On November 10, the Consumer Financial Protection Bureau (CFPB) released a new complaint bulletin, highlighting consumer complaints it has received related to crypto-assets. The bulletin suggests that fraud, theft, hacks, and scams pose a significant problem in crypto-asset markets. Also, according to the bulletin, consumers reported issues with executing transactions and transferring assets between exchanges. In response, the CFPB is advising consumers to be aware of common schemes, report suspicious FDIC insurance claims, and continue submitting complaints directly to the CFPB.

In President Biden’s “Executive Order on Ensuring the Responsible Development of Digital Assets” (Order), a number of deadlines were set for numerous federal agencies to submit reports, including a deadline for the Financial Stability Oversight Council (FSOC) to produce a report that identifies “specific financial stability risks and regulatory gaps” from the use of digital currencies and proposes recommendations to mitigate those risks. Also, the Order “encouraged” the director of the CFPB “to consider the extent to which privacy or consumer protection measures within their respective jurisdictions may be used to protect users of digital assets and whether additional measures may be needed.” Subsequently, the White House released a “First-Ever Comprehensive Framework For Responsible Development of Digital Assets,” which noted that the reports encouraged the CFPB to “redouble [its] efforts to monitor consumer complaints and to enforce against unfair, deceptive, or abusive practices.”

Over the past decade, the number of crypto-assets has expanded; indeed, one estimate puts the total at more than 1.8 million. The CFPB also reports a similar rise in the number of complaints. From October 2018 to September 2022, the CFPB received more than 8,300 complaints related to virtual currency, with the majority being submitted in the last two years. The most common issue selected was fraud and scams (40%) followed by transaction issues.

The CFPB highlighted the following common issues among consumers:

• Romance scams and “pig butchering”
  • Romance scams or schemes where scammers play on a victim’s emotions to extract money are increasingly common. Data from the CFPB shows that romance scams are particularly common among older consumers.
  • Some of these scammers combine romance scams with a technique law enforcement refers to as “pig butchering,” where fraudsters pose as financial successes and spend time gaining the victim’s confidence and trust. Even going as far as coaching victims through setting up crypto-asset accounts.
  • Some scammers use social media posts by crypto-asset influencers to trick victims. For example, a scammer may impersonate a celebrity or influencer using verified (sometimes stolen) social media accounts or promotional videos to promote giveaways or “double your crypto” scams.

• Transaction issues:
  • Consumers reported having trouble executing transactions, especially during times of increasing crypto-asset prices, resulting in losses or the inability to realize profits.
  • Other consumers had issues with compatibility between crypto-assets they owned and those that could be used on a specific crypto-asset platform. Other consumers experienced losses when attempting to transfer incompatible assets between different wallets or crypto-asset platforms.
  • 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, including the inability to make purchases, issues closing their account, rejecting their claims for reimbursement on fraudulent charges, or failing to receive advertised rewards.
  • Consumers also complained that several large crypto-asset platforms have recently either frozen customers’ account withdrawals, filed for bankruptcy protection, or both.

• Undisclosed or unexpected costs:
  • Some consumers complained about undisclosed or unexpected costs on crypto-asset platforms, or claims there were no fees when, in reality, the consumer noticed a large cost in the form of a large spread, e.g., the gap between the price an asset can be purchased at and the price an asset can be sold at.

• Customer service issues:
  • Consumers sometimes complained about the difficulties they face in getting in touch with customer service representatives.
  • Lack of customer service options creates opportunities for social media scams where attackers pretend to be customer service representatives to gain access to customers’ wallets and steal crypto-assets.

The CFPB went on to note that in situations where consumers have had assets stolen, or had their account hacked, they are often told there is nowhere to turn for help. In one complaint, a consumer reported a loss of their life savings in a scam, which the company stated was not recoverable. In other situations where consumers are having problems with a crypto-asset platform or wallet that does not involve fraud or technical issues, companies sometimes cite boilerplate user agreement language to absolve themselves of responsibility. Consumers have also reported to the CFPB that some crypto-asset platforms have incorporated arbitration clauses into their terms and conditions that requires consumers to resolve disputes through arbitration.

Our Take

Director Chopra’s recent public statement have focused on the adoption of cryptocurrencies for real-time payments, in particular the risks of hacks, errors and fraud, and consumer protection. To date, the CFPB has not brought any enforcement actions against crypto companies, but the complaint bulletin is another signal of the CFPB’s increased activity in this space.