The US Consumer Financial Protection Bureau (CFPB) has warned consumers that they should exercise caution when engaging with the bitcoin and digital currency markets.
The CFPB advisory urges consumers to be vigilant as there are risks to consider when dealing and transacting with digital currency; namely, volatile exchange rates, unclear costs, security threats posed by hackers and scammers and the possibility that companies may not always be able to provide help or refunds for lost or stolen funds.
Notably, the news comes two months after the Government Accountability Office, the investigative arm of the US Congress, asked the CFPB to look more closely at the digital currency industry.
CFPB director Richard Cordray echoed the agency’s emphasis on the risk posed by digital currencies in his remarks, adding:
“Virtual currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions. 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 document offers introductions to the products and services offered by digital currency companies – like private keys and wallets – and mentions the risks each carry.
Filing complaints with the CFPB
The CFPB is an independent federal agency responsible for policing financial products and services. When it issued the advisory it announced that it is currently accepting complaints from users about products and services in the digital currency market.
The agency also lined its advisory with anecdotal complaints it has received thus far.
For example, some individuals have told the CFPB they have been unable to recover lost or stolen funds from exchanges; one user had to discard hard drive that held the private keys to 7,500 BTC; and one sent digital currency without ever hearing back from the other person involved in the trade.
The invitation for consumer complaints marks the first time the agency has commented on the bitcoin industry, and indicates what could be the first step in its more close examination of the digital currency market.
The agency will use the information it collects to better understand how digital currencies affect consumers and help it enforce federal consumer financial laws and take consumer protection policy steps, if needed.
Community reaction
Jaron Lukasiewicz, CEO of prominent Wall Street bitcoin exchange and electronic communication network Coinsetter, spoke to the report’s less discernible positive points. Users of digital currency products and sercices should be asking themselves about product benefits, security procedures and pricing.
He added:
“The CFPB’s bulletin provides a comprehensive list of the risks associated with bitcoin, and I encourage anyone who is not already familiar with them to read it. Not covered in the CFPB’s letter are the many benefits to using bitcoin, including the fact that it is a low cost alternative to banking for underprivileged families.”
New York business attorney and chairman of the Bitcoin Foundation’s Regulatory Affairs Committee implied on Twitter today that the CFPB’s warning presents a biased approach to digital currency basics.
.@CFPB publishes #bitcoin consumer alert. Not a single positive word on benefits to consumer financial privacy. http://t.co/B20eSqasQ6
— Marco Santori (@msantoriESQ) August 11, 2014
Likewise, Coinbase founder Fred Ehrsam called the report “disappointing” for its one-sided presentation.
Disappointing report from the @CFPB. It’s their job to disclose all risks, but this reads like a wall of text of FUD: http://t.co/coe3qIFSoo
— Fred Ehrsam (@FEhrsam) August 11, 2014
The government’s ill-defined role in regulating bitcoin enterprises has become a contentious debate in the bitcoin community lately.
Though some argue that having a consumer protection framework for digital currency businesses might stifle innovation in the space, others say it could be very advantageous bringing about mainstream interest more quickly.
Jim Harper, Bitcoin Foundation global policy counsel, said:
“It is standard practice for agencies at the state, federal, and international levels to issue warnings about bitcoin. There are consumer risks around new technologies, and even-keeled educational material from government agencies can help make consumers aware and savvy.”
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Consumer Financial Protection Bureauconsumer protectionUS
Original author: Tanaya Macheel
