The CFPB’s Prepaid Account Rule Took a Pass on Regulating Virtual Currencies

By Jim Daly
@DTPaymentNews

Its many critics have labeled the Consumer Financial Protection Bureau as the regulatory agency run amok, but the CFPB declined to regulate virtual currencies in its newly released rule governing prepaid card accounts even though banks and consumer groups urged it to do so.

The CFPB issued a consumer advisory in 2014 about the risks of virtual currencies and also began accepting complaints about them. In its prepaid account rule, the agency indicated that it will continue to keep its eye on virtual currencies. But one of the rule’s main purposes was to bring to prepaid accounts the consumer debit card protections in Regulation E, the Federal Reserve’s rule implementing the Electronic Fund Transfer Act (EFTA). The CFPB concluded that Reg E wasn’t a fit for virtual currencies.

“Although the Bureau received some comments addressing virtual-currency products and services, the Bureau reiterates that application of Regulation E and this final rule to such products and services is outside of the scope of this rule-making,” the final rule the CFPB released Oct. 5 says.

The Washington, D.C.-based Chamber of Digital Commerce, a trade group of virtual-currency companies, praised the CFPB’s decision. The Chamber submitted comments to the CFPB during the rule-making process saying that virtual currencies should not be regulated as prepaid financial products.

“The Chamber is encouraged that the CFPB has taken its input into account in its new rule, and looks forward to continuing to consider and develop appropriate regulation impacting virtual currencies, digital assets, and blockchain technology with the CFPB and the many other agencies that have taken an interest in the technology,” a statement from the group says.

The CFPB issued its draft prepaid account rule in November 2014 and received more than 6,400 comments about all aspects of it, including some regarding virtual currencies.

“Industry commenters had mixed reactions to whether the Bureau should regulate virtual-currency products and services,” the final rule says. “Two trade-association commenters representing banks [the CFPB didn’t identify them] stated that the proposed definition of ‘prepaid account’ should be modified to expressly include accounts funded or capable of being funded with virtual currencies and submitted a definition of virtual currency they urged the Bureau to adopt. They asserted that virtual currencies are ‘funds’ under EFTA, and coverage is needed to ensure consumers get the kind of protections they would have if they used other comparable but closely regulated traditional payment systems and products.”

Consumer groups also wanted virtual currencies regulated, the CFPB noted. On the other hand, the final document says “a diverse group of industry commenters” urged the CFPB to keep its hands off the electronic currencies.

“Commenters expressed concern that regulation would be premature, thus potentially stifling innovation,” the rule says. “Several commenters highlighted the low rate of consumer adoption of virtual-currency products and services. Commenters also asserted that the Bureau has not adequately studied the virtual-currency industry, and that regulations developed for GPR [general-purpose reloadable prepaid] cards are unsuitable to apply to virtual-currency products and services because of the differences between such products and services and GPR cards.”

The CFPB ultimately agreed with that last point, but it’s keeping its options open for possible future regulation under different laws.

“The Bureau notes that as part of its broader administration and enforcement of the enumerated consumer financial-protection statutes and Title X of the Dodd-Frank Act, the Bureau continues to analyze the nature of products or services tied to virtual currencies,” the final rule says.