Stablecoin Payments and the EFTA

Mark T. Dabertin, Partner, Cogent Law

On May 15, 2025, the Consumer Financial Protection Bureau (CFPB) withdrew a proposed rule that would have applied Regulation E to all stablecoin consumer payment products and services. Although that action prevented Regulation E from applying on a blanket basis for now, there is nothing to prevent a future Presidential administration from adopting a similarly expansive interpretation. This article seeks to help financial institutions and their service providers identify when Regulation E applies and understand why the CFPB's arguments for applying Regulation E to direct transfers of stablecoin were misplaced.

In the case of a typical prepaid card relationship between a bank and a stablecoin wallet provider, the consumer's stablecoin balance is checked whenever the bank receives an authorization request from a merchant in a card transaction. If sufficient value exists, the wallet provider places a hold on the amount of stablecoin needed to fund the transaction. Next, that stablecoin is converted on a just-in-time basis to U.S. dollars (or other applicable fiat currency), which does not delay the transaction. Finally, when the transaction is completed, settlement proceeds in the ordinary course through the applicable card association.

Just-in-time funded prepaid cards, for which funds are only deposited to the card account when a transaction is made and a zero (0) balance otherwise exists, predate the advent of stablecoins. Such card products are common in card-issuing relationships between fintechs and banks involving the Small Issuer Exemption to the EFTA, and are also used with other types of crypto currency. They are subject to the EFTA and Regulation E. To this end, whether stablecoin provides the underlying source of funding or the card is marketed as a "stablecoin card" makes no difference. The issue of whether Regulation E should apply to consumer transactions involving on-chain payments using stablecoins does not impact such products.

Card-based payments that draw on stablecoin value allow the consumer to utilize their stablecoin—but not the underlying stablecoin itself—with the same seamlessness and consumer protections, including limited liability and chargeback rights, as any other card transaction provides. However, such cards necessitate converting stablecoin into fiat currency and trigger associated currency conversion fees. Moreover, because merchants are paid in currency, not stablecoin, the same cross-border limitations that apply to card payments generally are likely to apply. As a result, despite the advantages of stablecoin cards, demand exists for on-chain payments using stablecoins directly.

The CFPB's legal analysis supporting its position that stablecoin payments are subject to the EFTA consists of five parts, entitled as follows: (1) "Financial Institution," (2) "Funds," (3) "Account" and "Other Consumer Asset Account," (4) Exemptions for Securities and Commodities, and (5) Consumer Protections Under EFTA and Regulation E. Each of these parts is discussed in turn below.

1. Financial Institution

In this section, the CFPB discusses whether the term "financial institution" as defined in the EFTA encompasses types of financial entities that did not exist when that statute was enacted. The analysis presented gives brief treatment to this question, which has been the subject of significant litigation. The CFPB asserts that it is "well-established that financial institutions include nonbank entities that directly or indirectly hold an account belonging to a consumer, or that issue an access device and agree with a consumer to provide EFT services."

2. Funds

The term "funds" is not defined in either the EFTA or Regulation E. The CFPB's analysis of this term concludes that stablecoins are funds for purposes of the EFTA based on the following reasoning:

The CFPB interprets the term 'funds' to include assets that act or are used like money, in the sense that they are accepted as a medium of exchange, a measure of value, or a means of payment. Under this interpretation, the term 'funds' would include stablecoins, as well as any other similarly-situated fungible assets that either operate as a medium of exchange or as a means of paying for goods and services.

Contrary to the CFPB's position, stablecoins are not fungible assets. In his Wall Street Journal article entitled, "Why Stablecoins Put Economy at Risk," dated May 26, 2026, the Journal's chief economic commentator Greg Ip explains why that is so:

An essential quality of money is 'singleness,' meaning a dollar must equal a dollar no matter when, where or with whom it is used. . . Stablecoins move through proprietary, fragmented infrastructures. They don't exhibit singleness. Though coins issued by Tether and Circle are intended to stay fixed to the U.S. dollar, they often deviate from that value, albeit usually by tiny amounts.

The GENIUS Act requires issuers to maintain certain types of extremely safe and stable assets as reserves on a 1:1 basis to "maintain or create the reasonable expectation that [the subject stablecoin] will maintain a stable value relative to the value of a fixed monetary value." It does not require issuers to maintain either identical types of reserve assets or the identical mix of such assets. If properly controlled and regulated, this lack of sameness invites innovation and creates opportunity. The GENIUS Act and pending Clarity Act are designed to prevent the economic risks that Ip is concerned about. Regardless of whether one disagrees with the main theme of his article, however, Ip is correct that stablecoins, which are digital assets, not tokenized deposits, are not fungible.

At the conclusion of this section, the CFPB asserts that the possibility of fluctuations in value should not exempt stablecoin from being considered funds. In this regard, the analysis is silent regarding how a covered institution would be expected to address value fluctuation in refunding a successfully disputed stablecoin payment. Regulation E allows disputes involving new accounts, point-of-sale transactions, or foreign transactions to be investigated for up to 90 days. In the unlikely event stablecoin value were to decrease during that time, a defrauded consumer would be harmed if they were returned the same amount of stablecoin at reduced value. On the other hand, if stablecoin value were to increase, an unscrupulous consumer would have a strong incentive to claim fraud speciously, knowing they could use their refund to not only repurchase the same item, but have added value to spare.

3. Account and Other Consumer Asset Account

In addressing the regulatory definitions of the terms "account" and "other consumer asset account," the CFPB quotes a portion of the legislative history of the EFTA stating that the statute's definition of account is "intended to be broad enough 'to assure that all persons who offer equivalent EFT services involving any type of asset account are subject to the same standards and consumers owning such account are assured of uniform protections." But the CFPB's attempt to rely on this statement of purpose is flawed.

Congress enacted the EFTA in 1978, and the Fed primarily drafted Regulation E during the late 1970s and early 1980s. At that time, card payments were clearly the predominant form of EFT. Moreover, card purchases were subject to existing and well-established chargeback rules promulgated by the four major card associations. In addition, because card association membership was (and remains) restricted to banks, credit unions, and savings associations, the card issuer and the party holding the consumer's asset account were almost certain to be the same entity. In contrast, dozens of blockchain networks support stablecoins, including non-U.S. networks, and nothing resembling uniform "chargeback" rules currently exist. Rather, stablecoin transactions are immutable and irreversible by design. Finally, decoupled payment networks, where the party offering the payment service and the party holding the consumer's asset account(s) are different, are more likely to exist for stablecoin payments. In sum, for a host of reasons, leaving aside the absence of "funds" transfers, payment services involving on-chain stablecoin transactions do not present equivalent EFT services to the types of services Congress enacted the EFTA to address.

Furthermore, attempting to apply uniform standards and protections to on-chain stablecoin payments based on Regulation E would be both impracticable and undesirable as a matter of public policy. For example, the remittance transfer rules of Regulation E are plainly unsuitable for cross-border transfers of stablecoin. As noted above, stablecoin transactions are irreversible. Hence, it would be meaningless to give a consumer the right to cancel a cross-border stablecoin transfer. In addition, Regulation E allows a consumer to dispute a remittance transfer for up to twelve months from the date of transfer. This right could not be exported to stablecoin transfers without undermining the speed, certainty of payment, and cross-border utility that stablecoins are designed to provide.

4. Exemptions for Securities and Commodities

The CFPB's proposed rulemaking predated the July 2025 enactment of the GENIUS Act ended the possibility that stablecoins might be considered a form of security or commodity. This fact likely explains the CFPB's position that transfers of stocks or bonds could involve an EFT if used as a medium of exchange or to pay for goods or services from a retailer. In arriving at this conclusion, the CFPB's analysis ignores the assertion made early that covered funds are fungible in nature. In addition, for stocks in particular, occurrences of material fluctuations in value would be inevitable.

5. Consumer Protections Under EFTA and Regulation E

The CFPB's analysis recites existing consumer protections provided under Regulation E without addressing how those protections might apply to stablecoin transactions. As noted earlier in this article, much of Regulation E, including its dispute provisions, were drafted in the late 1970s and early 1980s to address card payments. This point is clearly evident in reviewing the various rulemakings that resulted in Regulation E as it exists today. For example, in 1998 the Board proposed eliminating the longer, 90-day maximum time permitted under Regulation E for investigating disputes involving transactions made at point-of-sale. In explaining its rationale for the proposed change, the Fed explained that:

Initially, the Board proposed to have the longer time periods for resolving claims of error apply only to paper-based debit card transactions (at merchant locations) that did not involve electronic terminals. After public comment, the Board adopted a final rule that applied the extended time period to all POS transactions. The adoption of a uniform rule avoided the complexity of having the timing rules depend on how the particular EFT was initiated, which would have been confusing to consumers and burdensome to institutions. Moreover, at that time only a small portion of the POS debit card transactions involved electronic terminals . . . The Board believes that technical improvements in the payment system should permit consumer claims involving POS transactions to be investigated more quickly for transactions at POS; the same may be true for foreign transactions as well.

The Board ultimately chose to preserve uniformity. That outcome continues to make sense for card-based payments, which are subject to consistent chargeback and other card association rules. But it does not make sense for stablecoin transactions.

Conclusion

The CFPB's legal justifications for applying the EFTA and Regulation E to on-chain stablecoin payments were seriously flawed. Stablecoins are not fungible assets and the use of stablecoins by consumers for personal and household purposes does not involve an "equivalent EFT service" to the types of services the EFTA and Regulation E were created to address. Moreover, applying Regulation E's existing requirements to stablecoin transactions would be largely impracticable and, where possible, would undermine the benefits stablecoins are designed to provide, including their utility in cross-border transactions. Thus, withdrawing the proposed interpretative rule was a wise decision.

The requirements of Regulation E for both card payments and ACH transfers were both created in view of existing, well-established rules and protections developed by private industry; i.e., the card association rules and the NACHA Rules. Hopefully, any future administration contemplating regulating personal stablecoin transactions will exercise restraint and not rush to impose ill-suited requirements. As in the case of card payments and ACH transactions, marketplace forces will invariably drive the adoption of consistent protections across different payment platforms. Regulators can then build on those protections by adding appropriately-tailored requirements that safeguard consumers without impeding the development of stablecoin as a payment mechanism.

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Mark Dabertin Partner, Cogent Law Email: mdabertin@cogentlaw.com Mobile: (215) 499-0440 Office: 202-644-8880 2001 L Street NW, Suite 500, Washington, DC 20036