U.S. Contemplates Extending Electronic Fund Transfer Act to Crypto Accounts for Enhanced Consumer Protection

October 11, 2023

By Anjali Kochhar

In a bid to fortify consumer safeguards amidst a wave of significant platform breaches, the U.S. Consumer Financial Protection Bureau (CFPB) is considering the application of the Electronic Fund Transfer Act (EFTA) to cryptocurrency platforms. Recent high-profile hacks on platforms such as Axie Infinity, Crypto.com, and FTX have underscored the need for heightened security measures in the burgeoning crypto market.

EFTA regulations stipulate that electronic fund facilitators must apprise users of their responsibilities regarding unauthorised transfers. This move by the CFPB reflects a concerted effort to extend these crucial protections to users of digital assets.

During a conference hosted by The Brookings Institution, CFPB Director Rohit Chopra emphasised the agency’s intent to delve deeper into the operational procedures of influential tech entities. The focus is on their handling of user data and their strategic approach to private digital currencies. The rise in unauthorised transfers within the crypto space has prompted this initiative.

To address this concern, the CFPB is contemplating the release of comprehensive guidelines that will delineate the boundaries and obligations under the EFTA for digital currencies and their custodians. Chopra also highlighted the urgent need to infuse the crypto ecosystem with greater financial stability. He referenced a 2021 report, hinting at a potential role for the Financial Stability Oversight Council in classifying specific cryptocurrency-related activities as vital to payment and settlement processes, an action rooted in provisions of the Dodd-Frank Act. This classification could lead to more rigorous oversight, particularly to ensure that instruments like stablecoins maintain their promised stability.

Concurrently, the CFPB is poised to announce a meticulously crafted rule pertaining to personal financial data rights. This strategic move aims to catalyse the transition towards a transparent banking paradigm while underscoring the imperative for a robust framework to safeguard user data.

A potentially transformative perspective has emerged from SDNY Judge Denise Cote, who posited that cryptocurrencies could be best understood within the framework of “funds”. Embracing this interpretation would signify a fundamental shift, bringing cryptocurrency platforms under the protective umbrella of the EFTA. While this move unquestionably bolsters consumer-centric protections, it also sets the stage for more rigorous compliance requirements on exchanges.

As the CFPB sharpens its focus on the ever-evolving crypto landscape, industry participants and consumers alike are eagerly anticipating more nuanced and definitive policy directions. This potential extension of the EFTA into the realm of cryptocurrencies represents a significant step towards establishing a more secure and regulated environment for digital asset transactions.

About the author

Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.

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