Consumer protection

It’s “Crypto Week” in Congress, and experts continue to warn that legislation Donald Trump wants passed quickly could give the president ample opportunities to grift while leaving Americans more vulnerable to scams and financial ruin.

Perhaps most controversial of the bills is the one that’s closest to reaching Trump’s desk, the GENIUS Act, which creates a framework for banks and private companies to issue stablecoins. After passing in the Senate last month, the House of Representatives is hoping to hold a vote as soon as Thursday, insiders told Politico.

Stablecoins are often hyped as a more reliable form of cryptocurrency, considered the “cash of the blockchain” because their value can be pegged to the US dollar, Delicia Hand, Consumer Reports’ senior director monitoring digital marketplaces, told Ars.

But the GENIUS Act doesn’t require stablecoins to be pegged to the dollar, and that’s a problem, critics say. The law’s alleged flaws allow large technology companies to peg their stablecoins to riskier assets that could make both their cryptocurrency tokens and, ultimately, the entire global financial system less stable.

For Americans, the stakes are high. In June, Hand warned that Consumer Reports had “a number of concerns about the GENIUS Act.” Chief among them were “insufficient consumer protections” that Americans expect when conducting financial transactions.

Stablecoin issuers will likely include every major payment app, social media app, and e-commerce platform. There is already interest from Amazon, Meta, PayPal, and Shopify. But unlike companies providing traditional bank services, stablecoin providers will not be required to provide clear dispute-resolution processes, offer deposit insurance, or limit liability for unauthorized transactions on their customers’ accounts.

Additionally, with limited oversight, big tech companies could avoid scrutiny while potentially seizing sensitive financial data for non-bank purposes, pushing competition out of markets, and benefiting from other conflicts of interest from other areas of their businesses. Last month, Congressional researchers highlighting key issues with the GENIUS Act advised that possibly restricting stablecoin regulation to only apply to financial institutions would likely have required big tech firms to divest chunks of their business to prevent them from using stablecoins to illegally dominate the digital payments industry. But Republicans have not yet adopted any recommendations.

Most ominously in light of recent collapses of crypto exchanges like FTX—which made it difficult for customers to recover billions—”the bill does not provide adequate authority to federal and state regulators to ensure consumers have full protection and redemption rights for stablecoin transactions,” Consumer Reports warned. Hand reiterated this concern to Ars as the House mulls the same bill this week.

“I think one major concern that we have is if the bill doesn’t guarantee that consumers can redeem their stablecoins quickly or at all in a crisis, and that’s kind of what is the irony is that at its core, the notion of a stablecoin is that there’s some stability,” Hand said.

Pro-industry crypto bills could financially ruin millions

House Republicans are hoping to pass the bill as is, Politico reported, but some Democrats are putting up a fight that could possibly force changes. Among them is Rep. Maxine Waters (D-Calif.), who penned an op-ed this week, alleging that “Crypto Week” legislation was written “by and for the crypto industry” and “will open the floodgates to massive fraud and financial ruin for millions of American families.”

“All they really do is replicate the same mess that led to past financial crises: They call for few regulations, minimal enforcement, weak consumer protections, and more industry consolidation,” Waters wrote. And “on top of that, these bills have a special, intentional wrinkle that makes them especially dangerous: They would legitimize and legalize the unprecedented crypto corruption by the president of the United States.”

Waters joined critics warning that the GENIUS Act is deeply flawed, with “weak consumer protections” and “no funding provided to regulators to implement the law.” Additionally, the CLARITY Act—which seeks to create a regulatory framework for digital assets and cryptocurrencies to allow for more innovation and will likely come to a House vote on Wednesday before heading to the Senate—”actually creates space for similar schemes” to Sam Bankman-Fried’s stunning fraud that caused FTX’s collapse.

She accused Republicans of rushing the votes on these bills to benefit Trump, whose “shady crypto ventures” have allegedly enriched Trump by $1.2 billion. (The White House has said that Trump has no conflicts of interest, as the crypto ventures are managed by his children.)

Further, “the GENIUS Act opens the floodgates to foreign-controlled crypto that poses serious national security risks, all to appease Trump’s inner circle, which has ties to crypto,” Waters wrote.

Waters has so far submitted amendments that would “block any US president, vice president, members of Congress and their immediate families from promoting or holding crypto” and stop the US from deeming “a foreign country to have a stablecoin regime comparable to that of the US if the current leader of that country has described themselves as a dictator,” CoinTelegraph reported.

Pushback from Democrats may not be enough, as White House crypto advisor Bo Hines seemed to predict on X that the GENIUS Act would be signed into law without much debate this week.

Tim Scott, a chairman of the Senate Committee on Banking, Housing, and Urban Affairs, counted concerns about consumer protections among “myths” he claims to have busted in advocating for the bill. Scott suggested that “simple monthly disclosure” of reserves backing stablecoins and annual statements from the biggest companies issuing stablecoins would be enough to protect consumers from potential losses, should stablecoins be mismanaged.

He also defended not requiring “essential insolvency protections for consumers” by noting that customers will be “explicitly” prioritized above creditors in any insolvency proceedings.

But Waters did not buy that logic, warning that the “Crypto Week” bills becoming law without any amendments will “eventually” trigger the first American crypto financial crisis.

Widespread stablecoin adoption will take time, bank says

If these bills pass without meaningful changes, Hand told Ars that consumers should be wary of stablecoins, no matter what trusted brand is pushing a new token.

In a post detailing risks of allowing big tech companies to “open banks without becoming banks,” Brian Shearer, the director of competition and regulatory policy at the Vanderbilt Policy Accelerator, provided an example.

Imagine if Apple—which “already has quite a bit of power to force adoption of ApplePay”—issues a stablecoin through a competing “payment card” accessed through its popular devices. Apple could possibly lure merchants to adopt the payment form by charging lower fees, and customers “probably wouldn’t revolt because it would be free for them.” Eventually, Apple could be motivated to force all payments through stablecoins, cutting banks entirely out, then potentially raising fees to merchants.

“It’s not a stretch to imagine a scenario where Google, Apple, Amazon, PayPal, Block, and Meta all do something like this and quickly become the largest payment networks and banks in the world,” Shearer wrote. And Hand told Ars that these trusted brands “could kind of imbue some sort of confidence that may be not necessarily yet earned” when rolling out stablecoins.

Bank of America’s head of North American banks research, Ebrahim Poonawala, told Business Insider that “it could take between three to five years to fully build out the infrastructure needed for widespread stablecoin adoption.”

Mastercard’s chief product officer, Jorn Lambert, agreed, telling Bloomberg that stablecoins have a “long road to mainstream payments.” Specifically, Lambert suggested that consumers broadly won’t embrace stablecoins without “a seamless and predictable user experience” and current “friction” causing online checkout hurdles—even for an experienced company like Shopify—”will be difficult to clear in the near-term.”

In the meantime, customers will likely be pushed to embrace stablecoins as being more reliable than other cryptocurrencies. Hand advised that anyone intrigued by stablecoins should proceed cautiously in an environment lacking basic consumer protections, conditions which one nonpartisan, nonprofit coalition, Americans for Financial Reform, suggested could create “an incubator for even more predatory and scammy activity” plaguing the entire crypto industry.

Hand told Ars she is not “anti-digital assets or crypto,” but she recommends that customers “start conservatively” with stablecoin investments. Consider who is advertising the stablecoin, Hand recommended, suggesting that celebrity endorsements should be viewed as red flags without more research. At least to start, treat any stablecoins acquired “more like a prepaid card than a bank account,” using it for certain payments but keeping life savings in less volatile accounts until you learn more about the risks of holding stablecoins.

Possibly most critically, customers should explore companies’ promised resolution processes before investing in stablecoins, Hand said, and fully vet customer support. In China, regulators are already struggling with stablecoin scams, where “a group of semi-informed people is being deceived by ill-intentioned people” luring them into stablecoin deposits that cannot be withdrawn, the South China Morning Post reported.

“Just because something is called a coin or digital dollar doesn’t mean it’s regulated like cash,” Hand said. “Don’t wait until you get in trouble to know what you can expect.”

In this potential future, stablecoin issuers could never really be considered “stable institutions,” Shearer said. Shearer referenced a possible “sci-fi disaster” that could end in bank runs, leading the government to one day bail out tech companies who bungle stablecoin investments but become “too big to fail.”

Hand told Ars that Consumer Reports will work with other consumer advocates and the implementing regulator to try to close any gaps that would leave Americans vulnerable. Those groups would submit comments and feedback to help with rule-making around implementation and monitoring and provide consumer education resources.

However, these steps may not be enough to protect Americans, as the crypto industry continues to be deregulated under self-described “pro-crypto President” Trump.

“Sometimes if something is just fundamentally flawed, I’m not quite sure, particularly in the current regulatory or deregulatory environment, whether any amount of guidance or rulemaking could really fix a flawed framework,” Hand told Ars.

At the same time, Trump’s Justice Department has largely backed off crypto lawsuits and probes, creating an impression of Wild West-like lawlessness where even a proven fraudster like Bankman-Fried dares hope he may be pardoned for misdeeds.

“The CLARITY Act handcuffs the Securities and Exchange Commission, preventing it from proactively protecting people against fraud,” Waters wrote. “Regulators would have to wait until after investors have already been harmed to act—potentially after a company has collapsed and life savings have vanished. We’ve seen this before. FTX collapsed because insiders illegally operated the exchange, controlled customer funds and traded against their own clients. The CLARITY bill does nothing to address that.”