Cryptocoin investors sue Chase Bank for sky-high credit card charges Chase Bank is the target of a class action lawsuit accusing the bank of overcharging customers who bought cryptocurrencies with their credit cards. A class-action complaint [PDF], filed this week in a New York US district court, accuses Chase of failing to warn customers it would be classifying cryptocurrency purchases as cash …
This kinda emphasizes the problem with cryptocurrencies at present.
It's the tulip bulb problem - by which I mean, people who bought and sold tulip bulbs had little or no interest in *flowers* or in *growing the bloody things*; they were simply vehicles for pure speculative bubble investment that had no relation to the bulbs actual utility in the real world.
Likewise, people generally don't buy cryptocurrencies to *spend* or to *use as currencies*; it's mostly pure speculation; their utility as functioning currencies is limited in the extreme.
That's a MASSIVE red flag.
a) it's a CURRENCY - so it's a CASH ADVANCE
b) using a BANK loan as investment capital for currency speculation is probably ILLEGAL in the USA. [I know it is illegal to buy stock with a loan]
Now, if you wanted to pay for something WITH a crypto currency, and the bank offered you an exchange rate, that would be perfectly acceptable, and they could THEN charge an 'exchange fee'. Anyone purchasing things with a credit card overseas (whether you're there or using the intarwebs) knows about those transaction fees. It's not much, but yeah.
Additionally, when you purchase something with a credit card, there's a transaction fee for the seller. But if you do a cash advance, YOU pay for all of it.
I expect that the bank's policy already indicates ALL of this. And it's NOT a purchase to buy crypto-CURRENCY with your credit card. Personally, I think it's FOOLISH, but there ya go.
And, because currency speculation would be considered a form of INVESTMENT, it might actually be considered ILLEGAL.
Errr Maybe.
I agree with what you're saying. However its not that simple when it comes to a court case.
First Cryptocoins are not a recognized currency. That's still up for debate.
Lawyers being lawyers could argue that Crypto coins are not currency because they aren't recognized by the US as currency. Nor are they regulated as such. (There are some lawsuits still out there. )
So its a tough one.
At issue is if the bank unilaterally made this decision without notifying customers. Again, here's the rub. That would be illegal because they didn't notify their customers. (FD, I have an account w Chase I don't recall seeing anything... not that I buy crypto coins)
At the same time... Crypto currencies want to be recognized as a currency, so if they win.. its a step backwards.
My guess... the class action could fizzle. Or settles quietly.
"I agree with what you're saying. However its not that simple when it comes to a court case.
First Cryptocoins are not a recognized currency. That's still up for debate.
Lawyers being lawyers could argue that Crypto coins are not currency because they aren't recognized by the US as currency. Nor are they regulated as such. (There are some lawsuits still out there. )"
Gift cards are not a recognized currency, but you will pay cash advance fees for buying them I believe. The only issue here is that the change was not notified. But it's more a question of whether they should always have changed fees from the start, in which case the result of the case might be that a load of people owe Chase interest?
Gift cards are not a recognized currency, but you will pay cash advance fees for buying them I believe.
I'm not so sure.
I don't buy gift cards and I don't know how the bank would know that you bought a store gift card. THere's a description and a sku that they would have to track.
I guess you could buy a gift card and then see your credit card statement online to see how they describe the transaction. Cash Advances are itemized separately. So tell me how that works out.
As to the idea about buying an item for speculation... you can go in to a shop and buy gold or diamonds or even gold coins which wouldn't be considered currency. (Yeah, how much is that gold dollar, or silver dollar...)
@bombastic bob
"b) using a BANK loan as investment capital for currency speculation is probably ILLEGAL in the USA. [I know it is illegal to buy stock with a loan]"
You can definitely buy stock with a loan in the US. It is called a "margin loan".
https://www.schwab.com/resource-center/insights/content/margin-how-does-it-work
It is generally a bad idea.
Jim,
That loan has to be backed with other assets I don't think Schwab lets you buy on margin if you have no assets with them. I don't know what the credit card agreement states but I would be surprised if you can buy stock with a credit card and if a credit card company lets you buy bitcoin with credit then they are crazy.
b) using a BANK loan as investment capital for currency speculation is probably ILLEGAL in the USA.
Usually you're right, but a credit card isn't considered a traditional loan since it has differences in how its regulated and the terms. I'm not certain the prohibition on using a loan to speculate extends to credit cards, but there is inherent risk there as well as an absence of legal clarity and that's why most Credit Card issuers refuse to allow you to use your card for a cryptocurrency transaction.
Makes me wonder if PayPal Credit through Comenity Capital would work or not, Comenity's cards don't work for Cryptocurrency but using PayPal Credit would mean that technically its a transaction by PayPal and not Coinbase or whoever.
You can absolutely buy foreign currency with a credit card in the USA. Just the first result:
https://www.travelex.com
So I don't see how, if you can buy Euros with a credit card (or indeed a bank loan), you can't buy cryptocurrencies with a credit card. It should absolutely be possible.
I agree with the bank's classification.
But changing the rules without notice - even if the former rules were "clearly wrong" - may still be illegal. I'm no lawyer, so nobody's paying me to read the Truth in Lending Act, but to me it seems at least superficially plausible that there may be a case to answer there.
a) it's a CURRENCY - so it's a CASH ADVANCE
It's not a currency. If I sell you 400 sheets of paper with £10 written on it, that does not make it a currency. It's no more a currency than the VBucks my son keeps pestering me to buy for Fortnite.
You also self-defeat your argument with the term "Cash Advance". If I buy $400 then I can actually go into a bank, and ask for that $400 in cash. Try walking into a bank and asking for your Bitcoin in cash. There is no cash version, therefore it is not a cash advance.
My, that's a lot of capital letters. The IRS insists that cryptocurrency is not currency and has declared it property. Many critics declare it is not currency because it is volatile and has not achieved broad acceptance in commerce. But then it becomes convenient to call it currency for some other rhetorical purpose.
You wrote that it is illegal to borrow money to buy stock. Please explain to me how my margin account with TDAmeritrade works, counselor. Alternatively, cite statute.
The question at hand is whether the bank turned on a dime without fair and reasonable notice to its customers. Beyond that, we can speculate about its motivation and what precipitated the action.
Crypto-currency has no legal tender status in any jurisdiction therefore it is property and exchanges made with it are no different from trading hog bellies, soy beans, chickens, or baseball cards. In the US the IRS treats all transactions as property transactions and, as many people realized to their chagrin, are subject to regular capital gains tax rules.
If they treat it as a cash advance then I see no reason why one couldn't pay their credit card bill with the very same crypto-coins.
Just this once I'm siding with the bank. Maybe they should have made it clear that buying cryptocurrency follows the same rules as buying any other form of currency or placing a bet (which is probably a closer match). This should have been clear from the outset, and I suspect the reason he got away with it initially was that the purchases were just treated as a transaction with some firm called 'Coinbase'. When Chase discovered that this was a cryptocurrency transaction the cash advance rules were applied. This explains Chase blaming Coinbase. Deceptively? I don't think so.
The only way to be certain would be to see his CCA, but if they change policies that relate to rates they have to communicate it in writing 45 days before the rate changes even if its a change to what the transaction type is going to be for a specific class of transaction.
They would have been fine if they had put out a letter saying they would be treating Cryptocurrency transactions as foreign currency or as a cash advance but since its alleged that they didn't and it hasn't been dismissed, there's a strong chance the bank fucked up, and I'd hate to be in the Chief Risk Officer's shoes if they did.
"They would have been fine if they had put out a letter saying they would be treating Cryptocurrency transactions as foreign currency or as a cash advance but since its alleged that they didn't and it hasn't been dismissed, there's a strong chance the bank fucked up, and I'd hate to be in the Chief Risk Officer's shoes if they did."
I think cryptocurrency would always have been treated as a cash advance, and it was just a mistake it wasn't charged before. Result: you owe us fees on that previous cash advance, but we'll waive them because we are nice bankers.
Bullshit. You don't accept credit cards without some vetting. Coinbase has operated for years and has millions of customers. Chase did not suddenly wake up and discover that Coinbase customers were using their accounts for this. It was profitable for Chase, until they decided that they have competing strategic interests. Ask Jamie Dimon.
Will they win or lose? I don't care, but I'm happy to see the light shine.
It can't be in legalese, it has to be in plain english, at least there has to be an infobox with the important information at the top of the letter, much like how credit card agreements have to be after the CARD Act entered into force.
Now, if you're dumb enough to not read correspondence from your bank you have only yourself to blame, and they probably actually didn't send anything if the case wasn't summarily dismissed, all Chase would have had to so is show the judge the digital copies of the letters sent to each plaintiff, which they have a record of including when the letter was printed, and when it was sent.
If letters had actually been sent explaining the rate change they would have been in compliance and the plaintiffs would have no standing, that it wasn't dismissed tells me that Chase didn't communicate it.
[Disclosure: I work for a large PLCC (Private Label Credit Card) company on the side, this is like an amateur level mistake, their risk office obviously didn't talk to legal about the potential compliance issues]
I'm honestly kind of amazed Chase allowed a credit card to be used for a cryptocurrency transaction. AFAIK, CapitalOne, Wells-Fargo, USAA, Comenity/Comenity Capital's co-brand cards, Synchrony's co-brand cards, and AMEX won't allow their cards to be used for it. CapitalOne has no problem with you using a checking account they run for it, same with USAA and Wells-Fargo, but your credit card will decline (debit still works though), and one of the reasons is because there's no clear regulation as to whether its cash and can be included in cash advances at the higher rates, a foreign currency subject to foreign transaction/conversion fees, an asset like a stock, a service, or a good. And its kind of all of the above, at least in regard to BitCoin due to its fairly high value and its utility.
They're in some shit in regard to CARD act compliance though because they can't change rates on a credit card product without giving 45 days notice by mail and by email if the bank so chooses, but it HAS to be mailed as well as a right to rescind (closing the account with no penalty) for 25 days after a rate change affects a consumer.
CARD and FACT Act compliance isn't just a suggestion either, the FTC and CFPB will nail your ass to the floorboards if you aren't in compliance, and the State of New York will likely sue you also, and the FDIC takes a very dim view of a bank that isn't complying with the law in any of their programs, whether its a regular bank account, an investment vehicle, or a credit card. Dumb thing for a company that usually knows what they're doing in regard to their credit cards, I've never had an issue with them personally. I'd never do retail banking through them (or with anybody but USAA honestly) because they're right up there with BofA and Wells-Fargo with their fees, but I've had a credit card through Chase for almost 15 years now and they and CapitalOne are usually really good about compliance.
The fraudulent Chase login website used to steal users banking credentials that I reported to Chase's fraud department weeks ago is still alive and well!
https://urlscan.io/result/fc1dda2c-78f6-418f-8fd9-f5e8fd5fadee
(Hoping internet shaming might save someone from identity theft)
I purchased some Bitcoin through Coinbase and they don't accept credit cards. You either pay using a debit card or you pay by using a bank account.
Bitcoin or any other cryptocurrency IS a currency and therefore it is treated as a cash advance on a credit card. Purchasing cryptocurrency using a debit card or bank account avoids the issue of credit cards charging cash advance interest rates.
Perhaps this is the cause of the muddied water and why Chase are blaming Coinbase. If the initial purchases were not being correctly identified by Coinbase, when they corrected their systems it flagged transactions as a currency purchase. It does seem odd though that if they have blocked all those other credit cards they should allow the cards from Chase to be used.
Or it could be this is yet another popcorn moment from the US Legal system
Surely the easiest think to do for Chase is send out a notification to all customers to inform them that purchasing cryptocurrency will be treated as a cash advance with whatever notice they are legally required to give to their customers, and as a good will gesture refund the fees charged to those customer who have been charged the fees without notification.
I doubt we are talking millions of dollars of in fees here, as i doubt there are that many customers effected and surely will be less costly to Chase than the legal fees will be to defend this in court.
Although not legally recognised as a currency perhaps, crypto cash still behaves like cash. It should also not attract the consumer protections offered when making purchases for goods on a credit card.
All sorts of weird anomalies and liabilities arise from not treating it as cash, just imagine attempting to ask for a refund.
As far as I am concerned the impacted people were exploiting a loophole that has since been closed and returned to the expected behaviour of cash advances.
I would have thought it would have been good customer service to notify the change to customers, albeit closing an exploit is not really a change to T&C. Not formally necessary though.
If Coinbase were to go the same way as eg MTGox, then regardless of whether buying bitcoin is a good idea, you would have people who had paid for bitcoin, and didn't receive the bitcoin they had paid for. In that situation, people would be looking for a refund from their cc company.
I have no insight into whether or not that might happen to Coinbase, but most bitcoin exchanges have ended up that way.
Interesting thought. On the other hand, I would argue that only the initial purchase is covered, and some time beyond that Coinbase has fulfilled its sale obligation by crediting the customer's custodial account with the appropriate amount of cryptocurrency. If the customer does not transfer the crypto out after some reasonable period, Chase should be off the hook with regard to any protections associated with the transaction.
Also, you should be careful with your adjectives.
Sounds to me like the change in charges was linked to the MCC code Coinbase was using. There were articles earlier in the year about MasterCard 'clarifying' to crypto currency exchanges what code they should use.
If coinbase changed from a code not considered a cash advance to one that is then most (if not all) card providers would automatically classify the new transactions as cash.
That would make Chase's statement entirely correct. The people affected can probably see this as the code is often on the card statement.
Maybe they should go after coinbase? But Chase probably has deeper pockets...
This is most likely what happened.
Chase has not changed policies. The surcharge for cash advances has been around for many many years.
Merchant classifications, however, change all the time. Mostly you don't see them because you (as the card user) don't really care. It can affect what merchants may be in-scope for "5% bonus points" promotions, and end of year breakdowns, but normally it's invisible to you. Given the millions of merchants, it would be pointless telling you of changes.
So if this particular merchant had their classification changed so that it now counts as a cash advance then Chase would be perfectly entitled to put the surcharge on.
I fully expect this case to be dismissed.
A lot of people here seem to have missed the point: that whatever they're charging they're still raking it in - but they just feel entitled to more.
Why should advancing me cash that gets given to a merchant be any different to advancing me cash in some currency ? It's just another racket.
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