A reader sent in a report that Chase now charges a cash advance fee on peer-to-peer payments (‘send money to friend’) using Paypal when paid with a credit card. Reports indicate that American Express and Bank of America now charge a fee now, along with potentially other banks as well.
This does not affect ordinary Paypal purchases, only peer-to-peer Send Money transactions on mobile wallets like Paypal, Venmo, Square Cash and likely others. Most people use a bank or debit card to do peer-to-peer money sending, but some of us in the miles-and-points community find it worthwhile to pay with a credit card in order to meet a spend bonus or similar.
The reader sent me an interesting article from New York Times back in April (I’m shocked that I haven’t seen this article before, did anyone in our community talk about this then?) which reports on this very issue. Apparently, “industry requirements” forced payment providers like Paypal and Venmo to change how they code peer-to-peer payments, and the new coding can potentially result in a cash advance fees.
The mobile wallet companies claim that most banks are opting not to charge cash advance fees, even with the new coding, but there are notable exceptions, and things can change at any time:
- Chase: An anonymous reader was charged a cash advance fee in May 2020 when using the Chase Freedom Unlimited with Paypal. And another reader was charged a fee on a Chase business card in May. (This is despite the NYT quoting Chase as saying on record that they do not charge cash advance fees for such payments.) There are recent counter data points in June 2020 (1, 2) of Chase not charging a cash advance fee on a business card, perhaps they reversed policy (?). Update 9/14/24: Newer data points seem to indicate that family/friends payments are not incurring cash advance fees (unless they are international).
- American Express: The NYT article suggests that Amex does not charge a fee.
- Bank of America: NYT reports on someone who was charged a cash advance fee for using a Bank of America credit card with both Paypal and Venmo. And a reader comments about getting a fee on their Bank of America business Cash Rewards card with Venmo.
- Citi: the NYT article suggests that Citi does charge a fee if it’s categorized as Money Transfer (not clear if this is how the mobile wallets code it, but the implication is that some do code that way and result in a fee)
- Discover: NYT article quotes a spokesperson who says that app transfers are considered merchandise purchases and do not result in a fee. Additionally, in the Discover Q3 2020 category, Discover specifically allows peer-to-peer payments to qualify for earning rewards which obviously means it does not code as a cash advance.
- Capital One: no info
- Wells Fargo: no info
Seems Bank of America and Citi are problematic, and maybe Chase too. I’m quite surprised we haven’t heard about it until now. Discover seems safe, and probably Amex too.
Note: if you are paying a friend for goods or services, you can easily mark it as ‘goods or services’ and then there shouldn’t be any cash advance issue. Maybe you can get creative over what to consider ‘goods or services’ too.
I’ll stop using a credit card for peer-to-peer payments until we hear any changes or updates on this. Reports suggest Paypal/Venmo might warn you about a potential cash advance fee, but I wouldn’t rely on that. Please comment below with your own data points.
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