Indiana lawmakers consider crypto pension investments, ATM scam crackdown

This story was originally published by the Indiana Capital Chronicle.

Legislation letting cryptocurrency into public pension investments — and imposing new limitations on crypto ATM operations — has crossed the halfway point at the Indiana Statehouse and is expected to advance to the Senate floor next week.

Senate lawmakers heard testimony Wednesday on a package of House digital currency bills but didn’t yet vote them out of the Insurance and Financial Institutions Committee.

The panel’s head, Sen. Scott Baldwin, called that decision a “tactical pause” to refine the proposals and ensure they conform with his pending reorganization of consumer lending laws.

One, House Bill 1042, would allow members of certain public pension plans to choose self-directed brokerage accounts offering crypto investment options. The state would also be able to invest the plan assets into crypto exchange traded funds.

Participants in defined benefit plans don’t get to decide how the investments is managed — that’s up to the state — but those with defined contribution plans would be able to take advantage of the changes, explained the bill’s author, Rep. Kyle Pierce, R-Anderson.

The Indiana Public Retirement System testified as neutral on the bill.

“We’ve worked with the House to get it to the current form and (we’re) more or less happy with it,” said Tom Perkins, the investments counsel and director of investment stewardship.

Other provisions would block state agencies — besides the Indiana Department of Financial Institutions — from banning a digital mining business’ operations, restricting crypto transactions for legal services or taking custody of digital wallets using certain technology.

Local governments, meanwhile, wouldn’t be able to stop digital mining firms including data centers from operating in industrial-zoned areas — or prevent individual Hoosiers from mining crypto in their homes.

Scams Drive Kiosk Regulations

The bulk of discussion centered on House Bill 1116, which would regulate the virtual currency kiosks commonly referred to as crypto ATMs.

“These ATMs have become a powerful tool for scammers to prey on seniors and people in crisis,” Rep. Wendy McNamara, the bill’s author. “These victims often believe they’re paying a bill, helping a loved one or protecting their savings — when, in reality, they’re being manipulated into sending money to criminals.”

The measure would require kiosk operators to get licensed as money transmitters, get permission to install the machines from the Department of Financial Institutions, comply with data reporting and more. Other provisions step up security amid widespread scam complaints.

“We are currently living in a ‘scamdemic,'” said Sgt. Nathan VanCleave, who works on the Evansville Police Department’s financial crimes unit. “… They are on steroids because of cryptocurrency.”

The city recorded 35 crypto ATM scam cases last year, totaling more than $400,000 in losses.

VanCleave claimed the Evansville-area machines averaged a transaction fee rate of 38%, benefiting both the operators and the brick-and-mortar businesses hosting the machines.

When he asked local gas stations to get rid of them, one told him so much revenue was generated that the store “can’t go to corporate and ask us to pull the plug.”

“This is where we come into play,” VanCleave said. “We have to pass legislation that will protect our citizens.”

Evansville has passed its own ordinance requiring signage, receipts and a phone number on the machine — “so you can call somebody to cry with you after you’ve lost all of your money” — but seeks statewide legislation.

But crypto ATM operators said the measure would drive them out of business in Indiana.

It would require operators to refund the full payment amount and transaction fees to scam victims. They would have to verify a customer’s identity before accepting payment, and couldn’t charge transaction fees of more than 10% of the transaction’s value. The bill also limits how much new and existing users could transact over 24-hour and monthlong periods.

Larry Lipka, a general counsel for CoinFlip, told lawmakers the 10% cap was too low. The company’s average transaction fee rate across its 100-plus Indiana kiosks is between 17% and 19%.

“We’re buying the cryptocurrency from another company, so we have to pay for that. So, we’re only earning the transaction fee,” he said. The firm also has to pay for armed guards to pick up the cash deposited, which gets more expensive for kiosks located in remote areas.

He pushed back on the limits for customer transaction amounts, saying, “Why should someone using a product for two months, two years, five years be limited in the amount that they want to buy? That is anti-American and anti-freedom.”

CoinFlip instead suggested brief limits for newcomers.

The company also opposed the scam total-refund provisions and angled for refunds of only the transaction fee to new customers for a limited period of time.

“A person who’s been using a product for days or weeks or months knows what they’re doing, and they should not be given a refund of the full amount when we can’t recover that crypto once it’s sent,” Lipka said.

He noted federal regulations only require refunds for unauthorized transactions — like stolen credit cards or hacked bank accounts — but that scam victims have authorized their losses, even if it was done under duress.

Changes are expected. Baldwin told the Capital Chronicle he wouldn’t let the bill out of his committee if it didn’t pass muster.

Indiana Capital Chronicle is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Indiana Capital Chronicle maintains editorial independence. Contact Editor Niki Kelly for questions: info@indianacapitalchronicle.com.