A consumer protection agency has issued an advisory warning on Bitcoin, re-enforcing negative stereotypes, and indicates it may intervene to support consumers with fraud complaints.
The Consumer Financial Protection Bureau (CFPB), a government agency designed to protect consumers from financial fraud, issued an advisory warning on the “digital currency,” which many have also referred to as a payment transfer methodology.
CFPB refers to Bitcoin as stepping into the Wild West
“Consumers are stepping into the Wild West,” when they use Bitcoin, CFPB Director Richard Cordray was quoted as saying to AP.
In its advisory warning, the agency cites the four top issues with Bitcoin.
The CFPB warns the digital currencies are not backed by the “full faith and credit” of the government. The agency did not say the US government and many European counterparts are on a debt trajectory that could make government backed currencies worth much less in the future, however.
The agency also said Bitcoin has volatile exchanges and exchange rates that can vary widely. The lack of a strong market maker program is one reason for this issue, as arbitrage opportunities are said not be smooth from exchange to exchange.
Bitcoin is targeted by hackers and scammers, the CFPB noted. “Virtual currencies are targets for hackers who have been able to breach sophisticated security systems in order to steal funds” a report said.
Bitcoin-based deposits are not federally insured
Unlike bank accounts, Bitcoin-based deposits are not federally insured and there is little regulation of those holding your bitcoin deposits. “If you trust someone else to hold your virtual currencies and something goes wrong, that company may not offer you the kind of help you expect from a bank or debit or credit card provider,” the report on the crypto currency said.
Further, the CFPB warned fraudsters are taking advantage of the hype surrounding virtual currencies to cheat people with fake opportunities.
The report noted many criminals have seized upon the hype around Bitcoin to create new versions of old scams. In early 2014, the U.S. Securities and Exchange Commission sued the organizer of an alleged Ponzi scheme in Texas that purportedly advertised an “investment opportunity” that promised up to 7% interest per week. Instead, invested Bitcoins were allegedly used to pay existing investors and the organizer’s personal expenses, the CFPB report said.
The CFPB is now encouraging people who have fallen victim to Bitcoin fraud to submit a complaint to the regulatory agency.