Pointing to a growth in consumer complaints related to crypto-assets, on November 10th, 2022, the Consumer Financial Protection Bureau (the “CFPB”) released a Complaint Bulletin, which analyzed in excess of 8,300 consumer complaints that the CFPB had received related to crypto-assets. The CFPB reviewed complaints submitted to it during the period of October 2018 to September 2022, but noted that the majority of the complaints it received were submitted over the last two years, with the greatest number of complaints submitted by consumers in California and Florida.
Approximately 40% of the total crypto-related complaints reviewed by the CFPB involved fraud, theft, hacks, or scams. However, that percentage has been steadily increasing since 2021, with 63% of complaints arising in September of 2022 involving claims of fraud. Among the fraudulent activities identified were phishing and social engineering scams attempting to gain access to personal and account information. The CFPB highlighted several of the types of recurring scams it saw in its review, including scams involving a relative level of technical sophistication such as “SIM-Swapping,” where SMS messages are intercepted to exploit two-factor authentication used on crypto-asset platforms.
More traditional ploys were also highlighted, including “romance scams,” where scammers play on a victim’ emotions to extract money. These scams included the so-called “pig butchering” scam, where fraudsters “pose as financial successes and spend time gaining the victim’s confidence and trust, coaching victims through setting up crypto-asset accounts.” The CFPB notes that crypto-asset romance scams accounted for median individual reported losses of $10,000. Even when a fraudulent transaction is caught relatively early, crypto-asset firms have stated that they are unable to reverse these transactions, referencing the immutability of many blockchain transactions.
The second largest subject of crypto-related complaints was general transaction issues. The CFPB suggests that “many consumers have trouble executing transactions, especially during times of increasing crypto-asset prices. These consumers often complain that they cannot complete transactions promptly, resulting in losses or the inability to realize profits.” Among the additional reasons for transaction issues that the CFPB points to are crypto-assets “forking,” where crypto-assets split off into separate blockchains resulting in incompatibility when attempting to convert assets [does edit correctly reflect what report says?], and crypto-asset limitations on a specific platform. The CFPB noted that “some consumers stated that they could not sell assets after learning that [the asset] would be de-listed by a platform (so that the consumer is no longer able to transact in that particular asset). Other consumers experienced losses when attempting to transfer incompatible assets between different wallets or crypto-asset platforms.” In response to these complaints, the CFPB provided a list of steps that consumers can take to protect themselves, including being vigilant for signs of a scam, reporting any suspicious claims of FDIC insurance, knowing the best way to contact a platform in the event of an issue, and knowing the owners of any crypto-asset platforms used.
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