Consumer Complaints About Crypto Rise Amid Crypto Decline, Data Shows

The Consumer Financial Protection Bureau, which was asked by a presidential order to step up efforts to monitor consumer complaints and “enforce against unfair, deceptive or abusive practices” in cryptocurrency markets, received 2,734 confirmed crypto-related consumer complaints against digital asset-centric companies in its public database between January 1, 2020 and August 26, 2022, according to analysis of data by Dynamic Securities Analytics Inc., a Tampa, Florida-based compliance data firm. Of these, more than 1,800 came during the last calendar year alone.

The crypto-related consumer complaints from the CFPB range from scams and fraud to the inability to withdraw funds. Companies involved in the complaints include crypto-native companies such as Binance.US, Coinbase Global Inc.,

Gemini Trust Co. and Block Inc., as well as traditional financial institutions such as JPMorgan, Wells Fargo and PNC Bank NA, the data shows.

Although complaints about crypto products and services remain a small part of the total volume of reports received by the FSA for consumers, the overall upward trend suggests that concerns about consumer complaints may drive additional regulatory scrutiny of cryptocurrency. The industry has so far received less attention from regulators than areas such as investor protection and market integrity.

The CFPB uses the complaints to inform its rulemaking process and enforcement actions, and shares the data with other agencies and law enforcement, such as the Federal Trade Commission and the Federal Bureau of Investigation. The agency has not indicated whether it plans to bring any actions based on the crypto-related complaints it has received so far.

Transaction-related issues topped the list of complaints, including problems with applications not working or placing orders. About 28% of the complaints were about crypto-related fraud or scams, while another 20% came from funds that were not available, according to the data. Consumers have also reported to the agency questions relating to, among other things, credit reporting, debt collection, mortgages and student loans.

Created in 2012, the public data set for registering complaints was intended to provide transparency and real-time information so that the public could understand larger industry trends. The CFPB contacts companies named in complaints to give them an opportunity to respond, then publishes reports outlining the specific issues consumers faced, minus their personally identifying information.

Alison Jimenez, founder of Dynamic Securities Analytics, said the analysis shows that “not all crypto complaints are with crypto firms,” ​​adding that banks and other traditional financial services were also named in those crypto complaints. She said exchanges Coinbase, Gemini and Binance.US received the most complaints, and that complaints about crypto firms included complaints about other financial products such as credit cards, as well as sending and receiving funds.

“It’s a good starting point for other research and to add more underlying questions to what’s going on in these firms,” ​​she said of the analysis.

Kathy Kraninger, a former CFPB director under the Trump administration, said it remains to be seen how the CFPB will now seek to clarify its jurisdiction over cryptocurrency regulation, as a number of agencies could claim authority over providing consumer protections. She said other agencies, such as the Securities and Exchange Commission, have authority over investor protection, and the Justice Department and state attorneys general also act on fraud and fraud-related matters. “Who has precedence, which agency has the best authority, is an important aspect here,” she said.

But for crypto firms, Ms. Kraninger, who is now vice president of regulatory affairs at crypto compliance platform Solidus Labs, it is important that responsible players in the crypto ecosystem call out the bad actors. She added that the industry currently has monitoring tools to look for issues such as malicious code in smart contracts, market manipulation and money laundering, and firms should use them to call out fraud and help educate consumers.

In addition, crypto firms should take a look at their disclosures to ensure they are not providing misleading information about the products consumers are engaging in, the risks their products pose and the protections the companies can provide, she said.

“There are things like that that are typical in traditional finance, including disclosure [what risks there are] to the customer base, she said. “There are companies that are doing that, and they should be doing that. … That’s the insurance that investors are also looking for.”

Write to Mengqi Sun at [email protected]