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  • CFPB Releases Bulletin Analyzing Rise in Crypto-Asset Complaints // Cooley // Global Law Firm

CFPB Releases Bulletin Analyzing Rise in Crypto-Asset Complaints // Cooley // Global Law Firm

By on November 21, 2022 0

On November 10, 2022, the Consumer Financial Protection Bureau issued a consumer complaint analysis bulletin submitted to the CFPB over the past four years regarding crypto-assets and platforms. According to the CFPB, fraud, scams and transaction issues accounted for nearly two-thirds of these complaints. Indeed, shortly after the bulletin was published, CFPB Director Rohit Chopra in another public comment described crypto as “a new vector for fraudsters.” Underlying many complaints were concerns about the level of customer service provided by crypto companies when issues arose.

The bulletin outlines consumer risks and steps consumers can take to protect themselves, while highlighting areas of interest for crypto businesses wishing to reduce their potential risk.

Analysis of complaints by the CFPB

The CFPB reviewed more than 8,300 consumer complaints submitted between October 2018 and September 2022 in all 50 US states. Based on this review, the CFPB found that fraud and scams topped the list of concerns raised by consumers, followed by transaction issues.

Frauds, scams, thefts and hacks

According to the bulletin, suspected fraud or scams account for more than half of the crypto complaints the CFPB has received so far in 2022, and this percentage has been steadily increasing over the past year. As of September 2022, fraud or scams accounted for 63% of all crypto-related complaints.

Consumers have reported significant losses as a result of fraud or scams, and popular crypto platforms have found themselves the target of hacks, including by “certain nation-state actors.” The bulletin reports that hackers associated with North Korea allegedly stole over $2 billion in crypto-assets, of which over $1 billion was allegedly lost between January 2022 and July 2022 alone.

Although the CFPB warns consumers to watch out for signs of a scam and not to mix crypto-assets and romance, it also suggests that crypto businesses are not without guilt. The bulletin states that customer service shortcomings at crypto companies have “created[d] opportunities” for scammers to impersonate customer service representatives to gain access to consumers’ wallets and steal their crypto-assets, and that failure to respond to customer contacts in a timely manner puts consumers at risk unnecessary. The bulletin also questions “whether crypto-asset platforms are effectively identifying and stopping fraudulent transactions” in light of the prevalence of fraud and scam complaints.

Transaction issues, account access and frozen accounts

Transaction issues accounted for the second-largest percentage of crypto-related consumer complaints. Reported transaction issues have occurred when buying or selling crypto-assets, or when attempting to withdraw assets from crypto platforms. They included complaints about undisclosed or unexpected costs on crypto-asset platforms, fees assessed at odds with company disclosures and statements, and consumer account access issues.

The bulletin also reported an increase in complaints about platforms freezing customer accounts and then seeking bankruptcy protection, with some consumers losing six figures or more. Other complaints described companies refusing and ignoring consumer requests to remove assets, often contradicting their disclosures.

What this means for crypto companies

The bulletin comes after months of severe turmoil in the crypto market, and as a dramatic increase in consumer participation in crypto-assets has been accompanied by increased consumer risk and scrutiny of consumer protection. This also follows the Department of Justice’s announcement earlier this year of the first director of the National Cryptocurrency Enforcement Team to promote platform accountability, and the recent announcement that one of the largest crypto exchanges has filed for bankruptcy. With all of this activity, it is imperative for crypto businesses to assess their controls and take steps to reduce their potential risk.

CFPB Bulletin Highlights the Need for Crypto Firms to Have Robust Identity and Fraud Prevention Controls in Place, and Provide Clients with Compliant Information to Reduce Potential Risk of Government Examination and Liability . Providing consumers with a channel to raise their concerns and direct their complaints to the company to be managed – rather than a regulator – is also a key element that is especially important in a time when crypto-assets and platforms forms are under surveillance.