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Already eyed with suspicion by various arms of the federal government and states, virtual currencies now are the subject of a warning issued Monday by the federal Consumer Financial Protection Bureau.
The CFPB released a six-page advisory about the risks consumers face when using new forms of electronic money. “Virtual currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions,” CFPB Director Richard Cordray said in a news release. “Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”
The CFPB’s media office did not respond to a Digital Transactions News inquiry about whether the agency, a creation of 2010’s Dodd-Frank Act, has any plans to actually regulate virtual currencies. The online advisory includes a section where a consumer can submit a complaint regarding virtual currency.
The advisory mentions Bitcoin, by far the best-known virtual currency, several times, and also takes brief note of others such as XRP and Dogecoin. Generally, however, the CFPB’s warnings apply to any of the new types of electronic money.
Much of the cautionary advice is familiar: virtual currencies don’t have the consumer protections that come with mainstream financial products, the costs to use them often are unclear, they’re targets for hackers and scammers, and users who have problems may encounter difficulties in getting help or refunds for lost or stolen funds. In addition to noting that virtual currencies are not backed by any central bank or government, the CFPB also points out that they don’t have government insurance.
The CFPB acknowledged that benefits include “the potential to make payment processing cheaper or faster.”
Independent payments researcher Beth Robertson says she doesn’t see today’s advisory as an indication that the CFPB will indeed try to regulate virtual currencies some time in the future. “To me it just sounds like helpful advice so yes, we’ve addressed yet another topic consumers are concerned about,” she says. “Putting out cautionary words of wisdom is in their job description.”
The CFPB’s advisory is just the latest example of governmental attention to virtual currencies. The most famous incident came in October 2013, when the FBI, working with multiple agencies, shut down Silk Road, an online underground market that dealt only in Bitcoin.
The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCen) last year issued guidance on when participants in virtual-currency systems are subject to anti-money-laundering requirements and required virtual-currency exchanges to register with FinCen, according to a May 2014 report from the U.S. Government Accountability Office. The Securities and Exchange Commission (SEC) in May issued an investor alert about the risks of investing using Bitcoin or other virtual currencies. Congress has held hearings about virtual currency, and New York State’s Department of Financial Services has proposed regulations for virtual-currency firms.
The GAO report said the CFPB “has generally not participated” in informal discussions and interagency working groups at the federal level primarily concerned with money laundering and other law-enforcement matters involving virtual currency. It recommended that the CFPB join those efforts so that consumer-protection issues are addressed.
In a letter to the GAO, William Wade-Gery, acting assistant director of Card and Payment Markets at the CFPB, said: “We look forward to increasing our involvement in formal working groups as they engage on specific issues relating to consumer protection.”
