When the Consumer Financial Protection Bureau issued a report about how video game companies are increasingly acting like banks earlier this month, it signaled a potential first step in regulating an industry that has been largely left alone and may not be prepared for oversight.
The CFPB’s report was a “shot across the bow” for the industry according to Stephen Aschettino, a partner at law firm Steptoe LLP.
“Probably the main focus of the CFPB report is to put [gaming companies] on notice that, to the extent they are creating virtual currencies, providing for exchanges to and from fiat [currency], and perhaps even issuing products that could be considered securities, they should be carefully evaluating what laws may might apply,” Aschettino said in an interview last Thursday.
The CFPB report on video games covered a wide range of topics, from in-app purchases on mobile games to surveillance of game players and the potential for fraudulent transactions on third-party websites.
Government scrutiny of the industry was “a long time coming,” according to Agora Director Vanessa Mullin, who oversees games, metaverse and social at the company. Agora provides digital voice and video communication in software including video games. As digital assets such as cryptocurrency led to concerns over consumer protections, video game purchases have increasingly come into the limelight, Mullin said in a Monday interview.
“Buying in-game isn't new, but I think the amount that people are spending and the way that they value the things that they're purchasing within these games is very different,” she said.
The video game industry has been largely unregulated even as it has started connecting in-game currencies and goods to real-world currency through in-game purchases.
Aschettino warns that as the market for digital goods has grown, the industry will soon find itself facing the same kind of compliance concerns faced by banks. “I would argue these types of transactions are already regulated, Aschettino said. “There are anti-money laundering rules, laws that could apply. There are securities laws that could apply, money transmission laws can apply.”
The CFPB report fit a recent pattern of behavior for the bureau, Aschettino said. First, the CFPB issues a report, then it gathers information about the industry for information and then it issues a rule, he said.
Taking on compliance with financial laws and regulations is something that larger gaming platforms such as Google, Microsoft and Facebook can afford to do, according to University of Southern California Associate Professor Milan Miric. But smaller game companies may struggle to make money through these transactions, he said. “There's a difference between the massive platform managing this entire ecosystem and your specific game, which might turn out to be really popular,” he said.
Milic suspects gaming companies and platforms will argue for self-regulation, though he warns that could create “a double-edged sword” as gamers become increasingly savvy about which platforms can afford to offer robust protections.
J.P. Morgan, which the CFPB named in its report as developing tools for gaming payments, declined to comment. Amazon, Apple, Epic, Meta did not respond to multiple requests for comment on the concerns raised by the CFPB report.
The Entertainment Software Association, whose members include companies such as Activision Blizzard, Amazon and Epic Games, was willing to provide a statement in response to the CFPB’s report.
“The video game industry adheres to an age and content-rating system for games and apps that includes upfront disclosures about the ability to make in-game purchases,” ESA Senior Vice President Aubrey Quinn said in an emailed statement. “Parents can enable easy-to-use parental controls to customize their family’s experience. These controls include the ability to manage in-game purchases.”
