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New CFPB prepaid rules leave out Bitcoin, and that’s mostly a good thing.

Two years ago this December, the Consumer Financial Protection Bureau began working on a new regulation of prepaid products. The CFPB said at the time that some of the new requirements might apply to virtual currency products. Coin Center filed a comment in that rulemaking process arguing that: 

  1. The CFPB had not conducted adequate study of the virtual currency industry to determine whether and how to apply existing rules to digital currency products.  
  2. The small scale of the digital currency industry relative to the legacy prepaid industry made the application of these rules less urgent. 
  3. That certain specific technical aspects of virtual currency technologies made the application of these rules fraught and worthy of further study and consideration. 

We concluded by asking the CFPB to include a formal exemption of virtual currency products within the final rulemaking.  A number of legacy prepaid industry groups asked for the opposite: for virtual currency products to be explicitly added to the definition of prepaid access, thereby making these products explicitly covered by the rule.  

Today the CFPB has released the final rule [PDF]. Coin Center’s comments and concerns were cited by the CFPB in opposition to the demands of the legacy prepaid industry groups: 

On the other hand, a diverse group of industry commenters and a non-governmental virtual currency policy organization commenter urged the Bureau to expressly provide in the final rule that it does not apply to virtual currency products and services. Commenters expressed concern that regulation would be premature, thus potentially stifling innovation. Several commenters highlighted the low rate of consumer adoption of virtual currency products and services. Commenters also asserted that the Bureau has not adequately studied the virtual currency industry, and that regulations developed for GPR cards are unsuitable to apply to virtual currency products and services because of the differences between such products and services and GPR cards.

And, to our satisfaction, the final rule does not explicitly include digital currency products within the definition of prepaid access, as legacy industry commenters had requested and we had opposed: 

the Bureau reiterates that application of Regulation E and this final rule to [virtual currency] products and services is outside of the scope of this rulemaking.

However, if you parse that language carefully, you’ll note that this doesn’t say that digital currency products are outside the scope of these regulations. It only says that the question, “are virtual currency products regulated under Regulation E or this final rule?” is outside the scope of this particular rulemaking. So the result is that we still don’t know. That’s better than an explicit statement that these ill-fitting regulations definitely apply right now to digital currency products, and it allows the CFPB to take more time studying the question (as we asked them to do), but it doesn’t provide any certainty for innovators wondering whether their products are covered today, either. We’ll have to keep waiting.