” Levitin writes, the Consumer Financial Protection Act renders anything Apple does “fair game for state AGs [attorneys general], and for private attorneys who use private rights of action” under state laws.


A couple of caveats are in order. Levitin himself isn’t sure that the act applies as he says, in part because the details of how Apple Pay works haven’t been made fully public. He says he’s not sure that either the CFPB or Apple would agree with his reading of the law. We’ve reached out to Apple with the questions Levitin raised, and will update here if and when the company responds.

As described by Apple CEO Tim Cook and other executives at their big keynote this week and in a press release, Apple Pay will allow users of the new iPhone 6 and the forthcoming Apple Watch to make credit-card purchases by holding their device near a receiver at a retailer’s payment counter. McDonald’s and Macy’s are among the retailers already signed up to take payments that way.

At the counter, the devices will use an encrypted code tied to a user’s credit card to validate the transaction. What makes this process secure, Apple says, is that the card information itself is not stored on the device or transmitted at the point of sale. Apple itself isn’t transmitting funds--the transaction information is sent to the card issuer, which then pays the vendor.

Levitin reads this as making Apple a “service provider” under the law--that is, an entity that provides “a material service...in connection with the offering or provision ...of a consumer financial product or service.”


The definition of “service provider,” he adds, “explicitly includes anyone who ‘processes transactions relating to the consumer financial product or service.’ That sure sounds like Apple’s role in the Apple Pay environment.”

Apple’s relationship with its fans--excuse me, its customers--is generally enviable. But things occasionally get nasty. There have been big consumer controversies over allegedly faulty antennas on iPhone models, complaints about lousy battery life and outbursts of discontent about bugs when the company rolls out upgrades to the operating software for its computers and mobile devices.

If Levitin’s right, the company isn’t going to relish having scads more oversight from federal and state regulators and private attorneys, treating every consumer disappointment as an actionable consumer ripoff.

As he observes, “Apple just walked into the very different world of being a regulated entity....Are Apple’s lawyers aware of this? Tim Cook?”


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