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Consumer Reports urges House Financial Services Subcommittee to strengthen consumer protections in proposed bill governing stablecoins

CR’s Delicia Hand testifies at Subcommittee hearing on “Putting the ‘Stable’ in Stablecoins: How Legislation Will Help Stablecoins Achieve Their Promise” 

WASHINGTON, D.C. – Consumer Reports is urging lawmakers in Congress to develop bipartisan, common sense legislation governing stablecoins that will help promote responsible innovation, financial stability, and financial inclusion. In testimony before the House Financial Service Committees’ Subcommittee on Digital Assets, CR’s Delicia Hand warned that consumers and investors who are putting their faith and trust in stablecoins are at risk given the lack of federal oversight.

The subcommittee’s hearing will be livestreamed today beginning at 9am ET.

“There is no uniform or meaningful regulatory framework governing stablecoins in the U.S., potentially creating significant risks for the entire country,” said Delicia Hand, director of financial fairness for Consumer Reports. “While these new technologies may hold some promise, these risks are simply too big to place on unsuspecting consumers. Appropriate regulation, supervision and oversight needs to be implemented before stablecoins become a greater risk to financial stability, safety and soundness, and the smooth functioning of payment systems.”

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. 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.

Hand’s testimony points out that Committee Chair Patrick McHenry’s proposed legislation does not include important safeguarding principles and consumer protections that were stripped out of a bipartisan bill that was being negotiated last year. 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 access 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