US consumer protection agency explores extending financial law to crypto transactions

CFPB on crypto: The Consumer Financial Protection Bureau (CFPB), a leading United States agency for consumer financial protection, is contemplating the application of the Electronic Fund Transfer Act (EFTA) on cryptocurrencies. The objective is to safeguard consumers from fraudulent transactions involving digital currencies.

During a payments conference organised by the Brookings Institution think tank on October 6, CFPB Director Rohit Chopra highlighted the agency's interest in extending the EFTA to cover "private digital dollars and other virtual currencies." The aim is to mitigate the risks associated with errors, hacks, and unauthorised transfers in the rapidly evolving crypto space.

The EFTA, enacted in 1978, is a federal law designed to protect consumers during electronic fund transfers, encompassing transactions made through debit cards, ATMs, and bank accounts. Its purpose is to minimise consumer losses stemming from unauthorised transfers.

Chopra emphasised that the CFPB's plans regarding cryptocurrencies involve providing comprehensive guidance on how existing electronic fund transfer laws are applicable to this emerging financial sector. This move is particularly timely given the surge of over 150 per cent in crypto-platform hacks year-on-year, underscoring the urgency to enhance consumer protection measures.

Informing customers about their liability 

As part of their regulatory efforts, the CFPB will compel financial institutions to ensure consumers are informed about their liability in cases of unauthorised transfers, enhancing transparency and safeguarding user accounts.

This initiative by the CFPB occurs in a climate of increased scrutiny within the crypto space, notably exemplified by the ongoing criminal trial of FTX co-founder Sam Bankman-Fried, who faces accusations of fraudulent access and use of customer funds. FTX, a prominent crypto exchange, has itself grappled with a significant hack amounting to over $400 million, further underlining the necessity for regulatory interventions.

Chopra further disclosed that the CFPB plans to issue orders to "certain large technology firms" to gather information on their business practices concerning personal data usage and private currency issuance. Additionally, the agency intends to delve into examining non-bank entities offering payment platforms.