In a controversial move in the final days of President Joe Biden’s administration, the Consumer Financial Protection Bureau (CFPB) has proposed a rule that could hold cryptocurrency wallet developers like MetaMask and Phantom liable for fraud or faulty transactions.
But the proposal is expected to face significant opposition and be dropped when Donald Trump takes office later this month.
The CFPB announced Friday that it has proposed an interpretive rule that aims to regulate digital asset wallets as financial institutions under the Electronic Funds Transfer Act. If enacted, the rule would give the agency the authority to hold wallet providers liable for unauthorized or fraudulent transactions.
“When people pay for family expenses using new forms of digital payments, they must be confident that their transactions are not tainted by harmful oversight or errors,” CFPB Director Rohit Chopra said in a statement.
The bureau, which was originally established to protect consumers after the 2008 financial crisis, opened the rule to two months of public comment, but many believe the proposal is unlikely to gain traction under the incoming administration.
“This is like holding a hammer manufacturer (who in many cases give away hammers for free) liable for misuse of a hammer,” said Joey Krug, a partner at Peter Thiel’s Founders Fund, likening the move to holding a hammer manufacturer liable for misuse.
Many in the crypto space see the move as part of a broader agenda tied to Senator Elizabeth Warren, a staunch critic of digital assets. Warren, who first proposed the creation of the CFPB in 2007, is considered one of the crypto industry’s staunchest opponents.
Chopra, a longtime Warren ally, was nominated as CFPB director by President Biden in 2020. Her proposal to rein in crypto wallet providers is seen by some as emblematic of Warren’s influence over the agency.
Despite the uproar, industry leaders remain skeptical of the rule’s longevity. A 2020 Supreme Court decision allows the president to fire the director of the CFPB without cause, and the incoming Trump administration is expected to take a pro-crypto stance.
Chopra and his proposed rule are likely to be short-lived, as Republicans have historically criticized the CFPB’s existence. The Trump administration has already signaled its intention to support digital assets, a stark contrast to the Biden administration’s more cautious approach to the sector.
*This is not investment advice.
