CFPB Proposes Additional Regulation of Digital Assets
Commentary by Gage Raju-Salicki
The CFPB proposed an interpretive rule to clarify the application of the Electronic Fund Transfer Act ("EFTA") and Regulation E ("Electronic Fund Transfers") to emerging payment mechanisms, such as stablecoins, virtual currencies and digital payment wallets.
According to the CFPB, these payment mechanisms involve "electronic fund transfers through accounts established primarily for personal, family, or household purposes."
The proposed rule would, among other things:
- Expand the definition of "funds" to include digital assets, such as stablecoins, that function as a medium of exchange or payment, even if their value fluctuates.
- Expand the scope of "accounts" covered by EFTA, including virtual wallets, video game accounts and other digital platforms that allow consumers to store and transfer funds.
- Address unauthorized transfers, emphasizing the need for financial institutions to investigate errors, resolve disputes and limit consumers' liability for unauthorized electronic fund transfers.
- Provide guidance on the exceptions for securities and commodities transactions.
Comments on the proposed rule are due on or before March 31, 2025.
In a Request for Information, the CFPB said it "is seeking comments from the public to better understand how companies that offer or provide consumer financial products or services collect, use, share, and protect consumers' personal financial data, such as data harvested from consumer payments." The CFPB said the information will assist the agency and policymakers "in further understanding the current state of the business practices at these companies and the concerns of consumers as the CFPB exercises its enforcement, supervision, regulatory, and other authorities."
Comments on the RFI are due on or before April 11, 2025.
Commentary
Just ten days before the change of administration, the CFPB issued a new proposed interpretive rule placing crypto within the ambits of the EFTA and Regulation E.
The proposed rule appears to address two conflicting cases out of the Southern District of New York—Judge Denise Cote's Rider v. Uphold HQ Inc. and Judge Lewis J. Liman's Yuille v. Uphold HQ Inc.—with the goal of creating more consistency. The proposed rulemaking describes fungible digital assets as "funds" under the EFTA, and, more importantly, it erases Yuille's distinction for crypto wallets as a different kind of "account" under the law. However, this approach may be overly broad and does not fully consider the nuances of the underlying technology.
There's an additional concern, as well: the CFPB's "account" analysis appears also to cover self-hosted wallets provided by protocols like MetaMask. If these wallets are considered "accounts" and their protocols considered "financial institutions," the proposed rule may encompass aspects of DeFi that courts have yet to address. While the rule's future is uncertain under the incoming administration, this "account" issue deserves careful consideration, particularly for DeFi participants.