WASHINGTON DC – A bill approved by the Senate today that establishes a regulatory framework governing stablecoins fails to include the protections needed to ensure consumers and the financial system are not exposed to unacceptable risks, according to Consumer Reports. CR had urged lawmakers to oppose the Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (GENIUS) Act unless it was substantially strengthened.
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 lack of recourse for lost or stolen crytpo assets.
“There’s no question that robust and comprehensive oversight of the unregulated stablecoin market is sorely needed, but this bill fails to protect consumers and the economy from the risks posed by these digital assets,” said Delicia Hand, senior director, digital marketplace, at Consumer Reports. “
Hand continued, “As stablecoins become more intertwined with the mainstream banking system, consumers and businesses could be exposed to higher levels of risk, which may lead to insolvencies and federal bailouts. We need stronger federal rules to ensure a solid foundation upon which consumers and companies can safely and reliably participate in stablecoin transactions.”
Consumer Reports has a number of concerns about the GENIUS Act, including:
Insufficient Consumer Protections: While the bill includes some requirements for reserves and redemption policies, it lacks the kind of consumer protections found in traditional banking. This includes clear mechanisms for dispute resolution, deposit insurance, and limitations on liability for unauthorized transactions. The bill does not provide adequate authority to federal and state regulators to ensure consumers have full protection and redemption rights for stablecoin transactions.
Regulatory Arbitrage: The bill creates a new category of “Federal qualified nonbank payment stablecoin issuers” which could allow firms to operate under a lighter regulatory touch than traditional banks, creating opportunities to exploit regulatory gaps and potentially undermining the safety and soundness of the financial system.
Systemic Risks: Under the proposed bill, payment stablecoin issuers could still invest in risky types of assets that may be subject to volatility and bank runs. They also may be permitted to engage in risky non-stablecoin activities, such as private credit or derivatives trading.
Big Tech and Commercial Enterprise Entry: The GENIUS Act could inadvertently create a pathway for large technology companies and large commercial entities such as retailers to enter the banking space without being subject to the same level of scrutiny and regulation as traditional banks. This raises concerns about data privacy, market concentration, and the potential for conflicts of interest.
Limited Oversight: The bill gives considerable power to the Comptroller of the Currency, an agency that has historically been friendly to the banking industry. It is essential to ensure that all regulators involved in stablecoin oversight have the resources and expertise necessary to effectively monitor and enforce regulations.
Media contact: Michael McCauley, michael.mccauley@consumer.org