August 14 - The Consumer Financial Protection Bureau has issued a consumer advisory warning consumers about the risks of virtual currencies such as Bitcoin. The CFPB advises consumers to be aware of potential issues with virtual currencies such as unclear costs, volatile exchange rates, the threat of hacking and scams, and that companies may not offer help or refunds for lost or stolen funds. The CFPB also announced that consumers who encounter a problem with a virtual currency product or service can now submit a complaint with the Bureau.
“Virtual currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions,” said CFPB Director Richard Cordray. “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.”
The virtual currencies consumer advisory is available at: http://files.consumerfinance.gov/f/201408_cfpb_consumer-advisory_virtual-currencies.pdf
Virtual currencies are designed to be an alternative to current payment systems. Better-known virtual currencies include Bitcoin, XRP, and Dogecoin. Often referred to in the industry as “digital currencies,” they are a way for people to track, store, and send payments over the Internet, and they may have the potential to make payment processing cheaper or faster. But they are not backed by any government or central bank. In addition, 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.
Virtual currency companies are springing up around the world to offer products and services to consumers. There are virtual currency exchanges, which are companies that help consumers buy or sell virtual currencies. There are also online “digital wallet providers,” which are companies that allow consumers to create accounts with them to store and manage their virtual currencies. Many virtual currency exchanges are also wallet providers, and vice versa.
Today’s advisory warns that virtual currencies carry significant risk to consumers, including:
Consumers who encounter a problem with virtual currency products and services – including exchange services or online digital wallets − can now submit a complaint with the CFPB.
The CFPB will send the complaint to the appropriate company, and will work to get a response. If the complaint is about an issue outside the CFPB’s jurisdiction, the CFPB will forward the complaint to the appropriate federal or state regulator. Importantly, the CFPB will use all complaints to better understand the virtual currency market and its effect on consumers. The CFPB will also use the complaints to help enforce federal consumer financial laws and, if appropriate, take consumer protection policy steps.