CR’s Delicia Hand testifies at House Financial Services’ Subcommittee hearing on “Understanding Stablecoins’ Role in Payments and the Need for Legislation”
WASHINGTON, D.C. – Consumer Reports is calling on lawmakers in Congress to pass legislation that creates a strong regulatory framework overseeing stablecoin cryptocurrencies to protect consumers from unreasonable risks. In testimony before the House Financial Services Committees’ Subcommittee on Digital Assets, CR’s Delicia Hand urged its members to continue working on bipartisan legislation governing stablecoins to help foster responsible innovation, financial stability, and financial inclusion.
The subcommittee’s “Understanding Stablecoins’ Role in Payments and the Need for Legislation” hearing will be livestreamed today beginning at 10 am ET.
“The lack of uniform and meaningful regulatory oversight of stablecoins and the broader cryptocurrency market creates significant risks for consumers and the entire country,” said Hand, director of financial fairness at Consumer Reports. “Consumers and financial institutions have already lost billions of dollars from recent cryptocurrency scandals and meltdowns over the past year. We can’t afford to leave consumers at risk in this wild, wild west environment without comprehensive regulatory oversight.”
Stablecoins are a type of cryptocurrency where the value of the digital asset is tied to a government-issued currency, exchange-traded commodity, or another cryptocurrency. Hand’s testimony points out that, while stablecoins are meant to stabilize digital assets, reserves held by asset-backed stablecoins have been subject to market, credit and liquidity risks. There are additional risks due to unregistered, under regulated or unregulated issuers and service providers, the opacity and complexity of the crypto ecosystem, potential conflicts of interest between issuers and consumers, and a lack of recourse for lost or stolen crypto-assets.
“These risks are simply too big to place on unsuspecting consumers, especially if this ecosystem continues to be meaningfully and uniformly unregulated,” said Hand.
While a draft proposal by the subcommittee sets up a regime to approve issuers of payment stablecoins, it does not outline sufficient consumer protections that issuers are required to provide for payment activities. Consumer Reports is calling on lawmakers to include a number of protections in the bill:
- Issuers should be required to enable consumers to prevent, cancel, replace or override a transaction and should conduct chargebacks or facilitate disputes over payments. Stablecoins should be subject to the consumer protections covered by the Electronic Funds Transfer Act
- Stablecoin payment regulation should be technology neutral to promote interoperability and to ensure stablecoin arrangements share common features with the traditional financial system and are not walled off into each institution’s specific system. Interoperable technology protocols will help prevent market concentration and potentially restrict data collection.
- The bill should be strengthened to cover all assets held by custodial wallets – a key point of interaction that consumers have with stablecoins. The law should prevent a debtor-creditor relationship from being formed between the consumer and the custodial wallet provider and this should be made clear in required disclosures.
- Consumers should be provided stronger bankruptcy protections. Current language in the bill allows stablecoin issuers to commingle funds received by coin holders in omnibus accounts and to use those funds to cover administrative costs. As a result, bankruptcy courts could give the company and its creditors priority access to those funds, rather than stablecoin holders, the rightful owners.
Hand’s testimony includes additional recommendations to ensure consumers can redeem their funds within 24 hours, there are safeguards in place to limit risky activities, and a clear prohibition barring certain convicted individuals from participating in stablecoin payments.
For a full copy of Hand’s testimony with a complete set of policy recommendations, see here.
Michael McCauley, michael.mccauley@consumer.org, 415-902-9537