The June 22 FTC blog posting warning consumers about the use of bitcoins and other virtual currencies should be a call to action for those accepting or facilitating the acceptance of bitcoin and other virtual currencies in consumer transactions both online and through mobile apps.
While the posting is directed to consumers using virtual currencies to make online purchases, the message is clear: FTC staff will not tolerate consumers being put at risk by poorly-disclosed merchant refund and return policies and privacy policies of both merchants and virtual currency businesses that do not fully disclose how the consumer’s information will be used and shared. Likewise, the blog’s advice to consumers serves as important guidance on FTC staff expectations of merchants accepting bitcoin and businesses providing cryptocurrency-related products and services to facilitate such merchant transactions.
Risk Warning. The June 22 posting, titled “Before paying with bitcoins. . .” published on the FTC’s Consumer Information blog is intended to warn consumers about the risks of paying for goods and services with bitcoin. The post cites bitcoin’s price volatility, the irreversibility of bitcoin payments and the lack of legal protections for such payments.
Complaints. Notably, the blog posting states the FTC has received hundreds of complaints related to bitcoin and other virtual currencies. The two complaints cited most frequently were (1) merchants that did not deliver the product on time or at all and (2) merchants who gave refunds only in store credits, and not currency.
Consumers Cautioned. In this context, the blog posting cautions consumers (1) to know who the seller is, what its reputation is and whether the transaction will go through a payment processor (which may offer additional protections), (2) to understand the seller’s refund and return policies, including how, and how much, bitcoin will be refunded, and (3) to know how your information is protected by understanding the privacy policies of both the seller and the payment processor, if any, and how they collect and share data.
Enforcement Actions Coming? The fact that the FTC is receiving a significant number of complaints is a sure sign that enforcement action is not far behind. However, merchants and companies are not left in the dark: the blog post provides some useful insights into both the types of practices that the FTC may be focused on and who the likely targets of an enforcement action may be.
Appropriate Disclosure? First, the blog post makes clear that the FTC believes it is very important consumers in these transactions be made fully aware of all of the material terms of the merchant’s return and refund policies since these payments do not enjoy the same legal protections as credit card payments. At a minimum, the FTC expects disclosure of how much money will be refunded, the type of currency in which the refund will be paid and how the refund will be processed.
For those who may be unfamiliar with the FTC’s position on what constitutes appropriate disclosure, it is important to note that it is not sufficient to simply disclose these policies somewhere on the site. Instead, the FTC insists that disclosures be made clearly and conspicuously. We also note that the standard for what constitutes clear and conspicuous disclosure is becoming increasingly restrictive. For example, disclosure in small type at the bottom of a web page will not suffice in today’s regulatory environment. The disclosures need to be made in a location that the consumer is likely to see, in print that the consumer can easily read and in language that the consumer can understand.
Since privacy and data security are among the FTC’s top enforcement priorities, none of this should come as a surprise. The FTC has now clearly identified privacy as a significant concern in the virtual currency world, and sellers and processors in consumer transactions involving virtual currency should expect the FTC to scrutinize their privacy policies and procedures like those of sellers and processors in other types of transactions.
Liability? Finally, the blog post strongly suggests that the FTC may take an expansive view of liability in this arena by holding the merchant and/or the processor liable for failure to make the necessary disclosures. This expanded net of liability is a hallmark of current FTC enforcement trends.
What does this mean for merchants and processors? It is a clear wake up call. For merchants, the blog posting underscores the need to focus on their refund and return policies as well as their privacy policies to ensure their adequacy and accuracy. The FTC staff instructions to consumers provide useful guidance on what needs to be done to shore up these two types of policies.
For companies providing virtual or digital currency related products and services—especially payment processors and others involved in supporting merchant transactions—the need to address privacy policies is similarly urgent.
“Before paying with bitcoins. . .” can be found here: https://www.consumer.ftc.gov/blog/paying-bitcoins
Manatt’s multidisciplinary digital currency team combines substantive legal, regulatory and compliance experience in bitcoin and other virtual currencies with the top advertising, marketing and media practice in the United States. Through our legal and consulting services, we can assist your company in developing and reviewing merchant refund and return policies and privacy policies that appropriately address sharing and protecting customer data. We also can assist you in implementation of best practices specifically tailored to your business model.
Background: In August 2014, the Consumer Financial Protection Bureau (CFPB) published a consumer advisory warning about virtual currencies, with specific focus on cryptocurrencies including bitcoin. The advisory warned consumers about the various risks related to bitcoin, including the volatility of the exchange rate, the lack of clarity of costs, the vulnerability of the system to scammers and hackers and the lack of recourse for lost or stolen funds. At the same time, the CFPB announced that consumers could file complaints related to virtual currencies using the CFPB’consumer complaint database. The CFPB has indicated it is continuing to monitor consumer use of virtual currencies but has not yet initiated any enforcement actions against any virtual currency businesses.
The consumer advisory can be found here: http://files.consumerfinance.gov/f/201408_cfpb_consumer-advisory_virtual-currencies.pdf
On September 23, 2014, Federal Trade Commission’s (FTC) staff posted an article entitled “A bitcoin breakdown” on its Consumer Information blog. The post provided some basic information on cryptocurrencies, including bitcoin, and outlined certain risks for consumers using them. It also urged consumers who were considering bitcoin mining to read up on the FTC’s action against Butterfly Labs, a manufacturer of bitcoin mining machines that allegedly were either defective or obsolete, and as a result mined fewer bitcoins than promised. The blog notified consumers that they could file complaints about bitcoin-related products and services with the FTC.
“A bitcoin breakdown” can be found here: http://www.consumer.ftc.gov/blog/bitcoin-breakdown