On January 10, the Consumer Financial Protection Bureau (Bureau) issued a notice of proposed interpretive rule (Proposed Rule). The deadline for comments is March 31, 2025. The Proposed Rule would apply the Electronic Fund Transfer Act (EFTA)—which protects consumers against errors and fraud—to new types of digital payment mechanisms, including stablecoins and other digital currencies.

The Proposed Rule is targeted at electronic fund transfers (EFTs) through accounts established

primarily for personal, family, or household purposes. Potentially impacted parties include a wide swath of the crypto industry—e.g., cryptocurrency exchanges, digital wallet providers, and stablecoin issuers.

We expect the Proposed Rule will be rescinded early in the incoming Trump administration as another example of overreach by the current Bureau director, among other grounds.[i] Nevertheless, the Proposed Rule represents the Bureau’s second attempt to regulate crypto following a section of the digital payments larger participant proposed rule (LPR) from 2024, which was ultimately removed from the final LPR. While the majority of crypto use today falls outside the consumer payments regulatory scheme under the Bureau’s jurisdiction, the Proposed Rule raises important questions that could benefit from public comment. For example:

  • Does the Bureau have statutory authority to regulate digital assets, especially following the U.S. Supreme Court’s Loper Bright and West Virginia v. EPA decisions?
  • Is the Bureau’s interpretative rule approach consistent with the Administrative Procedures Act (APA)?
  • Is today’s consumer regulatory framework optimally designed to accomplish consumer protection goals if consumers use crypto to make payments?

Below we provide background on the EFTA and its implementing rule Regulation E (Reg E), as well as preliminary analysis of the Proposed Rule.

Background

The EFTA and Reg E apply to an EFT that authorizes a “financial institution” (FI) to debit or credit a consumer’s account. EFTs generally include any transfer of “funds” that are “initiated through . . . [a] computer . . . so as to order, instruct, or authorize a financial institution to debit or credit” a customer’s account.[ii]

  • FIs include banks, savings associations, and credit unions, and “any other person that directly or indirectly holds an account belonging to a consumer…”[iii]
  • “Funds” is not specifically defined in EFTA or Reg. E, although courts have interpreted funds to include cash[iv] and other “pecuniary resources which are readily converted into cash.”[v] One federal district court in the Rider v. Uphold HQ Inc.[vi] case concluded that virtual currency platform operators may be subject to the EFTA and Reg E.[vii]
  • Reg. E defines “account” to mean “a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.”[viii]

Proposed Rule

The Bureau seeks to create a “consistent framework” for applying consumer protection rules. The Proposed Rule’s rationale is based on its concern that “if market participants do not apply EFTA and Reg E in a consistent manner, consumers making [EFTs] established primarily for personal, family, or household purposes might face challenges in vindicating their rights in the event of unauthorized transfers and other errors.”[ix] If finalized in current form, the Proposed Rule would:

  • Apply the FI definition to non-bank entities within the “any other person” definition;
  • Broadly construe “funds” to include stablecoins as well as other “similarly-situated fungible assets that either operate as a medium of exchange or as a means of paying for goods and services”,[x] including other forms of unspecified digital assets;
  • Regulate virtual currency wallets as “accounts” to the extent they can be used to buy goods and services or make person-to-person transfers;[xi] and
  • Not extend Reg E’s securities and commodities exception to the EFT definition if the EFTs in question are used as “funds” in an “account” to purchase goods or services.[xii]

FIs captured in any final rule would be required to:

  • Investigate and resolve errors when a consumer notifies the FI of an error, including unauthorized EFTs initiated by a person through fraud, robbery, computer hacking, or other forms of cyber theft;
  • Provide initial disclosures of the terms and conditions of EFT services before the EFT is made or at the time the consumer contracts for and EFT service, including a summary of consumer rights and consumer liability under Reg E; and
  • Provide regular, periodic statements, and change-in-terms notices.

Preliminary Analysis

The Proposed Rule marks the Bureau’s second attempt to characterize digital assets as “funds” under Reg E. In the LPR, the Bureau attempted to include digital assets by making similar arguments contained in the Proposed Rule. While digital assets were ultimately excluded from the final LPR, the commentary to the proposed LPR surmised that the term “funds” includes digital assets. The LPR relied on lower court decisions, interpreting various inapposite federal criminal laws, such as the criminal prohibition on money laundering, holding that certain crypto assets constitute “funds” because they can be used to “conduct financial transactions.”

Consistent with comments to the LPR, we expect comments to the Proposed Rule to focus on several threshold issues, including whether the Bureau has the statutory authority to regulate digital assets. Under West Virginia v. EPA, a U.S. Supreme Court decision from 2022, the Bureau should be prevented from asserting jurisdiction over digital assets without clear authority from Congress. Under the major questions doctrine, “administrative agencies must be able to point to clear congressional authorization when they claim the power to make decisions of vast economic and political significance.”[xiii] When the Dodd-Frank Act was enacted in 2010, creating the Bureau and empowering it to define markets for consumer financial products, the digital asset industry was in its infancy. Bitcoin entered circulation one year before the Dodd-Frank’s Act’s enactment, and stablecoin issuers did not exist. We anticipate Congress will renew efforts to enact bipartisan legislation following the May 2024 passage of incoming House Financial Services Chairman French Hill’s Fit21 Bill, designed to create a regulatory framework for digital assets, though the likelihood of any comprehensive legislation becoming law in 2025 remains unlikely. For all these reasons, there are sound arguments for leaving the broader task to Congress to determine what regulatory agencies, and in what capacity, have clear congressional authorization to exercise jurisdiction over crypto companies.

In addition, the U.S. Supreme Court’s Loper Bright decision last year means there will be significantly less deference to an agency’s interpretation of an ambiguous statute, and instead, federal courts are free to determine the meaning of undefined or ill-defined terms. In the EFTA, the term “funds” is undefined, and “account” is ill-defined given the inclusion of the broad phrase “or other asset account.” At bottom, the Proposed Rule is simply the Bureau providing a novel and thinly supported interpretation of those two terms. If the Proposed Rule were challenged, reviewing courts would not be compelled to accept the Bureau’s position.

We also expect to see challenges to the Bureau’s interpretative rule approach under the APA. Is the Proposed Rule an interpretation of existing or new law? Under the APA, a rulemaking is unlawful if it exceeds the agency’s constitutional or statutory authority, is “arbitrary, capricious, [or] an abuse of discretion”, or it promulgates “without observance of procedure required by law.”[xiv] While the APA imposes relatively few procedural requirements on agencies seeking to issue interpretative rules, whether the Proposed Rule merely seeks to clarify existing law under the EFTA and Reg E (which do not define “funds”), or create new law under its purported authority (which would require a legislative rule) is an open question.

Declaring crypto to be “funds” is likely more than just a clarification of the existing regulation. The Bureau’s interpretative rule mechanism appears intended to significantly fast track the rulemaking process, providing context for the Bureau’s encouragement of “early submission of comments” on a 30-day timeframe.[xv]

Under the formal rulemaking process, the Bureau is required to consult with the appropriate prudential regulators or other federal agencies (e.g., the SEC and CFTC). If a prudential regulator provides the Bureau with a written objection to the proposed rule, the Dodd-Frank Act requires the Bureau to include a description of the objection and the basis for Bureau decision regarding the objection. Notably, this disclosure requirement does not extend to certain federal agencies (e.g., SEC and CFTC).[xvi] In addition, formal legislative rulemaking requires an assessment of the potential benefits and costs to consumers and covered persons, the impact of proposed rules on covered persons, and the impact on consumers in rural areas.

In short, the Bureau ran out of time, and likely sought to bypass required interagency consultation through the interpretive (and less onerous) interpretative rulemaking process.

Conclusion
Apart from various implementation-related issues (which we do not address here), the broader question prompted by the Proposed Rule is whether today’s consumer regulatory framework is fit-for-purpose given the wide array of digital assets with unique characteristics, and the different methods digital assets are stored and transmitted compared to fiat-based accounts. We expect the next Congress will wrestle with these critical questions as it renews attempts to regulate digital assets more thoughtfully, with stablecoins being a potential first focus given recent bipartisan bills introduced in the Senate and House.[xvii]

While the broader consumer protection aspects in the Proposed Rule may be well intentioned, the Bureau should allow Congress to consider appropriate legislation. In the meantime, we expect the crypto industry to reprise themes from the LPR comments: i.e., the Bureau does not have statutory authority to regulate digital assets, and even if it did, interpretive rulemaking on the EFTA and Reg E are not the appropriate regulatory tools for the task.


[i] Cf. Letter from the American Bankers Association to President-Elect Trump (Jan. 10, 2025), https://www.aba.com/-/media/documents/letters-to-congress-and-regulators/ltrtrumppause20250110.pdf?rev=644e391a893f4c76a14001412128a62a&utm_source=substack&utm_medium=email.

The American Bankers Association and all its state affiliates recently authored a letter to President-Elect Trump requesting that every incoming agency be immediately directed to “halt work on all open regulatory actions and to extend effective dates for final regulations until such time as new personnel are able to assess each action and determine next steps.” Id. At 1.

[ii] 15 U.S.C. § 1693a(7).

[iii] 12 C.F.R. § 1005.2(i).

[iv] See, e.g., Keene v. Keene, 371 P.2d 329 (Cal. 1962)

[v] In re Plich’s Estate, 348 P.2d 706, 709 (Colo. 1960).

[vi] See Rider v. Uphold HQ Inc., 657 F. Supp. 3d 491, 498 (S.D.N.Y. 2023) (Cote, J.) (finding that cryptocurrency exchange was a FI that maintains consumer accounts and engages in EFTs, and that plaintiffs’ EFTA claim could proceed).

[vii] Id. at 498–99.

[viii] 12 CFR. § 1005.2(b).

[ix] Proposed Rule at 9.

[x] Id. at 12.

[xi] Id. at 14. Notably, the Proposed Rule does not address whether “accounts” would carve out self-hosted wallets — i.e., digital asset wallets that do not custody user funds. See id.

[xii] Id. at 15.

[xiii] West Virginia v. EPA, 597 U.S. 697, 735 (2022) (Gorsuch, J., concurring) (citations omitted).

[xiv] 5 U.S.C. § 706(2).

[xv] Proposed Rule at 2.

[xvi] 12 U.S.C § 5512(b).

[xvii] See Draft Bill to Provide for the Regulation of Payment Stablecoins, and for Other Purposes (2024), https://www.hagerty.senate.gov/wp-content/uploads/2024/10/Stablecoin-Draft-Text.pdf; H.R. 4736, 188th Cong. (2024); Bill to Provide for the Regulation of Payment Stablecoins, and for other Purposes (2023), BILLS-118hr4766rh.pdf; H.R. 4766, 118th Cong. (2023).