New US Rule Could Force Crypto Providers to Compensate Fraud Victims

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The American Consumer Financial Protection Bureau (CFPB) recently put forward a plan that aims to reshape consumer safeguards within the digital currency market.

As a financial analyst, I strive to ensure that the guidelines we establish are fair and just. In this case, the rule is designed to ensure that cryptocurrency service providers take responsibility for reimbursing customers who suffer losses due to theft or fraud, reflecting our commitment to protecting the interests of all users in the crypto space.

US Regulator Unveils Plan to Expand Consumer Protections in Crypto

Starting on January 10th, the Consumer Financial Protection Bureau (CFPB) unveiled a proposed regulation. This rule intends to broaden the jurisdiction of the Electronic Fund Transfer Act (EFTA) to incorporate digital wallets associated with cryptocurrencies using modern payment systems. Essentially, this move brings crypto accounts under the same protective umbrella as traditional bank accounts, making them subject to similar standards for error and fraud prevention.

The bureau further suggests expanding the definition of “funds” to encompass assets other than U.S. dollars. This expanded meaning would categorize assets that function as a medium of exchange or a means of determining value, like cryptocurrencies, as funds.

Beyond this, wallet service providers will need to make consumers aware of essential rights such as their responsibility in case of unauthorized transactions, transaction limitations, the fees that apply, and procedures for resolving errors. They would also have to provide regular updates and notifications when there are changes to the terms and conditions.

Implementing this regulation might strengthen consumer safeguards when dealing with stablecoins and various digital assets. The public is invited to voice their opinions on the matter by March 31st. Following this period, the Consumer Financial Protection Bureau (CFPB) will evaluate its future actions.

Crypto Experts Highlight Concerns

Although it has the capacity to combat escalating cyber issues, including cryptocurrency hacks causing approximately $3 billion in losses in 2024, this regulation has faced criticisms. Critics contend that the vague terminology and failure to consult crucial cryptocurrency influencers could impede its execution.

Jai Massari, who serves as the Chief Legal Officer at Lightspark, underscored the fact that there remain several unaddressed questions in this rule. Specifically, she noted that the language seems to exclude non-custodial digital wallets, which has left both developers and users in a state of confusion.

In simpler terms, Massai stated that while there are numerous questions about the proposal and Request for Information (RFI), it doesn’t seem like this proposed guidance implies that non-custodial wallet developers or their creators would need to comply with Regulation E.

As a researcher delving into the complexities of cryptocurrencies, I share similar apprehensions expressed by legal expert Drew Hinkes. The potential application of the EFTA framework to cryptocurrency transactions seems fraught with complications. I find myself questioning the feasibility of certain requirements, like provisional credits, and advocate for a more focused approach that targets specific parties and asset types to ensure clarity in this rapidly evolving field.

Simultaneously, Bill Hughes from Consensys expressed a skeptical viewpoint, labeling the CFPB’s proposal as an excessive reach. He cautioned that if not addressed by future U.S. administration, this regulatory pattern might persist without limitation.

He argued that the misuse of cryptocurrency in the name of consumer protection, something hard to oppose, will continue until it is stopped. The individual with the power to halt this is the next President of the United States. Therefore, this issue of ‘rule by decree’ should be added to the list of problems needing attention, he declared.

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2025-01-12 01:13