Circle responds to complaints that its bitcoin purchases are treated as cash advances

By Michael Carney , written on July 23, 2014

From The News Desk

Two months after revealing the consumer-friendly bitcoin wallet and exchange that I dubbed “Bitcoin Bank of America,” Circle Financial began granting beta access earlier this week. Early reviews have been strong, with users praising the platform’s usability and low-fee structure. Although the number of users with access were small, the feedback seemed to validate the company’s many promises.

Unfortunately, bitcoin forums (and my Inbox) began filling with complaints about a particular issue with the company’s credit card processing. It seems, that in at least some cases, when users purchase bitcoin through Circle using their credit card, those cards have been charged in the form of a cash advance.

Depending on the terms of your individual credit card, this can often mean the cardholder is charged a cash advance fee – typically around 3 percent – simply for the convenience. Again, depending on the card, many borrowers are also subject to higher interest rates on cash advances than traditional credit transactions. Of course, it’s possible to avoid paying any interest by paying off this balance in full within the credit card statement period, but this generally requires paying off the card balance in full – not just the cash advance amount – payments are typically applied to lower interest balances first. (Yes, I agree, F-you credit card companies).

What a mess! (Particularly given that one of the principal advantages of bitcoin is supposed to be its low-fee nature.)

I reached out to Circle today to inquire as to whether Circle was deliberately processing card payments as cash advances, and if so, why. The company responded with the following statement:

We've become aware that some credit card issuing banks are erroneously processing settlements as cash advances. It is not our intent to process charges as cash advances whatsoever, and we're investigating the issue. We understand the frustration. Since this issue does not occur across all issuing banks, and since we are not notified when it occurs, it would be helpful for any affected customers to let us know by way of email to [email protected].
Taking Circle at its word, it would seem that this is an unexpected outcome that is affecting some, but not all customers. It’s certainly not ideal, but it’s also not out of the question that issues like this arise when using a beta product. Assuming that the company both corrects the situation and takes steps to compensate affected users, then this could end up as a “no harm, no foul” situation.” Otherwise, it could be a major chink in Circle’s shiny new armor.