On Thursday, December 14, the Federal Communications Commission voted 3-2 to reverse its 2015 order classifying the provision of broadband internet access services as a “telecommunication service” subject to Title II of the Communications Act of 1934, and restoring the classification of broadband internet access services as an “information service” under Title I of the Communications Act. This reclassification moves the provision of broadband internet services from treatment as a utility (with greater governmental oversight over the provision of the utility’s services) to treatment as another offering by a telecommunications service provider.
The December 14 Order consequentially rescinds the rules prohibiting blocking of lawful internet content and applications, throttling or degrading lawful internet traffic, and paid prioritization of certain internet traffic. These three prohibitions form the core of the “net neutrality” rules – essentially, the rules that required all internet traffic to be treated equally.
The FCC reversal on net neutrality could impact consumer payments in a couple of ways. First, fintech companies (generally speaking, young companies with fewer resources whose business models are supported by fast, cheap internet access) which find their internet speeds either throttled or more costly may be outcompeted by larger, more established businesses which can more easily pay for higher internet speeds. This may result in fewer fintech companies bringing new ideas and products to market.
A more direct impact may be felt in peer to peer payment platforms. One could imagine two or three reasonably similar mobile device based payment applications, which have purchased (or can afford) varying degrees of internet access. If one P2P platform takes 1-2 seconds to transact, while another takes 10-15, from a user experience perspective it is reasonable to assume the slower platform will quickly be abandoned in favor of the quicker platform. Again, this favors providers with either larger margins or deeper pockets that can afford to pay for faster internet access, or a model that introduces tiered pricing for speeds. One can imagine P2P platforms offering free and premium versions of their platform, with a premium version introducing higher access and settlement speeds.
Relatedly, the FCC and the Federal Trade Commission signed a memorandum of understanding on December 14 in which the FTC agreed to monitor the broadband market, and investigate and take enforcement actions against internet service providers for unfair or deceptive acts or practices (using the FTC’s authority under Section 5 of the FTC Act). While the FTC is focused on UDAP issues with respect to the provision of internet services, might the CFPB look at internet speeds (and their disclosure) in connection with consumer financial services and identify potential issues for purposes of its authority to prohibit unfair, deceptive, or abusive acts or practices? For example, would banks or platform providers need to disclose their internet speed, and could they face a UDAAP challenge if their transactions failed to meet such speeds?
Following the FCC’s vote, New York Attorney General Eric Schneiderman announced his plans to “lead a multistate lawsuit to stop the rollback of net neutrality.” According to media reports, nearly 20 states, including Massachusetts, Mississippi, Hawaii, Maine, Vermont, and Illinois, have indicated that they intend to participate in Mr. Schneiderman’s lawsuit.