The Consumer Financial Protection Bureau (CFPB), the leading agency for safeguarding consumer financial interests in the United States, is considering leveraging the Electronic Fund Transfer Act (EFTA) to enhance consumer protection in the rapidly evolving world of cryptocurrencies. This announcement came during CFPB Director Rohit Chopra’s address at the Brookings Institution’s payments conference on October 6.
The CFPB is exploring the application of the EFTA to what Chopra referred to as “private digital dollars and other virtual currencies.” The primary objective is to mitigate potential harms resulting from errors, hacking incidents, and unauthorized transfers within the cryptocurrency landscape. To achieve this, the agency plans to provide additional guidance to market participants regarding the Electronic Fund Transfer Act’s applicability to virtual currencies.
The Electronic Fund Transfer Act, initially enacted in 1978, is a federal law designed to protect consumers engaged in electronic fund transfers, including those made through debit cards, ATMs, or bank accounts. Its core aim is to limit consumer losses arising from unauthorized transfers by mandating financial institutions to inform consumers of their liability for such transfers before any electronic transaction occurs.
This move by the CFPB coincides with a staggering 150% year-on-year surge in crypto-platform hacks and the ongoing criminal trial of Sam Bankman-Fried, co-founder of FTX, who faces allegations of fraudulently accessing and using customer funds. FTX itself recently fell victim to a hack exceeding $400 million.
In addition to its plans related to the EFTA, the CFPB intends to issue orders to certain major technology companies to gather information on their practices concerning personal data usage and the issuance of private currencies. Furthermore, the agency will delve into examining non-bank entities that offer payment platforms, signaling its commitment to comprehensive oversight of the evolving financial landscape.
Director Chopra also proposed that the Treasury’s Financial Stability Oversight Council consider classifying certain crypto activities as “systemically important payment clearing or settlement activities.” Such a classification could provide other agencies with vital oversight tools to ensure the stability of cryptocurrencies and stablecoins, thereby strengthening consumer protection within the crypto space.
As the cryptocurrency ecosystem continues to expand and evolve, the CFPB’s proactive stance on utilizing existing regulations like the EFTA and exploring new avenues of oversight reflects the agency’s dedication to safeguarding consumers’ financial interests in this rapidly changing landscape.
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