BLOCKING THE CHAIN ON FRAUD – Crypto-Assets and Consumer Rights Under the EFTA
As crypto-assets—often referred to as cryptocurrencies, virtual currencies, or digital assets—continue to gain popularity, so do the legal questions surrounding their use. Bitcoin, Ether, and stable-coins like Tether claim to offer innovative ways to manage and transfer value outside traditional banking systems. However, many consumers are unaware of the risks, particularly when fraud or theft occurs. While crypto-assets have primarily been used for speculative investments or illicit activities, they are beginning to intersect with laws governing electronic fund transfers, specifically the Electronic Fund Transfer Act (EFTA).
At R23 Law, our California Crypto Fraud Attorneys are committed to protecting consumers from fraudulent financial practices involving crypto-assets.
As the regulatory landscape around cryptocurrencies evolves, it’s essential to understand how the EFTA may apply to your crypto transactions and the protections you have in place. This post explores how federal and state laws impact crypto-assets and how consumers can seek legal recourse when things go wrong.
What Is the EFTA?
The Electronic Fund Transfer Act (EFTA) is a federal law that provides protections for consumers when they engage in electronic fund transfers (EFTs). The EFTA covers transactions made through ATMs, point-of-sale systems, direct deposits, and online banking transfers. It ensures that consumers have dispute rights in the event of unauthorized or erroneous transactions, giving them the ability to recover lost funds.
But does the EFTA cover crypto-assets? This is where things get a bit complicated.
Crypto-Assets and EFTA Coverage
Crypto-assets exist in a legal gray area when it comes to traditional financial protections. The EFTA was not originally designed with digital currencies in mind, and as such, not all crypto transactions are automatically covered. However, there are circumstances where the EFTA may still provide consumer protections for certain crypto transactions, particularly when crypto-assets are used as a medium between traditional fiat currency transfers.
For example, if you use a financial institution to transfer fiat currency that is converted into a crypto-asset, and then back into fiat currency on the receiving end, those fiat-to-crypto transfers may fall under the scope of the EFTA. In these cases, your rights as a consumer would include protections against unauthorized transactions, errors, and the ability to dispute fraudulent activity.
The Consumer Financial Protection Bureau (CFPB) has noted that while crypto-assets may not be directly covered by the EFTA, the underlying electronic fund transfer involving fiat currency could invoke EFTA protections. However, the complexity of these cases requires a nuanced understanding of both crypto-assets and the EFTA.
Fraud and Crypto Scams on the Rise
The rise of crypto-assets has unfortunately coincided with an increase in fraud. Reports from the Federal Trade Commission (FTC) and the CFPB highlight a significant surge in scams related to cryptocurrencies, including fraudulent investment schemes, phishing attacks, and unauthorized transactions. As crypto-assets can be transferred quickly and anonymously, they present a tempting target for bad actors looking to exploit unsuspecting consumers.
Consumers often find themselves at a loss when these scams occur because the protections they’re used to from traditional banking systems, such as those under the EFTA, may not fully apply to their crypto transactions. This is why it’s crucial to have legal assistance to navigate these issues and determine if EFTA protections may still be available in your case.
Landmark Decision – Rider v. Uphold HQ Inc.
A pivotal moment in the application of the EFTA to crypto-assets occurred on February 22, 2023, when the United States District Court for the Southern District of New York ruled in Rider v. Uphold HQ Inc. that cryptocurrencies are considered “funds” under the EFTA. This ruling marked a significant legal victory for consumers seeking to hold crypto platforms accountable under federal law.
In this case, the plaintiff brought an EFTA claim against the cryptocurrency platform Uphold, arguing that unauthorized crypto transfers violated the EFTA’s protections. The defendant claimed that the EFTA should not apply because cryptocurrencies do not constitute “funds” as defined by the law. However, the District Court rejected this argument, ruling that cryptocurrency qualifies as “funds” because it meets the ordinary definition of the term as a liquid monetary asset.
Moreover, the Court determined that Uphold, as a crypto platform holding consumer accounts, is a “financial institution” under the EFTA. This meant that Uphold was required to comply with the EFTA’s consumer protection provisions, including safeguarding against unauthorized transfers. The ruling opened the door for consumers to pursue legal action under the EFTA when dealing with crypto platforms, a major step forward in consumer rights.
At R23 Law, our California Crypto Fraud Attorneys directly worked on this case, helping to establish legal precedent that strengthens consumer protections in the crypto space. This landmark ruling highlights the importance of having skilled attorneys who understand both the nuances of cryptocurrency and the intricacies of federal consumer protection laws.
Federal Regulation of Crypto-Assets
The rise of crypto-assets has drawn the attention of numerous federal regulatory agencies, each focusing on different aspects of the market. While this blog focuses primarily on the EFTA, it’s important to note that crypto-assets are also regulated by various other federal laws.
Securities and Exchange Commission (SEC): The SEC has taken an active role in addressing crypto-assets that may qualify as securities under U.S. law. This includes enforcing securities regulations on initial coin offerings (ICOs) and ensuring compliance with securities laws.
Commodity Futures Trading Commission (CFTC): The CFTC oversees crypto-assets when they are traded as commodities, such as in futures contracts. This creates another layer of regulation for businesses and consumers engaged in crypto transactions.
U.S. Treasury Department: The U.S. Treasury has issued warnings and reports about the use of crypto-assets, particularly highlighting their risks in terms of speculation and illicit finance. The Financial Crimes Enforcement Network (FinCEN) also plays a role in regulating crypto exchanges under anti-money laundering laws.
As demonstrated by the Rider v. Uphold HQ Inc. case, the EFTA provides a critical layer of consumer protection, but other federal regulations may also come into play depending on the specifics of the transaction or investment. At R23 Law, our California Crypto Fraud Attorneys are well-versed in navigating these federal laws and providing comprehensive legal support to consumers affected by crypto-related fraud or disputes.
State Regulation of Crypto-Assets
In addition to federal oversight, many states have enacted specific laws to regulate crypto-assets, with varying degrees of stringency. States such as New York and California have been at the forefront of introducing crypto regulations, aiming to protect consumers while allowing innovation in the digital currency market.
New York: New York was the first state to implement a specific licensing regime for crypto-assets, which includes consumer protection rules, disclosure requirements, and cybersecurity obligations for crypto platforms. This framework helps ensure transparency and security for consumers engaging with crypto businesses.
California: California has recently passed laws that will go into effect in 2025, which will regulate digital financial asset businesses and impose licensing requirements. These regulations also govern crypto kiosks, limiting the daily amounts consumers can transfer and providing safeguards against unauthorized transactions.
Many other states have also taken steps to amend existing laws or introduce new regulations specific to crypto-assets. For instance, Washington state amended its uniform money services act to include provisions governing virtual currencies, while states like Wyoming have adopted a more crypto-friendly approach to encourage innovation.
At R23 Law, our California Crypto Fraud Attorneys have the expertise to navigate these state-specific laws and protect your rights as a consumer. Whether you’ve been the victim of crypto fraud or are concerned about unauthorized transfers, we are here to help.
How R23 Law’s California Crypto Fraud Attorneys Can Help with EFTA Claims Involving Crypto
At R23 Law, our California Crypto Fraud Attorneys specialize in consumer protection and are equipped to handle the complexities surrounding crypto-assets and EFTA claims. If you have experienced fraud or unauthorized transactions involving crypto-assets, you may be entitled to protections under the EFTA or other consumer protection laws. Our experienced attorneys can help you determine whether your crypto transaction falls within the EFTA’s coverage and assist you in pursuing legal recourse.
We can help by:
Evaluating Your Crypto Transactions: We can review your specific case to determine whether EFTA protections apply, especially if your transaction involves both fiat and crypto elements.
Disputing Unauthorized Transactions: We will help you navigate the dispute process with financial institutions, using EFTA protections where applicable to recover lost funds.
Pursuing Legal Action Against Fraud: If you’ve fallen victim to a crypto scam, we’ll explore all legal avenues to hold responsible parties accountable and recover your funds.
Clarifying Your Consumer Rights: Crypto-assets operate in a rapidly changing regulatory environment. We stay up-to-date on legal developments to ensure you know your rights and can make informed decisions.
Protect Yourself from Crypto Fraud
The world of crypto-assets is exciting, but it also poses real risks for consumers. If you’ve been affected by fraud, scams, or unauthorized transactions involving crypto-assets, don’t assume that you have no recourse. R23 Law’s California Crypto Fraud Attorneys are here to help you understand your rights under the EFTA and other consumer protection laws and guide you through the process of recovering lost funds.
Contact us today for a free consultation. Our team has the expertise to handle crypto-related claims and is ready to assist you in navigating this complex and evolving area of law. Protect yourself, your investments, and your financial future by seeking legal advice from our experienced California Crypto Fraud Attorneys.
