Chase's 50% Venmo Transaction Fee
10/12/22
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I teach about the $40 latte--a $5 latte with a $35 overdraft fee--and think I know how to avoid that. But I was pretty shocked when I looked at my Chase credit card statement today and saw the card card equivalent of an outrageous overdraft fee: $20 in cash advance fees and $0.25 in cash advance interest for two credit-card funded Venmo transactions totaling $40. A 50% fee? WTF.
What made this even more shocking was that Chase has never previously charged me fees or interest for Venmo transactions. As recently as July, I have Venmo'd without paying anything more than Venmo's 3% fee for credit-card funded transactions, and my card issuer has not sent me any change of terms notices in the interim. Puzzled, I decided to figure out what was going on.
I started by pulling out my card's user agreement. The Schumer Box for the card lists a cash advance fee of the greater of $10 or 5% of the transaction amount. But how could Venmo be a "cash advance"? The term "cash advance" is never defined in my cardholder agreement. There's a list of "Important Definitions," but it does not include "Cash Advance." The agreement instead says under "What it Means to You":
You may obtain cash from automatic teller machines, at banks or by using cash advance checks. Unless we say otherwise, balance transfer checks or promotional checks made payable to cash or yourself will be treated as cash advances.
Hmmm. That doesn't sound like Venmo. I didn't use an ATM or otherwise obtain cash. But under a separate column labeled "Our Responsibility" it says that "We treat certain other transactions as cash advances. See the Cash-like Transactions section under Important Definitions above." That hardly sounds like a "Responsibility," and isn't where a reader would naturally look for a definition. But it does refer the reader back to the Important Definitions section. There, I discovered that it says that "Cash-like transactions will be treated as cash advances." Oh. Why couldn't you have just said that in the "What it Means to You" section?
The cardholder agreement then defines "Cash-like transactions" to include "person-to-person money transfers and account-funding transactions that transfer currency." That includes Venmo....I guess? Chase never defines what a "person-to-person money transfer is. Is Venmo such a service? I have no idea, and I focus on this sort of credit card stuff. If I don't know what it means, who would? I don't think the least-sophisticated consumer is likely to think "person-to-person money transfer" means Venmo. And given the card issuer's failure to treat Venmo as a cash advance previously, it's all the harder to understand.
UDAAP Violations?
And this is the first problem here. The failure to clearly define what is a Cash Advance is unfair and abusive. It's unfair because it causes substantial harm to consumers ($10 x lots of consumers) and is not readily avoidable (how could I avoid it, as I don't know how a transaction will be categorized?) and has no offsetting benefit to consumers or competition. It's also abusive because it takes unreasonable advantage of consumers' lack of understanding of the costs or conditions of the product because the costs aren't clear because the consumer cannot tell if a transaction is a Cash Advance or not. Likewise it is abusive because it takes unreasonable advantage of the inability of the consumer to protect his/her interests in selecting or using the product because if the consumer cannot tell what the product will cost, the consumer cannot make an informed decision about whether to use the product. (One might also argue that the crappy contractual drafting "materially interferes with the ability of a consumer to understand a term or condition" of the product.)
There is (of course) an arbitration clause, so there won't be any private litigation about this practice, but one can hope that regulators will act, either as part of the supervisory process or through rulemaking.
Reasonable and Proportionate?
And then there's the problem of the outrageous fee level: a fee of the greater of 5% or $10. It translated to a 50% fee for me with a small transaction (as most p2p money transfers will be and the issuer surely knows). The fee has no relation to anything in terms of risk. It's not competitively priced--no one thinks card issuers compete on cash advance fees. And to add injury to insult, there is immediate interest on cash advances--no grace period--at Prime + 21.74% (that's ~28% today). Unfortunately, the CARD Act's provision requiring certain to be "reasonable and proportionate" does not seem to cover cash advance fees.
(There's a subsidiary problem of consumer reliance on the past course of dealing—not treating Venmo as a Cash Advance previously—but that's more a contract issue than a UDAAP one.)
Similarity to Pre-CARD Act Practices
All of this took me back nearly 20 years to TA'ing Elizabeth Warren's 1L Contracts class, when she had a class full of Harvard 1Ls try to make heads or tails about what was actually the bargain consumers agree to in a cardholder agreement. The point of the exercise was that you couldn't tell--key parts of the agreement were left to the interpretive discretion of the card issuer. That insight was a key one behind the legislation that became the Credit CARD Act of 2009, which got rid of travesties like any-time-any-reason retroactive term changes. But the CARD Act didn't fix everything, and cash advances escaped its reach.
Zelle v. Venmo Competition
Why did Chase change its interpretation of Venmo transactions? Perhaps it was just being opportunistic. But could it be to encourage the use of its proprietary p2p system, Zelle, over Venmo? One can only speculate, but it's notable that American Express and Discover, which do not participate in Zelle, do not treat Venmo as cash advances, while it appears that all the major banks participating in Zelle do.
Squeaky Wheels
Now I called up Chase and got the fees and interest removed within a couple of minutes. But I had to take the time and effort to do so. Not every consumer will. And card issuers know that--it's a sensible business strategy to overreach and then back off when a consumer actually complains, while keeping the money the rest of the time. Grease the squeaky wheel. I at least flagged this issue for the Chase's regulators, and hopefully Chase will get a talking to as part of the examination process. But it's also time for a follow-up CARD Act rulemaking to clean up some of the bad practices the CARD Act missed. I hope this will be on the agenda.
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