Consumer Financial Protection Bureau (CFPB)
The purpose of this blog post is to give an overview of the Consumer Financial Protection Bureau (CFPB) and the guidance, rulemaking and statements it has issued related to cryptocurrencies.
NOTE: Regulatory guidance in this area is rapidly evolving. As such, this blog post may not be entirely up to date. Please DYOR.
INTRODUCTION
The CFPB is a federal agency tasked with monitoring financial institutions and ensuring that the products they sell do not mislead or deceive consumers. Thus far, it has taken limited action with respect to cryptocurrencies. However, the CFPB is likely to take a more significant oversight role over cryptocurrency firms in the future.
RULEMAKING
In April 2022, the CFPB announced that it would invoke the “dormant authority” granted to it by the Dodd-Frank Act. Specifically, the Dodd-Frank Act gave the CFPB authority to supervise entities (traditional and non-traditional) whose activities the CFPB has “reasonable cause to determine . . . pose risks to consumers with regard to the offering or provision of consumer financial products or services." 12 U.S.C. § 5514(a)(1)(C). This is important because for traditional financial institutions (like banks), CFPB oversight does not typically begin until the institution has over $10 billion in assets. The dormant authority allows the CFPB to supervise both traditional and non-traditional entities (like cryptocurrency companies) even if the monetary threshold is not met.
In addition, the CFPB issued a proposed rule that would permit it to release certain information about its “final determinations and orders” in exercising the authority described above. See Supervisory Authority Over Certain Nonbank Covered Persons Based on Risk Determination; Public Release of Decisions and Orders, 87 Fed. Reg. 25397 (April 29, 2022).
However, neither the new proposed rule nor the April 2022 announcement specifically mentions cryptocurrency entities. Regardless, the consensus from industry experts is that the expanded use of authority was directed towards cryptocurrency companies and DeFi institutions. See CFPB invokes old rule to expand authority over fintech and crypto firms.
GUIDANCE
As noted above, the CFPB has oversight of non-traditional financial institutions only when it has “reasonable cause” to determine that the entity is engaged in activities that "pose risks to consumers." As such, the CFPB is focusing its enforcement efforts against entities that engage in deceptive acts or practices that would violate the Consumer Financial Protection Act. For instance, the CFPB is focusing efforts on misrepresentations regarding FDIC coverage for digital assets. See Deceptive representations involving the FDIC’s name or logo or deposit insurance.
STATEMENTS AND TESTIMONY
CFPB head Rohit Chopra (who is also on the board of the FDIC) has issued limited statements. Specifically, Chopra highlighted the FDIC’s statement that actions would be taken against entities misrepresenting whether consumer deposits are covered by FDIC insurance and clarified that nothing prevented the CFPB from taking actions based on the FDIC’s rules . Statement on the Final Rule Regarding False Advertising, Misrepresentations of Insured Status, and Misuse of the FDIC’s Name or Logo.
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