The U.S. Consumer Financial Protection Bureau (CFPB) is considering applying the Electronic Fund Transfer Act (EFTA) to cryptocurrency services to improve consumer protection.
The move is motivated by a 150 percent year-on-year increase in crypto platform security breaches, which includes prominent platforms such as Axie Infinity, Crypto.com and FTX.
The EFTA is a federal law passed in 1978 that protects customers as they transfer funds electronically via debit cards, ATMs or bank accounts. Under EFTA regulations, electronic fund facilitators are obligated to notify users of whether and when they will be liable for unauthorized transactions. According to CFPB rules, this disclosure is required to happen before the account’s first transfer takes place.
During a live-streamed payments conference by the Brookings Institution think tank on October 6, CFPB Director Rohit Chopra discussed the applicability of EFTA to digital currencies.
“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 with respect to private digital dollars and other virtual currencies,” he said.
Chopra added that the CFPB would issue orders to “certain large technology firms” to provide information on their business practices regarding their use of users’ data and issuing private currency. They are currently considering comprehensive guidelines to clarify the EFTA’s applicability and obligations for digital currencies and their operators.
Referencing a 2021 report on enhancing financial stability, the organization is also looking into including the Financial Stability Oversight Council to supervise certain cryptocurrency-related activities. One of their involvements, Chopra suggested, is to classify some crypto activities as “systemically important payment clearing or settlement activities.”
This move means more stringent oversight. As Chopra explained, the council could make sure instruments like stablecoins live up to their promise of stability.
“This could provide, for example, other agencies with critical oversight and tools to ensure that a stablecoin is actually stable,” he said.
The CFPB is also poised to issue a rule on individual financial data rights. This move aims to transition users to a transparent banking ecosystem and create a fortified framework for protecting user data.
Lastly, the agency announced that it would examine non-bank payment platforms in its effort to regulate and supervise the growing cryptocurrency market.
In the last several years, U.S. regulators have issued a range of policies concerning the treatment of cryptocurrency transactions, investments, payment services and other activities involving digital assets.
Earlier this year, an alternative perspective on crypto regulation was articulated by SDNY Judge Denise Cote when she suggested that cryptocurrencies should be classified under the “funds” umbrella, meaning that the EFTA should apply to crypto platforms.
She argued that embracing this interpretation would significantly improve consumer protection but also requires more rigorous compliance demands for crypto exchanges.
In the meantime, the Commodities Futures Trading Commission (CFTC) has classified Bitcoin and Ethereum as commodities, which allows them to be legally traded on public exchanges overseen by the CFTC.
The U.S. Securities and Exchange Commission (SEC), on the other hand, views cryptocurrencies as securities and aims to apply existing securities laws to digital assets. Investors are to report their gains and losses on their annual tax forms, and failure to do so will result in scrutiny of the Internal Revenue Service (IRS).
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