The US Consumer Financial Protection Bureau (CFPB) has proposed a regulation that could reshape consumer protection in the cryptocurrency sector.
The regulation aims to force cryptocurrency service providers to compensate users for loss of funds due to theft or fraud.
US Agency Announces Plan to Expand Consumer Protection in Cryptocurrencies
On January 10, the CFPB announced rules proposal to expand the scope of the Electronic Funds Transfer Act (EFTA) to include cryptocurrency accounts that use “emerging payment mechanisms.” This means subjecting cryptocurrency accounts to the same error and fraud prevention standards as traditional bank accounts.
The Bureau also proposed redefining the term “fund” to include assets beyond the U.S. dollar. This broader interpretation covers assets that act as a medium of exchange or measure of value, such as cryptocurrencies.
Additionally, wallet providers will be required to disclose important consumer rights, including liability for unauthorized transactions, transaction limits, applicable fees, and resolution processes error. Regular reporting and notification of changes to terms will also be required.
If implemented, this regulation could provide stronger protections for consumers when dealing with stablecoins and other digital assets. Public comment on the proposal will be open until March 31, after which the CFPB will decide on the next steps.
Cryptocurrency Experts Highlight Concerns
Despite its ability to address increased cyber threats, the regulation has received criticism. Critics say the CFPB regulation’s broad definition and lack of consultation with key cryptocurrency stakeholders could hinder implementation.
Jai Massari, Chief Legal Officer at Lightspark, emphasized that the regulation leaves many questions unanswered. She pointed out that the context does not appear to include non-custodial wallets, creating uncertainty for both developers and users.
“There are many questions raised by the proposal and request for comments, but a simple reading of this proposed rule does not lead to the conclusion that non-custodial wallets (or their software developers) will regulated by Reg E,” Massari write.
Legal expert Drew Hinkes agree with these concerns and emphasized that applying the EFTA framework to cryptocurrency transactions could cause many complications. He questioned the practicality of some requirements, such as interim credits, and called for a narrower focus on specific parties and asset types to improve clarity.
At the same time, Bill Hughes of ConsenSys took a more critical view, calling the CFPB’s proposal a form of overreach. He warned that this regulatory trend could continue unchecked unless addressed by future US leadership.
“Cryptocurrency assimilation in the name of consumer protection (after all, who can object to consumer protection?) will not stop until someone stops it. And that person is the next President of the United States. So let’s add this to the list of “law by decree” problems that need to be fixed,” he reflect.
