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The Brookings Institution held a conference on payments today. This fact is not particularly exciting in itself.
However, what makes this event noteworthy is that Rohit Chopra, director of the Consumer Financial Protection Bureau, delivered a speech and shared a set of recommendations for regulators’ future approach to payments policy.
Among these recommendations, one idea stands out and suggests potential significant changes in how crypto platforms will handle hacks.
The full speech is available in the broadcast of the Brookings event, starting around 1hr19min. For now, let’s focus on the bolded section of the recommendations:
. . . we think a number of steps are warranted.
– First, the CFPB will be issuing supplemental orders to certain large technology firms to acquire more information that will help us better ascertain their specific business practices and plans, especially with respect to the use of personal data and any issuance of private currency.
– Second, to reduce the harms of errors, hacks, and unauthorized transfers, the CFPB is exploring providing additional guidance to market participants to answer their questions regarding the applicability of the Electronic Fund Transfer Act with respect to private digital dollars and other virtual currencies.
– Third, the CFPB is going to look at . . . supervisory examinations of nonbanks offering consumer payment platforms. We have a number of authorities to do so, such as when these firms serve as service providers to large depository institutions. Another one of these authorities includes defining larger participants in this market by rule, which would subject banks meeting a particular size threshold to CFPB supervision.
– Fourth, as suggested in the November 2021 report, the Financial Stability Oversight Council should consider exercising its authority under Title VIII of the Dodd-Frank Act to designate this activity as, or as likely to become, a systemically important payment clearing or settlement activity. This could provide, for example, other agencies with critical oversight and tools to ensure that a stablecoin is actually stable.
– Finally, it’s critically important for American consumers to have stronger protections against excessive surveillance and misuse of our data. Later this month, I will authorize the publication of a proposed rule regarding personal financial data rights. This is pursuant to section 1033 of the consumer financial protection act. The rule will seek to accelerate America’s shift to open, competitive, and decentralized banking while also seeking to safeguard against abuse of our personal data.
The CFPB’s consideration of how the Electronic Fund Transfer Act (EFTA) might apply to crypto accounts is of particular interest.
The EFTA is designed to protect consumers from payments fraud, requiring institutions facilitating electronic fund transfers to notify customers about their liability for unauthorized transfers or fraud. According to CFPB rules, these liability disclosures should occur before the first transfer from an account takes place.
It’s intriguing to think about how many of these disclosures were sent by platforms like Axie Infinity or crypto.com before they experienced significant hacking incidents.
Interestingly, platforms are not obligated to disclose customers’ liability if they don’t impose any.
An opinion from SDNY Judge Denise Cote earlier this year concluded that cryptocurrencies should be considered “funds,” making the EFTA applicable to crypto platforms. This decision has important implications for consumer protection and poses compliance challenges for crypto exchanges.
Considering this ruling and Director Chopra’s comments on EFTA, it becomes even more crucial to stay updated on future developments in this space.
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