Tucker et al. v. Chase Bank USA, N.A.: Cryptocurrency Purchases Are Not Unambiguously Cash-Like Transactions | Practical Law

Tucker et al. v. Chase Bank USA, N.A.: Cryptocurrency Purchases Are Not Unambiguously Cash-Like Transactions | Practical Law

The US District Court for the Southern District of New York, in Tucker et al. v. Chase Bank USA, N.A., denied Chase's motion to dismiss claims under the Truth in Lending Act (TILA) related to cryptocurrencies that were acquired using a Chase credit card, holding that the cryptocurrency purchases were not unambiguously "cash-like transactions."

Tucker et al. v. Chase Bank USA, N.A.: Cryptocurrency Purchases Are Not Unambiguously Cash-Like Transactions

by Practical Law Finance
Published on 15 Aug 2019USA (National/Federal)
The US District Court for the Southern District of New York, in Tucker et al. v. Chase Bank USA, N.A., denied Chase's motion to dismiss claims under the Truth in Lending Act (TILA) related to cryptocurrencies that were acquired using a Chase credit card, holding that the cryptocurrency purchases were not unambiguously "cash-like transactions."
On August 1, 2019, the US District Court for the Southern District of New York, in Brady Tucker et al. v. Chase Bank USA, N.A., denied Chase's motion to dismiss claims under the Truth in Lending Act (TILA) related to cryptocurrencies that were acquired using a Chase credit card, holding that the cryptocurrency purchases were not unambiguously "cash-like transactions" (Tucker et al. v. Chase Bank USA, N.A., (S.D.N.Y. Aug. 1, 2019)).

Background

Plaintiffs Brady Tucker, Ryan Hilton, and Stanton Smith (collectively, plaintiffs) used Chase Bank USA, N.A. (Chase) credit cards to buy various cryptocurrencies between 2017 and 2018.
From 2017 until early 2018, plaintiffs' acquisitions of cryptocurrency were classified as "purchases" for purposes of their credit card agreements, subjecting the transactions to certain interest rates. However, from January 23, 2018 to February 2, 2018, Chase classified plaintiffs' cryptocurrency acquisitions as "cash advances," which were subject to substantially higher interest rates and transaction fees under the relevant agreements.
Plaintiffs did not receive advance notice that the cryptocurrency acquisitions would be treated as cash advances beginning on January 23, 2018 and claim that, had they known that these transactions would be classified as cash advances rather than purchases, they would not have used their Chase credit cards to acquire cryptocurrency. Plaintiffs Smith and Tucker disputed the classification and subsequent charges. Chase refunded the cash advance fees but refused to remove the cash advance interest charge.
Plaintiffs filed suit and alleged that Chase breached their credit card agreements by trading acquisitions of cryptocurrency as cash advances, arguing that the acquisitions of cryptocurrency could not be classified as cash advances within the meaning of the contracts. Plaintiffs also claimed that Chase violated TILA, which requires lenders to provide consumers with certain disclosures, and Regulation Z, the implementing regulation for TILA, by:
  • Failing to make clear and conspicuous disclosures about the types of transactions for which it imposed different rates.
  • Failing to provide advance notice of significant changes in account terms.
  • Failing to provide accurate disclosures in its periodic account statements.
Chase moved to dismiss plaintiffs' breach of contract claim and their three TILA and Regulation Z claims, arguing that cryptocurrency transactions are plainly cash-like transactions and properly classified as cash advances under the contracts.

Outcome

The court denied Chase's motion to dismiss as to the breach of contract and clear and conspicuous disclosure claims, but granted the motion as to the advance notice and accurate periodic account statements claims.
In denying Chase's motion to dismiss the breach of contract claim, the court reasoned that:
  • The language of the contract that describes cash advances as that in which cash is obtained from "automatic teller machines, at banks or by using cash advance checks" supports an interpretation of cash that refers to fiat currency, such as dollar bills.
  • The contract provides examples of cash advances that include "purchasing travelers checks, foreign currency, money orders, wire transfers or similar cash-like transactions," which are all financial instruments that have face monetary values and create legal claims to fiat currency.
  • Since cryptocurrency does not provide its holder with a legal right to any government-issued currency, it would be reasonable to conclude that acquisitions of cryptocurrency would not be classified as a cash-like transaction.
  • It would thus be reasonable to conclude that Chase breached its contracts by treating acquisitions of cryptocurrency as cash advances.
Similarly, the court reasoned that since cryptocurrencies are not unambiguously cash-like transactions, it would also be reasonable to conclude that, by ambiguously describing cash-like transactions in its contracts, Chase violated TILA's clear and conspicuous disclosure requirement.
In granting Chase's motion to dismiss plaintiffs' advance notice requirement claim under TILA, the court reasoned that:
  • Plaintiffs do not actually allege that any terms of the contracts were changed, and thus Chase could not have violated the advance notice requirements because there were not any significant changes in the credit card agreements.
  • Advance notice is only required when disclosed terms are significantly changed.
  • Plaintiffs failed to demonstrate that advance notice was required even without a change in a disclosed term.
  • Plaintiffs failed to state a claim that they were entitled to advanced notice.
Consequently, the case will proceed. Chase was ordered to file an answer to plaintiffs' complaint before August 22, 2019.