In August 2014 the Consumer Financial Protection Bureau (CFPB) issued a consumer advisory warning about the risks of virtual currencies, including Bitcoin. The CFPB was created out of the Dodd-Frank Wall Street Reform act. In short, the organization is tasked to protect American consumers when dealing with consumer financial products and services.
By the time of the warning, Bitcoin had already gone from obscurity to mainstream popularity and a number of new startups and technology companies were launching virtual currency products. “Virtual currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions,” said CFPB Director Richard Cordray. He continued, “Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”
The CFPB was spot on. Virtual currency was a new concept for most Americans and everyone from my little sister to my co-worker in the cubicle next to me wanted a piece of the action. And who doesn’t remember the stream of headlines about the social network guys (Cameron & Tyler Winklevoss) betting big on bitcoin. Included in the CFPB announcement, the organization said that consumers could now submit virtual currency related complaints with the Bureau.
Here at LendEDU, we love looking at interesting data. Lately, we’ve been obsessed with the CFPB’s Consumer Complaint Database. The CFPB is a supporter of transparency and makes over 689,000 complaints sent to nearly 3,000 different companies available for anyone to analyze. Awesome stuff CFPB!
Anyway, we thought it would be interesting to analyze the virtual currency complaints in the CFPB’s 2016 database. But about an hour into our research we ran into a problem.
There are virtually zero virtual currency complaints in the database.
The database uses the following product categories: Virtual currency, Bank account / service, Credit card, Credit reporting, Debt collection, Money transfer, Mortgage, Payday loan, Prepaid card, Student loan, Vehicle / consumer loan, and Other financial service.
In 2016, there were 7 virtual currency complaints out of the 189,098 total complaints. Virtual currency complaints made up 0.0037% of the total number of complaints.
Of the 7 total complaints, here is the breakdown by Issue:
– 4 complaints filed under “Other service issues”
– 2 complaints filed under “Other transaction issues”
– 1 complaint filed under “Fraud or scam”
In contrast, there were 499 “Fraud or scam” complaints filed in the database under Money Transfers.
Of the 7 total complaints, here is the breakdown by Company:
– 4 complaints filed against Coinbase
– 3 complaints filed against Circle Internet Financial
Unfortunately for our data team, that is all the analysis we can do right now. Fortunately for consumers, virtual currency doesn’t seem to be a huge issue. Or at least not an issue garnering too many complaints. We asked Bitcoin enthusiast and expert Dean Masley, Executive Director of the Blockchain Education Network (@dmasley), for a comment on our findings. Specifically, we asked Dean if he was surprised by the results, he wasn’t. “It’s the reason banks are terrified. Most gateways are very narrowly designed to be very good at that one use case.
At any moment I can move all my coin (virtual currency) from one service to another, without any compatibility issues. When you combine a highly competitive global app market with high compatibility and no friction for users, you get very narrow solutions that focus really hard on being good at that one use case.” Said Masley.
>> Read More: How to invest in Bitcoin
In other words, Masley believes that consumers are having successful experiences with virtual currency companies due to the high competition and excellent technology for consumers. And, the integrated environment gives consumers access to an a la carte package for financial services.
For reference, we are not criticizing the CFPB in any way. In our view, the CFPB acted correctly by issuing its warning and coverage.
We pulled the CFPB’s Consumer Complaint Database on January 8th, 2017. The data includes all complaints made to the CFPB from January 1st, 2016 to December 31st, 2016. In total, we analyzed 189,098 CFPB complaints.
For reference, the CFPB does not verify all the facts alleged in the complaint data. Complaint categories included Bank account/service, Credit card, Credit reporting, Debt collection, Money transfer/virtual currency, Mortgage, Payday loan, Prepaid card, Student loan, Vehicle / consumer loan, and Other financial service.