CFPB spares self-hosted crypto wallets from new fintech regulations

The CFPB's strategic choice reflects a cautious approach to crypto regulation, focusing instead on traditional fintech platforms.

Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.

The Consumer Financial Protection Bureau (CFPB) has finalized a landmark rule expanding its oversight to fintech payment apps but notably excluding self-hosted crypto wallets, according to a Nov. 21 announcement.

Blockchain advocates have hailed this decision as a win for DeFi. The finalized rule targets large nonbank payment platforms processing over 50 million annual US dollar transactions, a move designed to protect consumer data, reduce fraud, and prevent illegal account closures.

However, the CFPB clarified it would not regulate self-hosted crypto wallets or stablecoins, narrowing its scope significantly from initial proposals.

He commented:

“The CFPB listened, and I give them credit for that.”

Consensys senior counsel Bill Hughes praised the decision, noting that blockchain industry representatives, including Consensys, actively engaged with the CFPB to ensure the exclusion of self-hosted wallets like MetaMask.

Avoiding a collision with web3

Had the rule encompassed self-hosted wallets, it could have prompted legal battles and hindered the development of decentralized Web3 infrastructure.

Hughes pointed out that such an inclusion would have dragged decentralized wallets into regulatory scrutiny, requiring costly compliance measures and stifling innovation in the blockchain sector.

“This is welcome news. We can avoid unnecessary legal fights and focus on building Web3 infrastructure.”

The CFPB’s decision reflects ongoing caution in regulating the rapidly evolving crypto space, particularly as the federal government balances consumer protection with fostering innovation.

Focus on fintech payment apps

Instead of targeting crypto, the CFPB’s rule focuses on traditional fintech apps, which have become vital for everyday commerce. These platforms, often operated by Big Tech firms, will now face federal supervision similar to banks and credit unions.

The rule also emphasizes privacy protections, error resolution, and preventing account closures without notice, addressing longstanding consumer complaints about these services.

By limiting its scope to dollar-denominated transactions, the CFPB signaled its intent to gradually adapt to the complexities of the digital currency market.

This move aligns with its earlier research warning about uninsured balances in popular payment apps and previous actions targeting Big Tech’s financial practices.