
Wells Fargo Bans Cryptocurrency Purchases on Its Credit Cards - petethomas
https://www.bloomberg.com/news/articles/2018-06-11/wells-fargo-bans-cryptocurrency-purchases-on-its-credit-cards
======
chollida1
A few Canadian banks did this back in December.

If this upsets you view it through the lense of risk management than any sort
of value judgement of crypto currencies.

If the rate of charge backs starts climbing the issuing bank will take notice.
Investing is not something that should be done on credit, especially for
something with the volatility of crypto currencies.

> A study conducted by LendEDU last year found that roughly 18 percent of
> Bitcoin investors used a credit card to fund the purchases. Of those, 22
> percent couldn’t pay off their balance after buying the digital coin.

This is just depressing:(

~~~
asdfman123
Betting on crypto with your credit card is a bad idea, full stop.

But I remember in 2013, I read about someone who was planning on maxing out
their credit cards to buy Bitcoin at $90. I was exhorting them not do it...

Ha. I wonder how they fared.

~~~
behringer
I once aske my uncle his thoughts on investing in bitcoin in cash. Price was
about 10 bucks a coin. We both regret talking ourselves out of it

~~~
codetrotter
There is no point in regretting such things. You could not have known what
would happen to the price of Bitcoin. You probably would’ve ended up selling
it for a tiny profit and then you’d still be regretting your actions, or even
you could’ve panicked at some point when it dipped a little bit and sold at a
loss.

~~~
456hdsaq234g
or lost em in mtgox.

------
floatingatoll
If people who bought soda had a 22% default rate, Wells Fargo would ban soda
purchases. They don’t care about blockchains, they care about carried balance
interest and non-defaulted balances.

~~~
maddyboo
Are there any other historical instances of banks banning a specific type of
purchase from CCs?

~~~
jaredklewis
Casino chips, online gambling of just about any kind, stocks, money orders,
lottery tickets, and mortgage payments all basically can't be made with credit
cards.

There are some banks that have blocked pornography and medical marijuana
purchases.

But basically, the pattern is clear: banks don't want to lend you money to
make investments. Banning money orders is a natural extension of that because
you can then go use that cash for the aforementioned things.

That makes a lot of sense, because if banks did want to make those
investments, they don't need you. If a bank wants to invest in stocks,
property, or a game of roulette, they can just go put their money there, no
credit card customer required.

What banks can’t do without lending you money is get a little slice of your
paycheck every month through interest payments. This is a separate asset class
than things like stocks.

~~~
XalvinX
But don't banks _want_ you to be in debt to them, paying 24.9% annual
interest? Isn't this how banks make much of their money? Why would they care
how you enslave yourself to them? Anyways, even if cash advances have been
outlawed since I last did it freely and recklessly (been over 15 years, so
maybe they have?), it doesn't take a genius to figure out how to get cash
somehow or the other.

As a proof of concept, the very first coin dealer I just found randomly using
Google takes all major credit cards and sells silver by the ounce. Well, gee
whiz, I can run up my cards buying silver ounces, walk down the street, sell
them at a different coin shop for cash, then go buy whatever I want. Hmmm...
What is the real reason banks don't want people making _certain_ investments??

~~~
jaredklewis
Of course banks want that interest, but if the customer defaults they incur a
big loss, so they also need to manage their risk.

With regards to cash advances, they come with much higher APR rates, to
account for the increased risk and are often not available to card holders
with low credit.

Perhaps Wells Fargo would be more amenable to their customers buying crypto if
they were able to charge a higher APR for such transactions, but I imagine
this isn’t such a simple change given the many parties and agreements
involved.

As others have pointed out, the other aspect is fraud. Perhaps the anonymous
nature of crypto currencies attracts more fraud payments than bullion?

However, I am highly skepticle that you can buy silver with a credit card and
then sell it for cash “down the street” without incurring huge transaction
costs in the process. I’d be surprised if the process was even 80% efficient.

~~~
rlucas
If you are in a dense coin/jewelry district of a medium-sized city, you can
get darn close to the posted spot prices for mainstream coins. They will
charge a bit extra but probably closer to a 5-10% rake than 20%.

Source: I once negotiated a cash price for a jewelry piece in downtown
Portland, Oregon and the jeweler accepted bullion I wanted to liquidate at
quoted spot bid in lieu of cash for part of the price.

If you are talking about getting "SAR levels" of USD folding green, though,
you're going to need to make an appointment in advance. Plus, heavy. So the
"walk 1600 oz of silver down the street" strategy has a number of practical
impediments beyond the spread.

~~~
XalvinX
If you are buying 1600 oz. of silver, why not just buy 21 ounces of gold
instead? lighter! But honestly I doubt too many people even have limits that
high on their cards.

Anyways, as an American who's grandfather landed on Normandy in WWII and who
actually has roots back to the Mayflower (I do!) the very idea of an "SAR
level" makes me fricking sick. Disgusted. People should be free to do what
they want with their money and not have to tell anyone anything, period. Not
only with their money, either..with their free time, the communications, their
travels, their bodies and souls...LIBERTY should not just be an empty slogan
on cheap metal coins and in songs and engraved on old stone statues.

It is really too bad what the USA has become, and I hope that the future will
see a brighter day for "we the people"..

------
philip1209
On the surface, this looks bad. But, the underlying logic - that Wells Fargo
doesn't want to loan you money so that you can buy money - seems reasonable to
me. If you have cash in a Wells Fargo checking account, you can still buy
cryptocurrency with it.

~~~
Someone1234
By that logic they should ban gift cards and in-game currency too.

Sure, you can use your checking account, but if my credit card is going to
restrict my usage and I'm going to be hassled into circumventing it, then why
even have it?

I actually have a Well Fargo credit card, I'll be keeping an close eye on
these restrictions.

~~~
EpicEng
>By that logic they should ban gift cards and in-game currency too.

Except that it doesn't because people aren't buying $10,000+ in gift cards on
the hope that they will increase in value and then defaulting on their CC
payments because said gift cards crashed.

When trying to solve a problem you have to focus on the actual problem at
hand, not philosophical musings.

~~~
wccrawford
But they might buy $10k in gift cards and then refuse to pay their credit
cards, and yet still have gift cards out that they can use later.

Thinking about it that way, I'm surprised there isn't some kind of limits on
gift card buying. (Or maybe there is, and I haven't read my agreement well
enough.)

~~~
jonknee
The difference is a percentage of people purposely buy more cryptocurrency
than they can afford expressly because they think they will be able to sell it
for more than they paid before the bill is due. Essentially the house flipping
craze of the mid 2000s, but with credit cards and cryptocurrencies.

No one thinks a $100 Best Buy card will be worth more than $100 in the future,
so people don't load up on them looking to make a buck.

~~~
EpicEng
> No one thinks a $100 Best Buy card will be worth more than $100 in the
> future

In fact, you know it will be worth less!

------
jeromegv
Pretty sure they don't allow you to buy Forex or investment funds or a
mortgage on the credit card either.

------
aitrean
Banks are doing this from a perspective of risk management. But I will bet any
number of Bitcoin that crypto nerds will construe this as a narrative that
_the big banks_ are attacking them once again.

~~~
himom
There are multiple potential explanations. I think disallowing commerce
without an agreeable substitute, like immediately transferring or escrowing
money from other accounts, is an unacceptable inconvenience. Often times, a
person wants the protection of a credit card, while having sufficient assets
to purchase in cash or repay the card corp. If anything, that a debit card
lacks similar protections of a credit card is absurd and inconvenient per
skimming and missing fringe benefits like travel insurance.

~~~
aitrean
Debit and credit are the only methods for commerce with almost any third
party. Transferring and escrow payments require direct channels that Wells
Fargo does not want to negotiate. Regardless of differences between debit and
credit, debit is at least backed by direct account balances. Credit is not.
Chargebacks would also be a nightmare for credit cards.

Even if it's deemed unacceptable to disallow over-risked services like credit
cards to purchase cryptocurrency, then the beauty is that cryptocurrency
purchasers can migrate their loans, and savings to another banking provider
who will service the headache of credit-backed cryptocurrency investments.

------
jedberg
For those of you who are worried this is a value judgement, just remember that
banks are in the risk management business. They generally allow any
transaction until they start seeing risk in it through their own data.

What this tells me is that there have probably been a lot of chargebacks
related to cryptocurrency as the coins have fallen and people are trying to
make up their loss by putting on "the evil bank".

I would actually give props to Wells for being the _last_ major bank to ban
it.

------
rubberroad
USAA just did this a few weeks ago. My knee-jerk response was to be upset, but
then I read the arguments regarding creditors retaining the right to determine
what is purchased with said credit, as well as the implications for whether
cryptocurrency would be considered a cash advance.

~~~
FLUX-YOU
Cryptocurrency definitely needs to be a cash advance, otherwise you can abuse
% cash back and other benefits with it (reddit.com/r/churning). I don't think
it's been possible to do it for a while though.

But TBH they probably do it because cash advance has a higher APR.

~~~
unethical_ban
Off-topic, but I find churning at least as ethical as banks promoting the
accumulation of debt with paltry benefits/kickback to consumers for earning
Visa/MC money with transaction fees.

Abuse is the credit system and its marketing writ large.

------
greggarious
> _Lenders have said they’re worried they’d be left on the hook if a borrower
> lost money on a digital currency bet and couldn’t repay._

Weird, isn't the whole point of setting a _credit limit_ that you assess how
much risk a given person can sustain?

Seems to me like banks want to hand out high credit limits to entire
overspending, under the assumption they can make their money back twice -
through reposession + obscenely high APRs in the 25%+ range.

Meanwhile, every time I go to a casino ATM I see prominent signage on how to
use one's credit card to obtain casino credit. They don't block these
transactions, they just factor the existence into the calculations for a
credit line...

~~~
root_axis
> _they just factor the existence into the calculations for a credit line..._

That is very misleading. They "allow" casino transactions in the form of cash
advances, not directly to the card as someone might infer from the way you
constructed that sentence. The reason this detail is important is because a
cash advance can be used to buy blockchain tokens just as easily as it could
be used to buy casino tokens, and they're both relegated to the cash advance
scenario for the same reasons.

------
simplecomplex
This might be to prevent a cash back loophole. Most banks don’t allow getting
cash from a credit account.

The cash back loophole works like this: buy crypto on coinbase with credit
card, then immediately sell and transfer to checking account.

~~~
imhoguy
Exactly this. Also some bank customers may buy (crypto)cash declare bankrupcy
and their crypto assets will be unreachable to any debt collector or law
enforcement.

------
Keeeeeeeks
I'm glad that this discussion is peppered with the words "charge back" and
"fraud". People speaking out of their element about "banks censoring their
competitors" probably haven't been on the receiving side of a frivolous charge
back, lost the dispute, and been SOL for it.

Crypto companies could default to push payments and/or micro-deposits for
verifying ownership of a fiat instrument, but people want their coins now and
that causes friction, which shrinks user activation funnels.

Anyone using a fiat on-ramp to accept payments (including exchanges) has
agreements with Visa/Mastercard/AMEX/their bank to keep their charge back
ratios under 1%, or else Visa/MC/the bank processing their fiat transactions
will fire them (good luck running a business accepting fiat without access to
the card networks or a bank).

Bank fraud analysts probably have their own bank-side metrics/reasoning to
give customers the benefit of the doubt.

For example, if the fraud analyst sides with a merchant and denies filing a
friendly fraud (maliciously filed) dispute, maybe the customer complains to
their manager, and takes whatever sympathy-inducing narrative to social media,
which would get an analyst fired and make a bank look even less sympathetic.

Through that, it's too easy for someone to maliciously load up on 2+ months of
purchases, walk to their bank, state "I've never heard of Bitcoin someone
hacked me and bought $6k in crypto I need that back", and win. It's not worth
the headache until/unless banks and exchanges bridge the gap and determine a
means of:

1\. Confirming the exchange isn't providing liquidity to money launderers 2\.
Confirming with the bank that the KYC info requested sufficiently fulfills #1
3\. Confirming with the bank that the KYC and payment instrument info (if
fiat) requested sufficiently provides evidence that the owner of the
instrument authorized the payment.

------
w0rd-driven
I ran into this December 2017 when I went to transfer funds to Coinbase. To be
a little fair, coinbase had a series of more than one charge and refund. When
I initiated this verification, Wells Fargo alerted me to the activity via text
and allowed the transaction to be authorized. To this day, no other
transaction on that spending account has ever presented itself in this manner.
Due to the disjointed nature and possibly stability issues at the time this
process failed hard.

What did work was a wire transfer. This was a $30 fee paid to Wells Fargo and
on top of the $10 fee from Coinbase, making it cost $280 to credit my account
with $240. Wells Fargo took 3x the fee and the conspiracy theorist in me
believes this is their primary motivator for doing this. You can get your
money out to do what you want with it, but not without a steeper penalty than
the exchange. Now that this stance is official and if I hadn't lost money (to
take a simple view, that $240 is now worth around $75) I'd be looking to open
another account somewhere that doesn't try to tell me how to use my money.
When I realize this other account at whatever mythical bank is somehow
superior in every way, I would ditch them completely. It doesn't seem like the
greatest move on their part but they could also be counting on the fact that I
may never do this because of the hassle involved with changing everything
over.

~~~
gr2020
Many (most?) banks charge an outgoing wire fee. That $30 fee is probably the
same whether you’re trying to wire $250 or $250,000, and is probably unrelated
to _where_ you’re wiring the money to.

------
kevin_thibedeau
The banks shouldn't be allowed to promulgate an electronic economy based on
credit cards that they massively profit from and then turn around and
arbitrarily rescind the credit they have put out to use.

If they want to mitigate their risk they should bring debit cards up to the
same level of fraud protection that credit cards enjoy. Instead we get the
Zelle shitshow that only a fool would use.

------
bitcoinisqueen
To all people who think this is about 'risk management some questions to
ponder:

\- how is buying a currency like the Bolivar allowed (50,000% plus inflation)

\- coinbase limits purchases to about $100/USD per week...how much risk is
really being exposed?

\- why is buying depreciating liabilities such as computers, software, harmful
drugs (smokes, alcohol, coffee) and overpriced meals and fashion accessories
acceptable? (Doesn't alcohol hinder purchasers health and make it harder to
pay back due to death and other problems?)

-Where was their "risk management" when they socialized their bets in the 2008 crash?

\- why do they keep extending lines of credit to the USA gov for the purchase
and sales of billions of dollars of yearly foreign arms sales?

Now, considering that bitcoin is MEANT to replace banks as its modulus
operandi and enable p2p transactions (ie: cutting out middlemen - banks!)....
it becomes apparent what they are really doing: trying to stop the leviathon
and holding onto their business model.

Observe their actions, not their words and then their intentions will become
clear.

------
anoncoward111
So the argument from the bank here involves 1) customers defaulting on loans
and 2) disputes + chargebacks

Question, I might default on my purchase of diapers for my baby. Someone might
also fraudulently purchase diapers for their baby using my credit card.

Should these purchases be banned by cc companies as well?

~~~
s73v3r_
No, because it doesn't happen in nearly the same rates.

~~~
anoncoward111
Ok, so what you're saying then is that a bank should be allowed to
discriminate based on our purchases, and that if we don't like it, either use
debit or cash, which come with some flaws/inconveniences.

How about instead of allowing to discriminate based on purchases, they just
accept slightly smaller margins?

------
awad
At best, this thread seems to reveal a disconnect between consumer
expectations and the mindset of banks issuing credit cards. That is, I am
reading that some consumers of credit cards feel entitled to spend however
they so wish on their cards so long as they can pay it back, whereas the
reality is banks view credit cards as a product with which they may attach
terms of service like any other product. Without aligning these two factors,
people that are actually spending someone else's money will feel wronged when
they are not allowed to, without also keeping in mind that banks these days
being huge integrated conglomerates DO offer credit for investing in the form
of other credit products.

------
karakot
I'm sure you can't buy stocks with credit cards either.

------
ddtaylor
There are so many problems with mixing credit cards and crypto-currencies.
Many entire companies in the space have been killed or forced to pivot
drastically because of it.

------
Torwald
It comes down to the question what kind of financial services they want to
provide.

What people are doing is to use those cards as speculation devices. You enter
a game of speculation, using your card depth as speculation matter against the
crypto currency. It's simple currency speculation, nothing new, nothing
special.

But, is this what Wells Fargo wants to enable / service with the specific
product "credit card"?

It's a matter of product line-up hygiene on the side of Wells Fargo.

------
davesque
Keep in mind that debit cards can still be used to purchase crypto. I see a
lot of potential for blockchain tech in the long term but I think people
should not be looking at crypto holdings as an investment strategy. This seems
like a reasonable move by WF to me. They only want you to use money that you
actually have to engage in high-risk investments. Otherwise, they stand to
lose a lot when their customers can't cover their balances.

------
yani
My guess is that the friendly fraud rate in crypto is way way too high. People
really like to abuse this.

------
kodablah
The righteousness of the decision notwithstanding, this doesn't really seem
like the time for Wells Fargo to exercise large-bank leverage by instituting
new rules. I'd let the rest of the industry go first here (granted some have).

------
devin
Buying other instruments with your card has been against the terms for awhile
on most cards, IIRC. I was surprised credit card companies allowed the
purchase of cryptocurrency in the first place.

------
oneplane
My first reaction was: why do they mess with what people do with their money.
Then I remembered that the way credit cards are used in a lot of places is not
actually the money of the account holder.

Where I live, debit cards are the standard, and credit is rarely used, rarely
accepted, and rarely something you can endlessly lend with. SO when I read
"Bank X wants to mess with transactions Y" in my context it's like someone
telling you what you can do with your money, but since it's credit, not debit,
it's the bank's money and it's pretty reasonable that they get to say what you
can use it on.

~~~
pezdeath
In the US if you have your finances in order there is 0 reason not to use a
credit card on everything (where you aren't charged extra to do so) as most
credit cards offer a rewards system. For example I have a card that rewards
1.5% back on every purchase and I have it setup to pay in full at the end of
every month. Doing this allows me to never pay interest but basically get a
1.5% discount on every purchase.

~~~
wccrawford
Finances in order _and_ have the willpower not to spend money you don't have,
just because you can. Some people lack that, and it's smarter for them to just
avoid the constant temptation by now having a credit card.

~~~
derefr
Is there a secured card with cash back? Seems like a good option for such
people.

~~~
15155
Charge cards offer great cash back but are not "secured."

You can absolutely spend money you do not have, but only for one month, and
then your account is closed and probably hit with massive fees.

------
joshfraser
I don't blame them. Cryptocurrency offers fast finality while credit cards
offer chargebacks up to 90 days. Those two things don't mix well.

------
crb002
Of course for a mere 6% one time processing fee Wells Fargo will offer to sell
you BTC from your bank account.

------
youdontknowtho
Didn't Wells Fargo get in trouble a couple of years ago for laundering money
for Mexican drug cartels?

~~~
astura
No, that was HSBC.

------
zer00eyz
This is a problem, a large one.

What prevents wells from saying "I don't want to pay for your wedding because
you might get divorced?" What prevents them from saying "no you can't have a
cash advance in country XXX because the exchange rate is volatile?"

There is an established remedy for this and it is by removing the ability for
exchanges to process cards. Or process them as cash advances.

~~~
freeone3000
The first: Irrelevant, the money's going to be gone regardless. This is the
type of purchase you have credit cards. The second: That's actually a thing.
Cash advances aren't guaranteed to be available, they're charged at a higher
rate, and mine can only be used to get CAD or USD, not anything else.

You already can't buy stocks, bonds, or options with a Wells credit card. This
is putting crypto in the same bucket as other securities.

~~~
zer00eyz
You can't trade forex either, but those are all considered securities. That
would be illegal.

BTC isn't considered a security - [https://coincenter.org/link/sec-chairman-
clayton-bitcoin-is-...](https://coincenter.org/link/sec-chairman-clayton-
bitcoin-is-not-a-security)

No matter how you slice it this is the card provider making an arbitrary call,
one that should be made at the processor level.

Further down someone points out a bank banned the purchase of guns. Let me be
clear that I have no love of americas relationship with firearms. But to
decide that a CC can't be used to make an otherwise legal purchase is the
beginning of a bad thing. As we become more cashless banks need to be more
neutral in their dealings.

~~~
freeone3000
If your argument is that bitcoin is not a security because it's a currency and
that it continues to fall under SEC virtual currency guidelines, then wouldn't
buying bitcoin be a forex transaction?

~~~
zer00eyz
We can not class bitcoin as a security:

A security is: "a thing deposited or pledged as a guarantee of the fulfillment
of an undertaking or the repayment of a loan, to be forfeited in case of
default."

Bitcoin is an entity unto itself I can buy bitcoin and trade that DIRECTLY for
goods - something that is impossible with securities. If bearer bonds were
still a thing there might be some argument around directly transferable
securities but that is no longer the case.

If I buy on forex (in pips) I can not trade those to a merchant directly for
anything - bitcoin can be purchased at an exchange (not a market but an
exchange) and used to acquire goods directly.

Lets look at the justification that the article gives:

"A study conducted by LendEDU last year found that roughly 18 percent of
Bitcoin investors used a credit card to fund the purchases. Of those, 22
percent couldn’t pay off their balance after buying the digital coin."

What percentage of people can't pay their CC after a cash advance in a foreign
country? How about after making a comparable major purchase. If we take those
facets into account that %22 probably isn't far outside the industry average.

There were lots of paths Wells (or the other banks listed) could have taken -
this was not a good policy on the merits of what they are saying.

------
Animats
That make sense. You can't, in general, buy money with a credit card.

~~~
gringoDan
You often can take money out of ATMs but you get hit with large cash advance
interest rates (and the interest clock starts ticking the moment you take the
money out, not when the bill is due).

Most banks were already coding crypto purchases as cash advances.

------
XalvinX
An odd business decision. I mean, you can withdraw cash at casino ATMs in
Vegas, I know because I've (unfortunately) done it. You can use credit cards
for addictive stuff like 976 numbers too. Or to buy liquor. Or whatever else.

So, it makes one think they are being influenced from outside or above (if you
consider the Fed to be 'above').

I remember as an irresponsible college student getting checks for $6000 at the
beginning of each semester too....and banks setting up stands on campus
handing out credit cards to students (who clearly couldn't have had real jobs)
like so much candy.

Banks have long promoted irresponsible behavior, and clearly must profit off
it. I mean come on.

~~~
greggarious
> _ou can withdraw cash at casino ATMs in Vegas, I know because I 've
> (unfortunately) done it_

Consider a bank that refunds ATM fees. I've withdrawn at casinos with boggling
ATM fees ranging from 5.00 to 8.75 (!!). My bank has always refunded these
charges.

There are several online only banks that have found it's cheaper to refund ATM
fees than to maintain a branch network... Charles Schwab has been good for me
so far.

------
dogruck
Don’t forget the political risks of accepting crypto credit card transactions.
I can see the post-crash Senate panel now:

Senator: what volume did you process?

Bank CEO: about $800M, madam.

Senator: $800M. And that didn’t concern you?

Bank CEO: well it was within parameters, madam

Senator: let me read you a letter from a single mother who bought $2000 of
coins...

Etc.

------
dick_sucker2
Some companies want consumers to use cryptocurrencies to avoid dealing with
payment processors. It seems strange to involve credit cards with
cryptocurrency. A wire transfer to Gemini is fast and easy.

------
stealthmodeclan
It seems like this one is one of the better banks, at least they didn't ban it
as a kneejerk without using their data to support this decision.

~~~
Sohcahtoa82
Uh...Wells Fargo is probably one of the worst banks out there. To the point
where anybody still banking with them probably hasn't been paying attention.

~~~
stallmanite
Hey I saw on TV that they "re-established" themselves in 2018. Seems legit. /s

------
knodi
People should ban Wells Fargo for stealing peoples identity and opening up
fake accounts in their name.

------
sacnayak
Doesn't Warren Buffet have a huge stake in Wells Fargo?

------
himom
My family dumped Wells Fargo after being with them for 5 decades. They can go
straight to hell to tell me or anyone what they can and can’t buy when you
have a trackrecord of paying on-time and sufficient liquidity to back up a
transaction. I can understand the appearance of hedging without a capitalized
margin account. Perhaps an alternative, the bank could communicate “we need to
reserve X% of funds now to cover this transaction or we’ll have to cancel it.”

