UPDATE | April 12, 2018:
In the original version of this article, I suggested that Chase Bank classified cryptocurrency purchases made using credit cards as cash advances. That was incorrect.
Today, I spoke with Douglas, a Chase representative based in Columbus, Ohio, who explained that a transaction's classification is actually determined by the associated merchant and payment network (e.g., VISA). Douglas – who declined to provide his last name – mentioned that he previously dealt with a customer who encountered the "cash advance" versus "purchase" conundrum while making cryptocurrency investments on Coinbase.
As ETHNews reported on February 1, 2018, Coinbase notified its customers that some "major credit card networks" were seeking to reclassify virtual currency purchases as cash advances. It's not totally clear upon whom the responsibility falls to warn customers of the reclassification (Coinbase, Chase Bank, the payment networks, or another entity). This is an intriguing question because Chase collected the cash advance fees, but it seems that the bank was not responsible for the change in policy.
For what it's worth, according to Zacks Investment Research, most brokers and online trading firms do not allow their customers to purchase stocks using credit cards.
ORIGINAL | April 11, 2018:
On April 10, 2018, Brady Tucker of Idaho filed a complaint – for which he is seeking class action status – in Manhattan federal court against Chase Bank of JPMorgan Chase & Co. Tucker alleges that in late January 2018, the bank suddenly started classifying his cryptocurrency purchases (made on digital asset exchanges) as cash advances rather than regular purchases.
The complaint explains the situation:
"Chase began treating all its customers' crypto purchases not as ordinary credit card 'Purchases' — as Chase had for years — but instead as 'Cash Advances' from Chase to the credit cardholder. When Chase implemented this change in late January 2018, Chase did so in total silence. Chase provided no prior notice to its cardholders that their crypto 'Purchases' would be treated as 'Cash Advances' on a going forward basis. All of this occurred unbeknownst to Chase's cardholders."
The problem, Tucker argues, is that Chase made this policy change without notifying customers and refused to provide refunds. The complaint continues:
"Had Chase notified its cardholders, as required by law, in advance of making these changes to their credit card terms, Plaintiff and the Class would not have incurred millions of dollars in cash advance fees and interest charges by taking out personal cash loans from Chase without their knowledge or consent."
According to the filing, Tucker incurred "at least $143.30 in cash advance fees" and at least "$20.61 in cash advance interest charges (as of February 20, 2018)." Although Tucker contacted Chase's customer service line to voice his concerns, the company would not reverse the fees, and he ultimately paid the charges in full.
Although Tucker's lawsuit might seem like one small complaint by a single customer, if you multiply $100 or $200 by hundreds (if not thousands) of customers, then the potential losses quickly add up.
Chase seemed to have a clear-cut reason for reclassifying cryptocurrency purchases as cash advances. That's ostensibly what they are, for all intents and purposes. If a person buys bitcoin (or another cryptocurrency) with their credit card, they could immediately make a trade to convert their cryptocurrency into dollars in their account on Coinbase (or whichever exchange they're using). That instant liquidity appears to make a credit card purchase of cryptocurrency roughly equivalent to a cash advance. However, as Tucker argues, that does not excuse the bank from notifying its customers of the policy change, especially in light of the Truth in Lending Act (TILA).
According to the US Department of the Treasury's Office of the Comptroller of the Currency, TILA "requires lenders to provide you with loan cost information so that you can comparison shop for certain types of loans." Per Tucker's complaint, Chase's lack of notification to its customers could mean that the company failed to meet its obligations under TILA.
Citing credit risk, on February 3, J.P. Morgan decided to suspend cryptocurrency purchases using credit cards, an action which closely followed similar steps by Citigroup and Discover. For now, J.P. Morgan allows customers to make cryptocurrency purchases using debit cards (without being slapped with cash advances fees).
(For interested parties, the case filed in the US District Court for the Southern District of New York is Brady Tucker et al v. Chase Bank USA, Case No: 18-3155.)
J.P. Morgan recently parted ways with blockchain lead Amber Baldet, who was leading its "enterprise-ready distributed ledger and smart contract platform," Quorum. The company has been mulling whether to make Quorum an independent entity in order to encourage its adoption by other financial institutions. In February, J.P. Morgan mentioned a potential threat of disruption by cryptocurrencies in its annual 10-K filing with the SEC.