Blog LenderLaw Watch December 11, 2018

Bank Fees Associated with Crypto Currency Purchases Contested

The Southern District of New York is deciding whether a putative class action can proceed beyond the motion to dismiss phase in a lawsuit that may implicate how banks define crypto currency purchases, and how those purchases fit into regulatory frameworks.  The case is Brady Tucker, et al. v. Chase Bank USA, N.A., No. 1:18-cv-03155, 2018 WL 1773534 (S.D.N.Y.).  Plaintiff Brady Tucker claims that Chase assesses customers “surprise” fees by treating the purchases of crypto currencies as cash advances, instead of goods purchased, without prior notice.  He brought his claim under the Truth in Lending Act (TILA).

Beginning in January 2018, Chase allegedly changed its policy of treating the purchase of a crypto currency as a regular “purchase” to a cash advance.  This allegedly resulted in cash advance fees and/or cash advance interest charges on accounts.  Because customers believed they were continuing to make regular “purchases” when acquiring crypto currencies, the complaint alleges that customers unknowingly began taking out “personal loans,” with cash advance fees and interest rates that were up to 30% annually.  The complaint alleges Chase violated TILA by failing to obtain the informed consent of consumers prior to extending credit.

The complaint also accuses Chase of failing to honor its cardholder member agreement, which states that cash advance charges will only apply to the purchase of cash or cash-like assets such as money orders or foreign currency.  The complaint alleges “cryptos are not money at all” because they are “not created or issued by the U.S. government or any other government. They are not issued or created by any regulated financial institution, nor are they recognized as legal tender in any foreign or domestic jurisdiction.”

Chase moved to dismiss the complaint on November 2, 2018, arguing that crypto currency is simply an alternative form of currency that exists digitally.  Like money, it was invented to serve as a medium of exchange but allows users to buy and sell from one another without relying on government legal tender or financial institutions.  Chase also argues that the changes in the way purchases for crypto currencies are charged is consistent with the cardholder member agreement, because crypto currencies are cash-like assets and the changes made were “consistent with the existing terms of the cardholder agreement.”

The plaintiff opposed the motion on November 30, 2018 by arguing that the Internal Revenue Service deems crypto currencies to be a form of personal property, and at least one federal judge has found that they constitute goods.  It is no surprise that crypto currencies have the attention of the plaintiff’s bar, and a developing line of case law will surely follow.