US Consumer Protection Agency Explores Applying E-Banking Laws to Digital Asset

Updated: 09 October 2023

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The Consumer Financial Protection Bureau (CFPB) wants to apply the Electronic Fund Transfer Act (EFTA) to digital assets space.

During a speech at the Brookings payment conference on October 6, CFPB Director Rohit Chopra revealed the agency aims to safeguard investors and users in the rapidly expanding crypto ecosystem.

“To reduce the harms of errors, hacks, and unauthorized transfers, the CFPB is exploring providing additional guidance to market participants to answer their questions regarding the applicability of the Electronic Fund Transfer Act for private digital dollars and other virtual currencies,” he said

Addressing the topic, “Making America’s payment system work for a digital century,” Chopra asserted that, under the potential application of EFTA to cryptocurrencies and other virtual currencies, financial institutions and virtual asset firms may be required to make several changes. These could include disclosing liability details to users before executing electronic transactions and reducing the significant losses due to unauthorized crypto transactions in recent years.

Director Rohit Chopra, The Consumer Financial Protection Bureau (CFPB) at the Brookings payment conference on October 6 (Source: Youtube)

The EFT, enacted in 1978 under Title 15 of the United States Code, aims to safeguard the interests of individual consumers who are involved in electronic fund transfers. These include using ATMs for transfers, making payments at point-of-sale terminals, utilizing automated clearinghouse systems for transactions, engaging in telephone bill-payment plans that involve regular transfers, accessing remote banking programs, and conducting remittance transfers.

Rising Crypto Threats Prompt Regulatory Action

The CFPB’s consideration of e-banking regulations for digital assets comes when the crypto industry has witnessed increased unlawful activities in the cryptocurrency sector. Incidents of cyberattacks on cryptocurrency platforms have risen, raising concerns about the security and stability of the digital asset market.

Chopra also mentioned the agency’s intent to issue orders to certain large technology firms. These orders aim to gather information on their business practices related to using personal data and issuing private currency. The CFPB will also examine non-banks that offer payment platforms in the crypto market to ensure their safety and security.

Chopra suggested that the Treasury’s Financial Stability Oversight Council classify some crypto activities as “systemically important payment clearing or settlement activity.” This reclassification could empower other agencies with the necessary tools to guarantee the stability of stablecoins and enhance the overall resilience of the crypto market.

International Regulatory Trends for Consumer Protection

CFPB’s move aligns with a global trend of increased regulation in the digital asset space aimed at protecting users and investors. Countries like the UK and Canada have already introduced new regulations addressing crypto advertising and stablecoin issuance.

The UK’s Financial Conduct Authority has mandated strict regulations on crypto advertising, ensuring that firms inform customers of risks explicitly. Some crypto exchanges and issuers have adjusted their operations to comply with the new rules.

From 8 October 2023, #crypto firms must market to UK consumers clearly, fairly and honestly, and must also provide risk warnings people understand. https://t.co/cqxj1jVtAT

— Financial Conduct Authority (@TheFCA) September 7, 2023

In Canada, the Association of Securities Regulators has rolled out a template for stablecoin issuers and has called for more comprehensive market regulation