Attention to potential consumer protection concerns involving Bitcoin and other virtual currencies has intensified in recent months, and the Consumer Financial Protection Bureau plans to increase its involvement in the government’s effort to address issues in the space. The CFPB announced those intentions in its response to a report from the Government Accountability Office that urged the bureau to beef up its collaboration with other government agencies working on virtual currency issues.
The GAO report, released June 26, found that virtual currencies pose emerging challenges to federal regulators and law enforcement agencies. For instance, law enforcement agencies may find it more difficult to investigate and prosecute money laundering schemes involving virtual currencies as compared to those transacted across traditional payments systems.
The emergence of virtual currencies has also raised a number of consumer and investor protection issues.
Federal financial regulatory and law enforcement agencies have taken a number of actions regarding virtual currencies. In March 2013, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued guidance that clarified which participants in virtual currency systems are subject to anti-money-laundering requirements and required virtual currency exchanges to register with FinCEN. Financial regulators have taken some actions regarding anti-money-laundering compliance and investor protection. Law enforcement agencies also have taken actions against parties alleged to have used virtual currencies to facilitate money laundering or other crimes. For example, in October 2013, multiple agencies worked together to shut down Silk Road, an online marketplace where users paid for illegal goods and services with bitcoins.
Agencies also have begun to collaborate on virtual currency issues through informal discussions and interagency working groups primarily concerned with money laundering and other law enforcement matters, the GAO noted. However, these working groups have not focused on emerging consumer protection issues, and the CFPB has generally not participated in these groups.
The GAO said that without more CFPB participation, interagency efforts may not be in a position to address consumer risks associated with virtual currencies in the most timely and effective manner. The report recommended that the CFPB work with other agencies to identify interagency working groups that could help the CFPB maintain awareness of consumer protection issues or those groups that would benefit from CFPB’s participation.
The GAO said that federal interagency working groups addressing virtual currency issues have not focused on consumer protection, and the CFPB has generally not participated in these groups, for a number of potential reasons.
For example, the extent to which individuals using virtual currencies are speculative investors or ordinary consumers is unclear, and the CFPB has received few consumer complaints about these currencies. The report noted that a February search of roughly 290,000 complaints in the CFPB’s consumer complaint database turned up only 14 complaints that mentioned virtual currency or Bitcoin.
“Emerging consumer risks indicate that interagency collaborative efforts may need to place greater emphasis on consumer protection issues in order to address the full range of challenges posed by virtual currencies,” the GAO said in its report. “Additionally, without CFPB’s participation, interagency working groups are not fully leveraging the expertise of the lead consumer financial protection agency, and CFPB may not be receiving information that it could use to assess the risks that virtual currencies pose to consumers.”
The CFPB concurred with the GAO’s recommendation to identify and participate in pertinent interagency working groups addressing virtual currencies. In a May 6 letter to the GAO, William Wade-Gery, the CFPB’s acting assistant director for card and payments markets, said the bureau’s own work on virtual currencies and the work of other financial regulators could benefit from a collaborative approach.
“We look forward to increasing our involvement in formal working groups as they engage on specific issues related to consumer protection,” Wade-Gery said.
View the GAO’s report