WASHINGTON DC – A bill passed by the House today creates a regulatory framework for cryptocurrencies without the safeguards needed to protect consumers and investors and ensure the safety and stability of the financial system, according to Consumer Reports. CR had urged House members to reject the Digital Market Clarity Act of 2025 (CLARITY Act) in advance of the vote unless it was substantially strengthened.
“This bill prioritizes regulatory certainty for the crypto industry at the expense of consumer protection,” said Chuck Bell, advocacy program director at Consumer Reports. “We need much stronger oversight of the crypto industry to ensure digital asset markets are fair, accountable, and built on the same standards that have protected investors and consumers for decades.”
Bell pointed out that the CLARITY Act is not a consumer protection bill—it is a market structure bill designed to move oversight of most digital assets from the Securities and Exchange Commission (SEC) to the Commodity Futures Trading Commission (CFTC), which lacks a consumer protection mandate.
While the CLARITY Act includes some consumer-friendly provisions that help clarify the rules of the road for consumers and the crypto industry, the potential risks for consumers, investors, and financial safety and stability are substantial:
Erosion of SEC Authority: Exempting most crypto assets from SEC oversight will undermine the SEC’s authority and set a precedent for other companies to avoid compliance with established rules designed to protect investors and maintain market integrity. The SEC’s authority to require detailed disclosures, conduct regular examinations, and pursue enforcement actions against deceptive practices would be greatly reduced under the provisions of the bill.
Weak and Inconsistent Standards for Investor Protections. Transferring oversight of most digital assets from the Securities and Exchange Commission (SEC) to the Commodity Futures Trading Commission (CFTC) could leave retail investors more susceptible to fraud and manipulation. By classifying most crypto tokens as “digital commodities,” the bill exempts them from SEC supervision—even if they function like securities. This undermines disclosure requirements and investor rights and would enable insiders to engage in a variety of self-interested behaviors that are not aligned with consumer and investor interests. For example, SEC-registered entities would be allowed to trade in crypto, but the SEC would have no authority over this aspect of their operations.
Impact on Primary Securities Markets: The CLARITY Act could potentially undermine the established $120 trillion U.S. equity and debt markets by altering the definitions of securities and revising the Howey test. Existing securities companies may reorganize as crypto companies because of lower regulatory scrutiny, cost burden, and a safe harbor from investor lawsuits.
Broad Federal Preemption of State Consumer Protections – Section 106(j), Section 308, Section 202(b)(2): The Act broadly preempts state laws regulating the offer or sale of digital assets for federally registered firms, except for general antifraud statutes. Consumer groups have long opposed this kind of sweeping preemption, as it strips away state-level protections that often go beyond fraud—such as privacy, contract rights, and remedies for unfair or deceptive practices. This leaves consumers more vulnerable, especially in fast-evolving markets where state regulators are often first to act.
Lack of Mandated Plain-Language, Technology-Appropriate Disclosures – The Act requires a lot of technical disclosures from commodity issuers, but most consumers aren’t programmers. Disclosures should include simple, one-page summaries of key risks and features—like a nutrition label for digital assets (Section 202, 4B(b)(2)). Or, per above, leveraging the technology to require in transaction notices and pushes of information so that consumers can make informed decisions. Recommendation: Mandate plain-language summaries as part of all required disclosures, and in-transaction notices and information pushes.
Weak Stablecoin Consumer Protections – Section 101(32), Section 301 – The Act defines “permitted payment stablecoins” and requires issuers to be under some form of state or federal oversight, but it does not set strong, clear requirements for reserve management, redemption rights, or independent audits. There is no guarantee that stablecoin holders can always redeem at par or that reserves are held in safe, liquid assets. This is a major gap, especially compared to proposals like the STABLE Act.
Insufficient Oversight and Accountability for Decentralized Finance (DeFi) and “Decentralized” Projects – Sections 101(24), 309, 409, 205(d) – The Act exempts many DeFi activities and “decentralized governance systems” from core regulatory requirements. The criteria for what qualifies as “decentralized” are weak and could be gamed by projects that retain effective control while avoiding accountability. This leaves consumers exposed to risks without clear recourse if they are harmed by a supposedly “decentralized” platform.
No Standardized Dispute Resolution or Consumer Redress Process – Section 106(c)(3)(D) – While the Act requires registrants to provide complaint and whistleblower channels, it does not establish a standardized federal process for consumers to resolve disputes or recover losses. Consumers harmed by fraud, hacks, or platform failures may have no clear path for redress, unlike with banks or traditional financial products.
Limited Financial Literacy and Education Requirements – Section 507 – The Act merely calls for a study on financial literacy among digital asset holders, rather than requiring concrete, ongoing consumer education. In a complex and rapidly changing market, consumers need robust, in-transaction, regulator-approved educational resources at onboarding and throughout their engagement with digital assets.
Weak Protections Against Foreign and Legacy Platform Risks – Section 111(b), Section 202(c) – The Act mandates a GAO study on foreign intermediaries and provides exceptions for legacy digital asset issuers, but does not create a public registry of compliant/non-compliant platforms or require intermediaries to block access to unregistered foreign services. Consumers remain at risk from offshore or grandfathered platforms that may not meet U.S. standards.
Ambiguities and Loopholes in “Mature Blockchain System” Certification – Section 205 – The process for certifying a blockchain as “mature” is largely self-attested and subject to only limited SEC review. This could allow projects to prematurely claim “mature” status and escape ongoing disclosure requirements, undermining transparency and consumer protection.
Media Contact: Michael McCauley, michael.mccauley@consumer.org