Banking and Finance Law Daily Democratic legislators seek to stabilize digital payment instrument market
Thursday, December 3, 2020

Democratic legislators seek to stabilize digital payment instrument market

By Stephanie K. Mann, J.D.

The newly introduced Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act would address the new regulatory challenges posed by this emerging marketplace.

Representatives Rashida Tlaib (D-Mich), Jesús "Chuy" Garcia (D-Ill), and Chairman of Task Force on Financial Technology Stephen Lynch (D-Mass) have introduced new legislation to protect consumers from the risks posed by emerging digital payment instruments, such as Facebook’s Libra and other Stablecoins. The Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act would regulate the issuance and commercial activities of digital payment instruments. According to the legislators, "digital currencies, whose value is permanently pegged to or stabilized against a conventional currency like the dollar, pose new regulatory challenges while also represent a growing source of the market, liquidity, and credit risk."

At a time when the industry is looking to the financial technology sector to service the needs of low- and moderate-income consumers for faster direct payments, access to loans, and access to bank accounts, the need to regulate digital payments is especially important, said the press release announcing the bill. As detailed in the bill’s one-pager, the STABLE Act would:

  • require that any company offering stablecoin services must follow the appropriate banking regulations under the existing regulatory jurisdictions;
  • require any prospective issuer of a stablecoin to obtain a banking charter;
  • require that any company or bank issuing a stablecoin to notify and obtain approval from the Federal Reserve Board, Federal Deposit Insurance Corporation, and the appropriate banking agency six months prior to its issuance and maintain an ongoing analysis of potential systemic impacts and risks; and
  • require that any stablecoin issuers obtain FDIC insurance or otherwise maintain reserves at the Federal Reserve to ensure that all stablecoins can be readily converted into United States dollars, on demand.

"Getting ahead of the curve on preventing cryptocurrency providers from repeating the crimes against low- and moderate-income residents of color that traditional big banks have is—and has been—critically important," Tlaib said. "From the OCC to the Federal Reserve to those peddling stablecoins, the protections the STABLE Act would make possible are more needed than ever amid a pandemic that will breed riskier financial decisions out of necessity because our federal government continues to fail us all by not providing adequate relief legislation."

Tlaib and Lynch previously led a letter to Acting Comptroller of the Currency Brian Brooks, criticizing the agency’s "unilateral actions in the digital financial activities space, including interpretive letters on cryptocurrency custody, stablecoins, and its announced plans to start offering special purpose ‘payments’ charters, without protecting the financial system and consumers from the related increase in systemic risk" (see Banking and Finance Law Daily, Nov. 12, 2020).

Industry response. Consumer advocacy organizations, including The Public Money Action, The Law and Political Economy (LPE) Project, Consumer Reports, and Americans for Financial Reform, have endorsed the STABLE Act. "Tech companies are promoting unregulated ‘stablecoins’ that compete with the U.S. dollar and regulated banks by promising customers they can't lose money on their investments," Americans for Financial Reform Policy Director Marcus Stanley said. "These stablecoins are insured deposits in all but name. The STABLE Act would bring an end to this evasion by ensuring that companies that guarantee customer deposits are properly regulated as insured depository banks."

Companies: Americans for Financial Reform; Consumer Reports; The Law and Political Economy (LPE) Project; The Public Money Action

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