GAO calls for increased oversight of bitcoin

Congress's investigative arm said Thursday evening that the Consumer Financial Protection Bureau (CFPB) needs to get more involved with virtual currencies such as bitcoin.

A report from the Government Accountability Office (GAO) claimed that consumer protection issues with bitcoin were being neglected as various arms of government have made moves to ramp up their oversight.

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"Thus far, interagency efforts have had a law enforcement focus," the GAO said, adding that "federal interagency working groups addressing virtual currencies have thus far not emphasized consumer-protection issues, and participation by the federal government’s lead consumer financial protection agency, CFPB, has been limited."

"As a result, future interagency efforts may not be in a position to address consumer risks associated with virtual currencies in the most timely and effective manner."

Agencies like the IRS, Securities and Exchange Commission and the Federal Election Commission have all taken action on the money. But the CFPB, which is charged with making sure people aren't taken advantage of by banks and other institutions, has been largely silent.

Sen. Tom Carper (D-Del.), who has been intensely focused on the potentials and perils of virtual currency as chairman of the Homeland Security and Governmental Affairs Committee, said the GAO report made clear that every arm of the federal government needed to be aware of bitcoin.

"GAO’s report underscores the importance that all sectors — law enforcement, industry, relevant regulators, and consumer protection agencies — must come to the table and engage in meaningful dialogue to provide clear rules of the road for entrepreneurs, investors, and consumers alike," Carper said in a statement.

"I appreciate GAO’s hard work on this issue and I urge consumer protection agencies to become more involved so the federal government can develop smart, sensible, and effective policies to ensure that consumers are better protected."

In response to the GAO report, the CFPB pledged to turn its attention to the issue.

In a letter to the GAO, the agency said that it had consulted with a number of state and federal financial regulators as well as academics and members of the bitcoin industry. Going forward, it pledged to work better with other agencies.

“We look forward to increasing our involvement in formal working groups as they engage on specific issues relating to consumer protection,” CFPB official William Wade-Gery wrote.

Currencies like bitcoin only exist virtually. They can be exchanged for cash or used at some websites and brick-and-mortar stores.

Supporters say that the technology underpinning the money can revolutionize the way people pay for things in an increasingly global world, but users' ability to operate anonymously has led to multiple cases of money laundering and people using bitcoins to buy drugs online. Additionally, the rapid fluctuation in the price of a bitcoin has raised concerns that people's savings can be wiped out too easily.

Jerry Brito, a senior research fellow at George Mason University's Mercatus Center, cautioned the CFPB not to make a major pivot to virtual currency.

"The CFPB should consider [stepping up its efforts], of course, but only to the extent it makes sense given the agency's other priorities," he said in a statement. "Otherwise it could be a distraction to both the CFPB and the nascent digital currency industry."

—This story was updated at 11:01 a.m.