Bitcoin Regulatory Update: CFPB Issues Consumer Advisory Regarding Virtual Currencies, Begins Accepting Complaints
September 1st, 2014
On August 11, 2014, the Consumer Finance Protection Bureau (“CFBP”) issued a consumer advisory warning customers of the potential risks associated with virtual currencies. A copy of the CFBP press release can be read here.
Created with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, CFPB, which began operations on July 21, 2011, was tasked with the responsibility of regulating both banks and nonbank institutions which offer financial products or services to ensure that these institutions comply with federal consumer financial protection laws. Under the Dodd-Frank act, CFPB is authorized to supervise all banks with more than $10 billion in assets as well as all sizes of nonbank mortgage companies, payday lenders, and private education lenders. Dodd-Frank also grants CFPB the power to regulate nonbank institutions in other consumer financial services markets.
CFPB’s consumer advisory does two things. First, it provides consumers a series of warnings and risks to be considered prior to entering into the virtual currency marketplace. According to CFPB, among the issues that consumers should be aware of prior to entering the virtual currency market include: 1) virtual currency is not a legal tender, not backed by any government, and digital wallets used to store such currency are not FDIC insured; 2) the exchange rate for virtual currency vis-à-vis fiat currency is very volatile and virtual exchanges may also charge additional mark-ups and fees for exchange and wallet services; and 3) digital wallets are the target of cyber-attacks and hackers and loses may not be recoverable.
Second, CFPB announced that consumers who encounter problems with virtual currency services and products can now file a complaint with the agency. As explained by CFPB, after it receives a complaint “[t]he CFPB will send the complaint to the appropriate company, and will work to get a response. If the complaint is about an issue outside the CFPB’s jurisdiction, the CFPB will forward the complaint to the appropriate federal or state regulator.” Such other federal agencies may include the Financial Crimes Enforcement Network, which regulates virtual currency exchanges, the Federal Trade Commission, which regulates unfair and deceptive trade practices, and theSecurities and Exchange Commission. (Copies of recent SEC investor advisories regarding virtual currencies can be read here and here.) The CFBP’s consumer advisory can be read here.
CFPB’s advisory comes in the wake of the recent announcement by New York State of its proposed framework for the regulation of virtual currency businesses. As we previously reported, included in the various proposed consumer protection regulations was the requirement that virtual currency businesses provide “clear and concise disclosures” to its consumers about each of the above mentioned risks. New York’s proposed BitLicense and now CFPB’s advisory are early steps in a growing trend of attempts to regulate the virtual currency industry. As we have also explained, the nature of the virtual currency business raises unique challenges for federal regulators seeking to curtail money laundering and state regulators seeking to protect residents from unfair, deceptive, and unscrupulous business practices. Of course, as more and more agencies seek to regulate the virtual currency service, the more likely it becomes that the resulting regulations are inconsistent with one another, leading to confusion in the industry and stifling growth.
The attorneys at Fuerst Ittleman David & Joseph, PL have extensive experience in the areas of anti-money laundering compliance, administrative law, constitutional law, white collar criminal defense and litigation against the U.S. Department of Justice. If you or your company has a question related to its anti-money laundering compliance obligations, our anti-money laundering attorneys can provide further information. You can reach an attorney by emailing us at firstname.lastname@example.org or by calling us at 305.350.5690