The Consumer Financial Protection Bureau (CFPB) has released a new notice of proposed rulemaking (NPRM) concerning "Electronic Fund Transfers Through Accounts Established Primarily for Personal, Family, or Household Purposes Using Emerging Payment Mechanisms." The proposal suggests reinterpreting the Electronic Funds Transfer Act (EFTA) to include cryptocurrency activities. However, it does not differentiate between services provided by trusted intermediaries and self-custody wallet software.
Coin Center, an organization focused on defending Americans' rights to use cryptocurrency technology, typically supports equal regulatory treatment for traditional finance and cryptocurrency. They state that only trusted intermediaries should face direct licensing and regulatory obligations. Coin Center's concern arises from the NPRM's lack of clarity on whether Reg E requirements would apply solely to custodial wallet service providers or also to self-hosted wallet software providers. The NPRM states it would apply to "virtual currency wallets that can be used to buy goods and services or make person-to-person transfers," which is seen as vague.
"Self-hosted wallets and custodial wallets are entirely different products with entirely different consumer risks and benefits," says Coin Center. Custodial wallet providers offer ongoing services with promises made to users, while self-custody software providers focus on software development and publication.
Coin Center argues that the CFPB's NPRM may have been rushed or lacks awareness of the nature of the products it seeks to regulate. If the CFPB intends to cover self-custody wallets under Reg E, Coin Center believes this would exceed statutory authority and be unconstitutional.
The EFTA defines "electronic fund transfer" as any transfer initiated through electronic means instructing a financial institution to debit or credit an account. Key terms include "funds," "financial institution," and "account." The CFPB interprets "funds" as including crypto but does not clearly define the limits of a "financial institution."
Coin Center points out issues with defining an "account" under EFTA, noting that self-hosted wallets do not fit this definition. They argue that accounts involve assets held by a trusted entity on behalf of a customer, unlike contents in a personal safe.
If the CFPB aims to regulate self-custody software developers, Coin Center claims this would impose content-based prior restraint on speech, violating First Amendment rights. Additionally, requiring software developers to collect user data without consent could breach Fourth Amendment protections against warrantless searches.
Coin Center plans to respond formally to this rulemaking by March.
