It’s a bit too early to trust
Bitcoin, the Consumer Financial Protection Bureau said Monday, in an
announcement sure to be unpopular with
fans of the digital currency.
Bitcoin
users face “unclear costs, volatile exchange rates, the threat of
hacking and scams,” and lack of clear refund paths, the CFPB said in a
pretty sternly-issued warning.
“Virtual
currencies are not backed by any government or central bank, and at
this point consumers are stepping into the Wild West when they engage in
the market,” said CFPB director Richard Cordray. The announcement was
meant as a warning about other virtual currencies, too, such as XRP or
Dogecoin.
“Because virtual
currency accounts are not insured by the Federal Deposit Insurance
Corporation or the National Credit Union Share Insurance Fund, if a
virtual currency company fails – and many have – the government will not
cover the loss,” the CFPB said in its statement.
The
announcement comes after the CFPB was urged in May to get more involved
in regulating virtual currencies. A report issued by Congress’
Government Accountability Office then found that government banking
regulators had so far focused only on law enforcement actions related to
virtual currencies, and “not focused on emerging consumer protection
issues.”
In its announcement,
the CFPB said it would be accepting consumer complaints about virtual
currencies. It also offered more details on why virtual currencies can
cause consumer headaches:
- Exchange rates are volatile and costs unclear:
The exchange rate of Bitcoins to U.S. dollars in 2013 fell as much as
61% in a single day. In 2014, the value of Bitcoins has dropped by as
much as 80% in a single day. The advisory explains that consumers who
buy virtual currencies should be prepared to weather this kind of
volatility. Consumers should also consider whether there are mark-ups or
other fees when using an exchange or digital wallet provider. Companies
may be charging consumers to buy, spend or accept virtual currencies.
- Hackers and scammers pose serious security threats:
Virtual currencies are targets for highly sophisticated hackers and
scammers. Individuals, digital wallet providers, and exchanges are all
at risk. For example, if a hacker gains access to a consumer’s Bitcoin
“private keys,” which are 64-character codes that unlock the consumer’s funds,
the consumer can lose all their virtual currency. Fraudsters are also
taking advantage of the hype surrounding virtual currencies to pose as
Bitcoin exchanges, Bitcoin intermediaries and Bitcoin traders in an
effort to lure consumers to send money, which is then stolen.
- Companies may not offer help or refunds for lost or stolen funds:
Some virtual currency companies do not identify their owners, provide
phone numbers and addresses, or even specify the country in which they
are located. Before using a company’s products or services, consumers
should carefully consider if they know how to contact the company in
question, and if they know their contractual rights. If a consumer
trusts a company to hold their virtual currencies and something goes
wrong, the company may not offer the kind of help the consumer would
expect from a bank, debit card or credit card provider. In fact, some
virtual currency companies disclaim responsibility for consumer losses if funds are lost or stolen.
Not
all the voices of consumer protection are critical of virtual
currencies, however. Former CFPB deputy director Raj Date is now a
supporter, and sits on the board of a bitcoin startup.
“The
thing I like about innovation in consumer finance, like bitcoin, like
digital currency, is exactly the same reason I went to the CFPB. How is
it that you can take new ideas and make the system work better for
people?”
Date said in April, according to CoinDesk.com.
.
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