On November 22, the CFPB denied a crypto lending institution’s petition for an order modifying a pending civil investigative demand (“CID”) that the Bureau issued to the institution in December of 2021. The CFPB issued the CID as part of an investigation into the institution’s advertisement of certain product offerings, including lines of credit and its “Earn Interest Product” (“EIP”).
In its petition, the crypto lending institution argued that the CID should be modified to exclude its EIP because the CFPB lacks authority over that product. The institution cited in support of its petition a recent SEC order determining that interest-bearing crypto lending products are securities, meaning they are beyond the Bureau’s statutory jurisdiction. In denying the institution’s petition, CFPB Director Rohit Chopra noted that the institution’s simultaneous contention that its EIP is not a security subject to SEC oversight was fatal to the institution’s argument.
This petition denial comes on the heels of a bulletin that the CFPB published last month detailing a recent rise in consumer complaints related to crypto assets. The bulletin notes that of the more than 8,300 complaints related to crypto assets submitted to the CFPB since October 2018, a majority have been submitted within the past two years with the greatest number of complaints coming from consumers in California. The bulletin further highlights several risk themes that are common in consumer crypto asset complaints, including frauds and scams, various transactional issues, and consumer assets not being accessible when promised.
Growing consumer concern over crypto assets has also been mirrored by heightened scrutiny from state regulatory authorities. These pressures are evidenced by the California Department of Financial Protection and Innovation announcing its latest in a string of investigations into companies marketing crypto asset-related products to consumers (see previous blog post here). Several state regulatory authorities, including the DFPI, have also initiated parallel enforcement actions against the crypto lending institution referenced above in connection with its EIP.
Putting it into Practice: Federal and state authorities remain focused on regulating interest-bearing crypto accounts and the companies that offer them to consumers. Regulators are also ramping up their broader nationwide effort to protect consumers engaging in crypto investing and transactions. Crypto companies, particularly those involved in crypto lending, should therefore review the recent actions taken by the CFPB and state regulators and ensure that their product offerings are compliant with consumer protection laws.