The Consumer Financial Protection Bureau (CFPB) on January 10 proposed a new interpretative rule that could extend the protections of the Electronic Fund Transfer Act (EFTA) to crypto wallets, potentially exposing them to liability in the event of hacks.
The proposed rule, which is currently open for comment, clarifies how existing EFTA regulations apply to new payment systems, including stablecoins and other digital payment mechanisms. It is intended to provide consumers with the same protections they enjoy with traditional bank and wire transfers.
As a result, users would have the right to dispute unauthorized transfers and limit liability for errors. Wallet providers would then be responsible for losses due to fraud, hacking or unauthorized transactions.
Bad for wallet providers
Bill Hughes, an attorney at Consensys, expressed skepticism about the rule and describes it as an overreach disguised as consumer protection. He stressed that under the proposed regime, wallet providers would be responsible for unauthorized transfers even in cases of user negligence.
He said:
“Hacked for tweeting your cum sentence or believing a fashion model in Malaysia needed $5,000 to fly to you? Don’t worry, your wallet may have to cover it.”
Hughes also highlighted the operational burden on portfolio providers, who must provide disclosures, periodic statements and terms similar to those of traditional financial institutions.
He argued that this framework could unfairly penalize emerging payment mechanisms while consolidating regulatory control under the guise of consumer protection.
Furthermore, Hughes claimed that the alleged “co-optation of crypto” under consumer protections won’t stop until someone does something about it.
The CFPB will accept public comments on the rule until March 31, 2025, signaling that it is open to feedback from all stakeholders, including wallet providers, cryptocurrency advocates and consumers.
The agency uses the comments to inform its decision-making but does not guarantee that the proposed rule will be changed or implemented.