Technology Law Alerts

August 11th, 2014

FTC Report Finds Disclosures Lacking in Many Mobile Shopping Apps

On August 1, 2014 the Federal Trade Commission issued a study on mobile shopping apps. The report, What's the Deal? An FTC Study on Mobile Shopping Apps, lauded certain mobile shopping apps for providing "beneficial services designed to enhance the consumer shopping experience." However, the FTC also concluded that "the apps studied often failed to provide important "pre-download" information." Specifically, the FTC study found that the mobile shopping apps did not adequately describe (1) customer liability; (2) the handling of payment-related disputes and/or (3) how data would actually be collected, used or shared.

The FTC study began by discussing how the growth of mobile technology is changing the way people shop. The study noted that mobile shopping apps allow consumers to do many useful things, including to compare prices, collect and redeem coupons, and pay for purchases. Therefore, the FTC used these three features as the criteria for deciding what mobile shopping apps to survey. The FTC looked at the top 25 mobile shopping apps in each of these categories in the iTunes App Store and in Google Play. In the end, the FTC reviewed the promotion pages, developer websites and other "pre-download" information for a total of 121 different mobile shopping apps (several apps included features meeting more than one of the criteria). License agreements, privacy policies, terms documents, and other disclosures which were available without a download of the mobile shopping app were also reviewed.

Generally, the FTC found that it was often difficult to identify "what protections were available to users of in-store purchase apps in case of payment-related disputes" and that, regardless of the "strong security promises" that accompanied the mobile shopping apps, "it [was] difficult for readers to understand how the apps actually handled consumer data." Therefore, the study included the following recommendations for "pre-download" disclosures in mobile shopping apps:

1. Identify Rights and Liability Limits for Unauthorized, Fraudulent, or Erroneous Transactions.

​The study recommended that consumers should be given better information about their potential liability for unauthorized charges, the protections that exist based on the type of payment, and whether procedures are available to resolve a dispute. The FTC recommended that mobile shopping app developers include clear "pre-download" dispute resolution procedures and liability limits information for their consumers-- particularly when a consumer is using a stored value method of payment not subject to the statutory protections afforded to credit or debit card transactions.

2. Clearly Describe How the App Collects, Uses, and Shares Data.

The study found that the privacy policies, which generally accompanied the mobile shopping apps, often included vague privacy language. The disclosures failed to clearly address and detail how the mobile shopping app providers would actually collect, use and share data. The study opined that disclosing such data would allow consumers to "evaluate and compare" the practices of different providers in order to make an informed decision about downloading a particular mobile shopping app. Ultimately, the study states that mobile shopping app developers "can do a better job of considering reasonable data collection and use limitations and describing those activities clearly to consumers."

3. Ensure That Data Security Promises Translate Into Strong Data Security Practices.

​While seemingly self-evident, the study also recommended that if a mobile shopping app promises to use "technical", "organizational" and/or "physical" safeguards to secure consumer data, it should actually do so. Specifically, the study advances the use of available technology inherent in smartphones, and elsewhere, to increase data security.

4. Consumer Awareness.

Beyond its recommendations for mobile shopping app providers, the study also implores consumers to "look for dispute resolution procedures and liability limits" and "consider the payment methods" available before downloading a mobile shopping app. Likewise, the study suggests that if consumers cannot find or are not satisfied with disclosures about how their data will be collected, used or shared, they should "look for a different app" or otherwise consider what level of data they are comfortable providing to the mobile shopping app.

Conclusion

For mobile shopping app developers the take-home message from the study is: be sure to provide adequate "pre-download information" about the consumer protections you provide. At the same time, the study encourages consumers to take a more active role in understanding how a service works before deciding to download a particular mobile shopping app.

If you have a question about the FTC study or its application to your mobile app, please contact Sean F. Kane at (212) 705 4845 or skane@fkks.com, or any other member of the Frankfurt Kurnit Technology Group.