Earlier today, the Consumer Financial Protection Bureau ("CFPB") released a consumer advisory outlining certain risks that may be associated with virtual currencies ("Advisory") and announced that the CFPB will begin accepting consumer complaints regarding virtual currencies through its consumer complaint database. The Advisory follows a June 2014 Government Accountability Office report, which noted that the CFPB had not been particularly engaged in consumer-education efforts related to virtual currencies.1

RISKS ASSOCIATED WITH VIRTUAL CURRENCIES

The CFPB explains in the Advisory that consumers should be aware of certain risks associated with virtual currencies, including that such currencies: (1) are a target for hackers; (2) do not have liability limitations similar to those of debit cards or credit cards; (3) may have transactional costs that are not associated with other payment methods; and (4) have resulted in new scams by fraudsters who are seeking to capitalize on consumers' growing interest in virtual currencies.

The Advisory is organized as a series of recommendations and considerations for consumers who use, or are interested in using, virtual currencies. For example, the Advisory offers recommendations for consumers who are buying virtual currencies; storing virtual currencies, either on their own or through a wallet provider; and using virtual currency providers to transmit funds or to pay for goods or services. Specifically, the Advisory encourages consumers to:

  • Know whom they are doing business with when engaging in virtual currency transactions;
  • Be aware that virtual currencies can experience dramatic price fluctuations;
  • Understand fraud risks when using or investing in virtual currencies;
  • Protect their private keys from theft or loss; and
  • Understand that there is no government insurance for virtual currency accounts.

The Advisory identifies many of the same risks identified by various state agencies, including the California Department of Business Oversight, the Washington State Department of Financial Institutions, and the Texas and Alabama Securities Commissions. Other federal consumer agencies, including the Internal Revenue Service and the Securities and Exchange Commission, have also released guidance that addresses some of these same risks.

COMPLAINT DATABASE

As we recently noted, the CFPB has repeatedly expanded its consumer complaint database to include new types of financial products and services, as well as additional kinds of information, namely consumer narratives. With today's expansion, the consumer complaint database will now include complaints from consumers who may encounter a problem with virtual currency products and services, such as exchanges or digital wallet providers.

Many virtual currency service providers may be unaware of the CFPB consumer complaint database and the challenges it presents. Virtual currency service providers likely will not expect to see complaints about their products and services arrive on CFPB letterhead, and may not realize their obligation to respond to the complaints, or that the complaints are publicly available on the CFPB's Web site.

It is also noteworthy that the CFPB's press release states that the CFPB "will use all complaints to better understand the virtual currency market and its effect on consumers," and "will also use the complaints to help enforce federal consumer financial laws and, if appropriate, take consumer protection policy steps." No further detail is provided regarding what such "policy steps" might be.

We will continue to follow developments related to virtual currencies and the CFPB's efforts in this regard.

Footnotes

1. Further information about that report can be found here.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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