JPMorgan, BofA Ban Cryptocurrency Transactions on Credit Cards
bloomberg.com
bloomberg.com
A lot of folks on here are proponents of net neutrality. I think banking should be neutral, too.
Um.... they aren't protecting people from themselves. The bank is are protecting themselves from their customers -- both from fraud the bank becomes liable for and god knows what legal regulations.
BofA doesn't give a fuck about you, they are doing this to cover their own ass.
>The move doesn’t affect debit cards, according to Betty Riess, a spokeswoman for the Charlotte, North Carolina-based lender.
>Allowing purchases of cryptocurrencies can create big headaches for card lenders, which can be left on the hook if a borrower bets wrong and can’t repay. There’s also the risk that thieves will abuse cards that were purloined or based on stolen identities, turning them into crypto hoards. Banks also are required by regulators to monitor customer transactions for signs of money laundering -- which isn’t as easy once dollars are converted into digital coins.
This isn't strictly true. These same banks have been known to close accounts that are associated with known crypto exchange transactions (coinbase, bitstamp, etc.) - to the point of most recommending you keep these transactions entirely separate and try to avoid them if possible.
I was originally interested in Bitcoin exactly due to this. Money in the bank is not your money, and that was made exceedingly clear to me on a few occasions. That they are corner cases and outliers is irrelevant to me - that's where the system breaks down and you find out exactly how powerless you really are until you're into 8 figure territory.
Basically do anything a bank determines is risky and you more or less forfeit your access to the US banking system.
Large banks actively choose winners and losers and who you can send your money to every single day. Try buying porn on-line with some credit cards for example.
I don't particularly think buying crypto with a credit card is a great idea, but it certainly highlights how much the war on cash and ever increasing centralized banking really has significantly reduced your personal freedom in just a couple decades.
Banks agreed to extend credit to Bob from accounting so that he could buy consumer goods, not so he could participate in leveraged trading. The average individual is utterly unprepared for that risk and doesn't understand it, and banks aren't prepare to accept that risk. If you force them to, they will be much more conservative in who they give credit to, and the average user will lose out as a result. It's far easier to ban stupidly risky behavior than build it into their credit models.
Also, if people want to do leveraged trading, there are mechanisms to do it outside of credit cards. The fact that people are using credit cards in itself suggests that they are unsophisticated and should not be doing such trades.
Between that, payments to ransomware, whatever online drug markets exist, etc... can’t blame them at all.
They have legitimate reason to not take on the downside risk of crytocurrencies and their card agreements make it clear enough that they can't be used for everything.
If they were letting people purchase bitcoin on credit cards up until last Friday[, there's going to be a ton of people that racked up charges at the $15-20K price level in December that cannot pay them back. Be curious how big the damage is going to be for them.
If they are buying BTC on a credit card, they are doing it because they expect it will.
Also, what the IRS says about cryptocurrency for tax purposes has no bearing on the discussion at hand.
Some of these restrictions are clearly arbitrary.
And I'm pretty sure it's always been "technically not allowed" to buy another currency with credit cards (or it's technically allowed, but treated as a "cash advance")
but you could always buy gold/silver and other extremely liquid and fungible goods, which is as good as money.
They can't whitelist what you can buy with a credit card, so instead they blacklist things when they become big enough to matter.
The IRS decided that that's the category they fall into for certain tax purposes. Not sure why that would have any bearing on the application of credit card issuer policies that are not tied to the particular definitions in the tax code, though.
What parent is saying that unlike other purchases with credit cards, you can't really do much about cryptocurrencies.
For instance if you purchased a physical product, in case of a problem (like fraud or something), at least you can go to the place where the delivery of the physical product happened and find it.
Similarly in case of a digital good (like ebook or pdf, since it's mostly copied from one destination to the other) if the product wasn't delivered, then it can be redelivered with no cost to the producer.
It's the first time we are encountering a digital good with non-duplicability of physical world goods with hard tracability of cash.
The baseline for most credit cards is 120 days for the cardholder to dispute a charge in the US, or 180 days internationally. Some specific dispute categories for some credit cards have a shorter limit, and some effectively have longer limits because the starting point is some date after the transaction.
On top of that, there may be consumer protection laws in some areas that affect this. For example, in California it is one year for certain types of dispute [1].
Note that the above is how long for the cardholder to dispute the charge. Add to that however long it takes the card company to process things before the merchant sees the chargeback.
I've seen one that arrived at the merchant over a year after the transaction, although I think that is rare.
[1] https://oag.ca.gov/consumers/general/credit-cards-dispute-ch...
And these are not currencies under the law.
The incentive for most people to buy concert tickets is to see the concert or scalp the tickets; chargebacks that occur in this context are on an individual basis and the banks will ban customers that abuse this chargeback process. In some cases, the merchant may be at fault, perhaps selling tickets to a show that does not transpire as described and the concert-goers may issue chargebacks en masse in response, but in this case the banks identify the source of the problem was not _the individuals_ (who will probably have relatively few if any chargebacks in their account history) and will actually penalize the merchant, sometimes banning them altogether if they cannot reasonably explain the chargeback behavior or if chargebacks become a pattern for that merchant.
With blockchain tokens there is no incentive except profit, so if the blockchain token markets create a panic among buyers, it can cause mass chargebacks at _any_ time within the chargeback window, this is clearly a completely different risk model than concert tickets. At the end of the day, all that's really happening here is the credit card companies are banning transactions from merchants with high chargeback history, a totally common practice.
Chargebacks can be initiated at any time within the chargeback window, regardless of what is purchased.
Further, chargebacks hurt the MERCHANT. MERCHANTS are the ones banned and blacklisted (there is a blacklist file shared among all VISA issuers) for bad behavior.
IF merchants had high chargebacks, they would state that - there is no NDA preventing the card issuers from stating it.
And even if there were, there are higher-risk tiers for such merchants (like merchants that sell online porn).
How much experience do you have dealing with VISA etc. ...?
Yes, but as I already explained, the incentive to chargeback is NOT the same regardless of what is purchased. Chargebacks are relatively rare because most people only chargeback if there is a dispute with the merchant, but outside of fraudsters, its not that common for people to chargeback on a product months later. Even with high risk products like porn, there are predictable chargeback rates that can be factored into the overall profitability of the product category, but with blockchain tokens a sudden shift in price (like the one we're seeing now) can cause a large and abrupt spike in chargebacks all from the same product category. Wild shifts in the price of a digital commodity is a unique quality of blockchain tokens that totally changes the chargeback risk profile.
> How much experience do you have dealing with VISA etc
How much experience do you have in the lending business? This has nothing to do with VISA, this is about banks that have to make a decision about lending money. Companies that lend money are valued in large part based on the quality of the loans on their books; when the books are loaded up with crap accounts made up of gambling debt from blockchain enthusiasts who could go bankrupt overnight, it does not inspire confidence.
I have actual experience as a credit card merchant for 10+ years. You have shown yourself to have no real-world knowledge of the situation.
I understand the stated reasoning, but if this is the first such restriction (again, I don't know if it is), it's a pretty remarkable deviation relative to most credit card policies, i.e. we will happily finance whatever ridiculous decisions you choose to make. I wonder if they are seeing spiking default rates?
Aside from state rules, some cards prohibit it, much like this new restriction on cryptocurrency.
Also, CA is one of the states which prohibits this.
> if you use a stolen credit card to buy something you have to have somewhere to ship it, therefore they can find the thief. with cryptocurrencies they just have to take a loss and open a new card.
Necessarily results in:
> credit/debit cards security model is absolute shit and should be illegal.
Can you describe a comprehensive alternative that would, at least in theory, be better.
As an analogy: if I come in to your house and steal your gold bullion while you're not looking, leaving little trace of my presence, does that mean the security model of houses is absolute shit and should be illegal?
The option for the credit card issuers is to:
a) stop offering chargebacks for crypto purchases
b) stop allowing crypto purchases
They opted for 'b' because it's easier.
(I suppose they could eat the cost themselves, but I can't see that happening)
Porn sites have a really hard time finding payment processors, due to the high rates of chargebacks.
Yes; some examples:
https://www.bankrate.com/finance/credit-cards/naughty-things...
Normally the blocking is applied to merchants, rather than visible to the customers, but yes. Ironically this kind of thing used to be cited as a reason for bitcoin adoption.
1. see "Products" on https://plaid.com
I successfully churned about 60K credit card points at the end of last year. (Buy $X + fees and sell when it covered the fees/principal)
You have 100 Bitcoins. You buy 100 Bitcoins at $1,000 each on credit. You now have $200,000 of Bitcoins and $100,000 of debt. Bitcoin crashes 60% ($19k to $7.6k is a sixty percent crash). You now have $80,000 of Bitcoins and $100,000 of debt. You are insolvent.
If you’re talking about buying and selling from yourself to milk points, that’s fraud.
>If you’re talking about buying and selling from yourself to milk points, that’s fraud.
i'm not sure how that's fraud anymore than you buying goods with your credit card and immediately selling them to rack up rewards.
Buy Bitcoin on credit. Sell immediately. Deposit to bank account. Pay credit card bill. Repeat.
The only difference here is that they're explicitly saying it's banned.
But I'm not sure what the motives are here. I'm pretty sure banks like it when their customers get into debt?
They price the credit line (set the interest rate) based on some level of expected risk.
If they believe an activity will cost them more in bad loans (and whatever else) than they will earn in interest, they will adjust the terms of the loan to forbid that activity.
I totally agree with your previous comments on the EFF and peoples right to privacy and secure data. Shouldn't this extend to their money as well?
I do think this article makes some good points about the current dangers of the cryptocurrency market, especially for credit card operators.
To answer your question:
Yes, I do think people deserve privacy and security in their personal finances. I'm not convinced that cryptocurrencies provide this. My reservations come mostly from the apparent (and I believe historically obvious) instability of an unregulated financial market.
Credit cards isn't a system where "anyone with a number being able to pull your money" - merchants can ask for that money, but they're not certain to get it, you can veto that transaction, you'll get it reversed (with legal guarantees) if its fraudulent, and you can get it reversed if you were sold goods that aren't what you were promised. Not so with crypto, where once you send it to someone for whatever technical reason (including a compromised number) it's gone.
Think about it. Wide adoption at the end of 2017, bit licenses, crypto-funds, etc etc. Look at the data. It does not lie. It's a good investment and they see some consumers using this as tool to reduce their debt faster.
Again, buying some plastic toys on ebay is ok, but crpyto is bad? It's bs.
They want $.