Today's Trends in Credit Regulation

State Guidance on Virtual Currencies
By Mary Kathryn Hawkins

As bitcoin and other virtual currencies become more widely known and consumer access increases, state regulators are speaking up. On April 23, 2014, the Conference of State Bank Supervisors ("CSBS") issued model consumer guidance aimed to help state regulatory agencies provide information to consumers about virtual currency and factors a consumer should consider if transacting with or investing in virtual currency. The model guidance educates consumers, explaining that virtual currencies are not legal tender and are not backed by any central bank or government authority. Further, the model guidance offers five things for consumers to consider: virtual currencies (1) are volatile in value; (2) can be stolen or otherwise subject to loss; (3) have been connected to criminal activities; (4) may or may not be regulated (along with the companies dealing in virtual currencies); and (5) are treated by the IRS as property and may be taxable. Finally, the model guidance urges consumers to do their homework, providing resources for consumers and investors.

In response to this model guidance, numerous states have issued consumer advisories that mirror, or at least are based on, CSBS's model guidance. Like the model guidance, the state-specific advisories seek to educate and warn consumers. Several states provide contact information that a consumer may use to reach the state's relevant regulatory agency.

While many states have offered only minimal guidance, some state regulators are going well beyond that by taking steps to regulate virtual currency within their state. New York is moving ahead with plans to regulate virtual currencies with proposed rules that include state licensing requirements for companies that store or exchange virtual currencies. New York's superintendent of financial services believes this will protect consumers and eliminate wrongdoing without stifling innovation related to virtual currencies. Related proposed rules would require companies to hold the same amount of virtual currency that they owe customers and to disclose applicable costs and issue receipts to customers. A 45-day public comment period on the proposed rules opened on July 23, 2014.

Massachusetts has seen a great deal of activity in making virtual currency available to consumers as bitcoin ATMs have opened in the Commonwealth, with the first at Boston's South Station. In a May 10, 2014 opinion, the Massachusetts Division of Banks cautioned that it continues to monitor the development of virtual currencies and stated that there may be regulatory changes in the future that govern virtual currencies.

In Ohio, amid plans by Cleveland businesses to accept bitcoin and become American's first "Bitcoin Boulevard," the state announced in April that bitcoin cannot be accepted as payment for alcohol. The Ohio Department of Public Safety reasoned that bitcoin is too volatile and is not recognized as legal currency. Despite this announcement, about a dozen merchants in Cleveland Heights went forward with plans to accept the virtual currency for goods and services, offering more opportunities for consumers to conduct everyday transactions using bitcoin.

While states are monitoring the development of virtual currencies, a debate is brewing in Washington about whether the Consumer Financial Protection Bureau should regulate virtual currencies. Money-laundering concerns have long been the topic in discussion of regulating virtual currencies, but consumer protection issues are becoming more relevant as virtual currencies become an accepted method of payment for a wider range of goods and services. It is too soon to predict what regulation of virtual currencies by states or the CFPB could or would look like, but this area of potential regulation is sure to grow and develop in the near future.

Mary Kathryn Hawkins is an associate in the Maine office of Hudson Cook. Katie can be reached at 207-210-6836 or by email at

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