CFPB Bulletin Analyzes Crypto-Asset Complaints

Practical Law Legal Update w-037-6536 (Approx. 5 pages)

CFPB Bulletin Analyzes Crypto-Asset Complaints

by Practical Law Finance

Complaint Data

For the period from October 2018 to September 2022, the CFPB received more than 8,300 virtual currency complaints, with the majority being received in the last two years. The issues most often identified in the complaints were fraud and scams (39.9%) and transaction issues (25.3%). The bulletin reflects complaints were received from all 50 states and the District of Columbia, with the greatest number of complaints coming from California.

Complaint Categories

The complaints fell into five categories:

Fraud, theft, hacks, and scams. Common among this category of complaints are romance scams and "pig butchering." Both techniques involve a scammer gaining the confidence of the consumer to set up a crypto-asset account, followed by the scammer ultimately stealing the crypto-assets.
Transaction issues. These complaints reflect issues consumers experienced when buying and selling crypto-assets, or when attempting to withdraw assets from crypto platforms, including:
- undisclosed or unexpected costs on crypto-asset platforms, or false claims of no fees; and
- account access and verification issues, such as consumers being unable to verify their identity or confirm account ownership, leading to them being locked out of their accounts.
Customer service issues. Poor customer service was a common theme across the complaints, including:
- failure to provide timely customer service; and
- inability to contact a human being.
Frozen accounts and platform bankruptcies. Due to recent volatility in the crypto market, some crypto-platforms have either frozen customers' withdrawals, filed for bankruptcy protection, or both.
Crypto-asset card complaints. Many crypto-asset platforms offer products marketed by companies as credit, debit, or prepaid cards with various features, including offering rewards in crypto-assets. Consumers submitted complaints about the ability to use these crypto-asset credit and prepaid cards, including:
- an inability to make purchases;
- difficulty in closing their account;
- rejected claims for reimbursement of fraudulent charges; or
- failure to receive advertised rewards.

Consumer Risks

The bulletin identified key risks associated with crypto-assets, including:

Crypto-assets are a common target for hacking.
Important terms and clarifications are often buried in the Terms and Conditions of agreements with digital wallet providers and crypto-asset platforms.
Arbitration clauses and class action bans are common and may limit dispute options.
The value of crypto-assets will continue to be volatile.
Transactions may not be private.
The use of crypto-assets may violate US government sanctions, such as those set out by the US Department of the Treasury's Office of Foreign Assets Contract (OFAC), see Practice Note, OFAC Economic Sanctions: Cryptocurrency and Blockchain.

Impact on Special Populations

While various communities are impacted by the risks associated with using crypto-assets, including younger people and Black and Latino communities, the bulletin highlights two communities that can be disproportionately impacted:

Older consumers. 44% of the total virtual currency complaints submitted by older consumers since October 2018 have involved fraud or scams.
Servicemembers. 37% of complaints from servicemembers are about scams, primarily identity theft or romance scams.

Consumer Protection

The bulletin recommends steps that consumers should take to protect against crypto-related scams, including:

Watch out for signs of a scam, including claims promising huge rates of return.
Don't mix crypto-assets and romance. Be suspicious of new romantic relationships, particularly distant, in which the consumer is asked to invest in or send crypto-assets.
Ensure there is a way to contact the platform if something goes wrong with a crypto-asset transaction.
Investigate the actual costs associated with the crypto-transaction.
Access resources that are designed to help consumers avoid crypto-asset scams and theft, such as the:
- Federal Trade Commission (FTC) guide "What to Know About Cryptocurrency and Scams;" and
- CFPB consumer advisory "Risks to consumers posed by virtual currencies."
Report any suspicious claims of Federal Deposit Insurance Corporation (FDIC) insurance.
Submit a complaint to the CFPB.

In prepared remarks that addressed the publication of the bulletin and the current turmoil in the crypto markets, CFPB Director Rohit Chopra noted "while the bulk of the crypto-asset ecosystem involves speculative trading that would not be considered a consumer financial product or service, the CFPB is watching these developments closely, given the potential for stablecoins and other digital assets to enter the consumer payments system." Director Chopra also noted that the CFPB:

Issued guidance on the misuse of the name or logo of the FDIC, or misrepresentation about the availability of FDIC insurance to crypto products.
Will continue to process and analyze consumer complaints and share them with regulators and enforcers throughout the country.
Looks forward to working with other agencies to implement the Financial Literacy and Education Commission (FLEC) recommendations from a report issued in connection with President Biden's Digital Asset Executive Order to address the need for unbiased information about the crypto market, products, and services.

CFPB Bulletin Analyzes Crypto-Asset Complaints | Practical Law