This week, U.S. policymakers and regulators made their cases on crypto assets and central bank digital currencies (CBDCs). While regulators tend to be very skeptical about cryptocurrencies, even saying that the digital assets depend on “hype,” the position on CBDCs is more positive. Lawmakers, on the other hand, may have a less negative view on crypto assets, and two senators will introduce comprehensive crypto legislation in June. On financial consumer protection, the CFPB released several papers and blogs adding pressure on credit cards to modify their data practices and announced the creation of a new office that, among other things, will increase the scrutiny over Big Tech companies. Lawmakers may introduce legislation to ban app stores from hosting apps that accept payments with digital yuan.
Cryptocurrency and CBDC, Two Sides of a Coin
Crypto Economy Is Dependent on “Hype,” Says OCC’s Comptroller
Acting Comptroller of the Office of the Comptroller of the Currency (OCC) Michael Hsu told an audience at a crypto event Tuesday that the recent events with TerraUSD and other stablecoins are clear evidence that the crypto economy is dependent on hype. Hsu blamed the high-yield rewards offered by some crypto products and the hype created around them for the harm caused to consumers. Hype is essential for the crypto economy, Hsu argued. In an analogy with social media, he said, “it seems that hype and yield are to crypto as user engagement is to social media.”
Fed’s Vice Chair Brainard Makes a Case for a US CBDC in Congress
Federal Reserve Vice Chair Lael Brainard testified on May 26 before the Committee on Financial Services in the U.S. House of Representatives, where she told members of the House about the benefits and risks of a U.S. central bank digital currency (CBDC). In her carefully crafted speech, Ms. Brainard seemed to make a case for a U.S. CBDC. “CBDC could coexist with and be complementary to stablecoins and commercial bank money by providing a safe central bank liability in the digital financial ecosystem, much like cash currently coexists with commercial bank money.”
US Senators Set to Unveil Crypto Bill
A big effort to regulate crypto in the U.S. could come with a bill to set roles for the two government watchdogs. The lawmakers pushing the bill are Sens. Kirsten Gillibrand, D-N.Y., and Cynthia Lummis, R-Wyo. Both have worked on this for “months” and have said they want to make the bill public in June. The bill would make the Commodity Futures Trading Commission (CFTC) the main regulator for spot markets and futures. The Securities and Exchange Commission (SEC) would meanwhile be the supervisor for crypto that can be represented by the Howey Test, meaning assets offered to “fund a company in the same way stocks are offered to fund companies.”
Circle Tells Federal Reserve a CBDC ‘Could Destabilize’ Banking
Circle has responded to a Federal Reserve paper Wednesday (May 25) about the possibilities of a U.S. central bank digital currency (CBDC), saying it could “destabilize” banking. The issuer of the USDC stablecoin said the CBDC, “both in interest bearing and non-interest bearing forms, creates potential domestic flight-to-quality or flight-to-safety problems which could destabilize the two-tiered banking system.”
CFPB Increases Advocacy Efforts
CFPB Targets Credit Card ‘Suppressed Data’ Practices
The Consumer Financial Protection Bureau (CFPB) announced in a Wednesday (May 25) blog post that it has sent letters to the nation’s biggest credit card companies to question them about why they are not regularly providing data to credit bureaus on the actual monthly payments their borrowers are making.
The CFPB has provided 30 days for the companies to answer in writing. These letters are not either an official probe or a supervisory request — thus, answering these questions is not mandatory. However, the information provided, while being confidential, will be used to support the agency’s ongoing market and policy planning.
CFPB: Credit Denials Must Have Specific, Accurate Explanations
The CFPB wants to remind consumers that federal law requires companies to explain specific reasons for denying credit applications, even when the creditor employs credit models using complex algorithms, according to a Thursday (May 26) press release.
Citing the Equal Credit Opportunity Act (ECOA), the agency said the law applies regardless of whether a firm is using a “black-box model” to make decisions on credit applications. “However, some creditors may make credit decisions based on the outputs from complex algorithms, sometimes called ‘black-box’ models,” the bureau said. “With such models, adverse action notices that meet ECOA’s requirements may not be possible.”
Big Tech
CFPB Takes First Steps for Open Banking, Big Tech Scrutiny
The CFPB announced Tuesday (May 24) that it is opening the Office of Competition and Innovation as part of a new approach to help spur innovation in financial services by promoting competition and identifying stumbling blocks for new market entrants. While the new office may have a supporting role to the CFPB to promote competition and innovation in a broad sense, the agency’s press release only mentioned open banking and the role of Big Tech as the main reasons to create this office.
GOP Bill Would Ban App Stores From Supporting Apps That Accept Digital Yuan
Republican U.S. lawmakers want to ban app stores from hosting apps that let payments be made with the Chinese digital currency, Reuters reported Thursday (May 26), citing a proposal for legislation seen by the news site. The bill will state that companies owning or controlling app stores will not be allowed to “carry or support any app … within the United States that supports or enables transactions in e-CNY.”
The report notes that the opposition to the digital yuan is steeped in the suspicion that China’s government could use it to have “real-time visibility into all transactions on the network, posing privacy and security concerns for American persons who join this network.”
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