New US proposal could require crypto firms to compensate fraud victims

The U.S. Consumer Financial Protection Bureau (CFPB) has introduced a proposal aimed at enhancing consumer protections in the cryptocurrency sector. 

Announced on January 10, the rule seeks to hold crypto service providers accountable for compensating users who lose funds due to theft or fraud. 

This initiative would expand the scope of the Electronic Fund Transfer Act (EFTA) to include crypto accounts, aligning them with traditional bank accounts and subjecting them to similar error and fraud prevention standards.

Additionally, the CFPB plans to redefine “funds” to encompass assets beyond the U.S. dollar, thereby including cryptocurrencies as a medium of exchange or measure of value.

Under the proposed rule, wallet providers would be required to disclose essential consumer rights, including liability for unauthorised transactions, transaction limits, applicable fees, and error resolution processes. 

Regular statements and notifications regarding changes to terms would also be mandated.

If enacted, this rule could significantly bolster protections for consumers using stablecoins and other digital assets. 

Public comments on the proposal are open until March 31, after which the CFPB will evaluate its next steps.

However, the proposal has faced criticism from various experts in the cryptocurrency field. 

Critics argue that its broad definitions and lack of consultation with key stakeholders may complicate its implementation. 

Jai Massari, Chief Legal Officer at Lightspark, noted that the proposal does not clarify whether non-custodial wallets would be included under these regulations, raising concerns for developers and users.

“There are many questions raised by the proposal and RFI,” Massari stated, emphasising the uncertainty surrounding non-custodial wallets.

Legal expert Drew Hinkes also expressed concerns about applying EFTA frameworks to cryptocurrency transactions, suggesting that a more focused approach might improve clarity.

Bill Hughes of Consensys criticised the CFPB’s proposal as overreach, warning that such regulatory trends could continue unchecked without intervention from future U.S. leadership.