Payment stablecoin risks emerge: lack of consumer protection raises concerns
Payment stablecoin usage surges, but the Genius Act does not provide adequate consumer protection, with risks such as irreversible erroneous payments, uncapped redemption fees, and lack of private right of action.
Mark E. Budnitz is a Senior Fellow at the Consumer Policy Center, a former law professor at Georgia State University, and formerly headed the bankruptcy and reorganization division of the U.S. Securities and Exchange Commission's Southeast Regional Office.
The use of payment stablecoins is growing rapidly, with monthly transaction volume of U.S.-backed stablecoins surging from nearly zero in 2020 to over $1 trillion by September 2025. This sharp increase accelerated further after President Trump signed the Genius Act in July 2025.
Exchanges and platforms, including PayPal, Apple Pay, and Google Pay, already offer payment stablecoin services. Now, large banks, non-bank institutions such as Mastercard and Visa, major retailers like Walmart and Amazon, and the states of Wyoming and North Dakota are seriously considering or actually planning to introduce this new payment mechanism.
The Genius Act establishes a regulatory framework that allows banks and non-bank institutions to issue stablecoins, which consumers can use to purchase goods and make overseas payments. The White House, Senate committees, and some media outlets have touted the act as a consumer protection law.
However, the Genius Act does not adequately protect consumers. It lacks many safeguards found in federal laws governing debit and credit cards. As a result, payment stablecoins are riskier than other consumer payment methods and may also be more costly.
Stablecoin payments are irreversible. If an erroneous payment occurs, consumers need to be able to file complaints with the issuer. But unlike other laws, the act does not require issuers to establish error resolution procedures. The act also does not protect consumers in cases of unauthorized or fraudulent transfers. Furthermore, the act is poorly drafted, leaving unclear whether it preempts state consumer protection laws.
Consumers' ability to redeem payment stablecoins is crucial. The act requires issuers to allow redemptions and disclose their redemption policies, but it does not cap redemption fees or specify how quickly issuers must redeem customers' payment stablecoins. Issuers are only required to give consumers at least 7 days' notice of any changes to their redemption policies.
Issuers are required to establish reserves to ensure sufficient funds are available to redeem consumers' payment stablecoins. However, stablecoins are not covered by FDIC insurance, and in the event of a non-bank institution's bankruptcy, its reserves may be insufficient to fully compensate consumers. If this occurs, consumers can make claims against other assets of the bankrupt party, but there is no guarantee they will recover their funds in full.
Consumers using payment stablecoins have no private right of action. Therefore, even if an issuer clearly violates the act, consumers are not entitled to sue the issuer for that violation. This stands in stark contrast to laws governing debit and credit cards, which award successful consumers damages, litigation costs, and reasonable attorney fees.
Due to the lack of a private right of action, consumers must rely on government agencies to enforce the act. Consumers have reason to question whether federal agencies have the capability and willingness to craft adequate rules, actively supervise issuers, and take enforcement actions against violators. The current administration has significantly reduced agency staffing and voluntarily terminated multiple enforcement proceedings against financial institutions, which is hardly reassuring.
Additionally, certain issuers may choose to be regulated by state agencies. Since these agencies never held such roles before the act was passed, they lack relevant regulatory experience and may face funding constraints that hinder their ability to fulfill new responsibilities.
Financial institutions and retailers that offer or are considering payment stablecoins should be aware that consumer advocates and attorneys are closely monitoring developments in this market. Businesses attempting to exploit the Genius Act's weak consumer protections will face public exposure, reputational risk, and litigation risk.