New CFPB Rule Could Expand Consumer Protections to Crypto

The US Consumer Financial Protection Bureau (CFPB) has unveiled a proposal that could redefine consumer protections in the cryptocurrency sector.

The rule aims to hold crypto service providers accountable for compensating users who lose funds to theft or fraud.

US Regulator Unveils Plan to Expand Consumer Protections in Crypto

On January 10, the CFPB announced the proposed rule, which aims to expand the scope of the Electronic Fund Transfer Act (EFTA) to include crypto accounts using “emerging payment mechanisms.” This essentially aligns crypto accounts with traditional bank accounts, subjecting them to the same error and fraud prevention standards.

The bureau also proposes redefining the term “funds” to include assets beyond the US dollar. This broader interpretation covers assets functioning as a medium of exchange or a measure of value, such as cryptocurrencies.

Additionally, wallet providers would be required to disclose critical consumer rights, including liability for unauthorized transactions, transaction limits, applicable fees, and error resolution processes. Regular statements and notifications about changes to terms would also be mandatory.

If implemented, the rule could provide more robust protections for consumers transacting in stablecoins and other digital assets. Public comments on the proposal are open until March 31, after which the CFPB will determine its next steps.

Crypto Experts Highlight Concerns

Despite its potential to address rising cyber threats — crypto hacks alone accounted for around $3 billion in losses in 2024 — the rule has drawn criticism. Critics argue that the CFPB rule’s broad definitions and lack of consultation with key crypto stakeholders may hinder its implementation.

Jai Massari, Chief Legal Officer at Lightspark, emphasized that the rule leaves many questions unanswered. She pointed out that the language does not appear to cover non-custodial wallets, creating uncertainty for developers and users alike.

“There are many many questions raised by the proposal and RFI, but a plain reading of this proposed guidance does not lead to the conclusion that non-custodial wallets (or their software dev creators) would be subject to Reg E,” Massai wrote.

Legal expert Drew Hinkes echoed these concerns and noted that applying the EFTA framework to cryptocurrency transactions could lead to complications. He questioned the practicality of certain requirements, such as provisional credits, and called for a narrower focus on specific parties and asset types to improve clarity.

Meanwhile, Bill Hughes of Consensys took a more critical stance, calling the CFPB’s proposal a form of overreach. He warned that this regulatory trend could continue unchecked unless addressed by future US leadership.

“Their co-opting of crypto under the banner of consumer protection (who can argue with protecting consumers after all?) won’t stop until someone stops it. And that someone is the next President of the United States. So add this to the list of “law by decree” problems that need to be fixed,” he stated.