Skip to Main Content

What legal protections do I have when I purchase crypto with my credit card?

Adult woman uses laptop intently on her patio
FG Trade/E+/Getty Images
Bankrate Logo

Why you can trust Bankrate

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for . The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Terms apply to the offers listed on this page. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

While it is possible to buy cryptocurrencies with your credit card, should you actually do so? For one, not all issuers allow cardholders to do this, and you will likely incur additional fees if they do.

Another important aspect is that cryptocurrencies don’t afford robust consumer protections in their current state of evolution, and there are legal concerns to be aware of.

Cryptocurrency is a kind of digital currency that doesn’t have a physical form. The best-known ones include Bitcoin and Ether, while others such as Dogecoin are more recent. It seems promoters are constantly coming out with various new cryptocurrencies.

You could use these cryptocurrencies to pay for goods or services, where sellers accept them, using a device such as your phone or computer. You could also exchange them for other cryptocurrencies, but it is not always possible to trade them for government-backed currencies.

Cryptocurrencies raise multiple consumer protection concerns

When a small number of people make news for becoming millionaires via their cryptocurrency holdings, others tend to be lured into investing in these cryptocurrencies. However tempting it might be to buy these digital currencies, you should be aware that they raise a variety of consumer protection issues. These include:

  • No government backing: Unlike legal tender issued by monetary authorities, cryptocurrencies are not backed by any government authority. This means you can’t avail of government insurance for cryptocurrencies in case someone hacks into your crypto holdings and you lose your money.
  • Volatility: Cryptocurrencies trade on exchanges that are not transparent. Their values fluctuate widely and there is no standard way of gauging their intrinsic value. The value of your cryptocurrency could well disappear to practically zero.
  • Lengthy litigation possibility: Smart contracts, in digital form, are the governing documents for transactions involving cryptocurrencies. These contracts provide for automatic payment when the parties involved fulfill their end of the contract. Freeman Law advises, in an online posting, that it is not clear where such contracts fit into the “legal framework of traditional contract law.” This could make for a lengthy process if litigation is actually called for.
  • Lack of geographic location: Considering that parties to a crypto transaction are likely located in different places geographically, it is not clear which jurisdiction’s laws these transactions will be subject to.
  • Data security and privacy: The blockchain that holds records of crypto transactions could be hacked into, exposing your crypto holdings to theft. Digital wallets that hold your cryptocurrencies could also be hacked into, putting your personal data, such as your e-mail address, at risk. U.S. laws governing data privacy and security do not address crypto-related concerns. Thieves could also set up fake digital wallets to get your information.
  • Tax implications: In addition, cryptocurrencies come with tax consequences. For one, you would have to report any capital gains you realize if you sell your holdings of cryptocurrency at a profit.

See related: Are crypto credit cards a safe way to get into cryptocurrencies?

Regulatory efforts

According to a news report, U.S. regulatory authorities are looking to work together to regulate the burgeoning cryptocurrency space. Authorities such as the Consumer Financial Protection Bureau could step in to curb so-called unfair, deceptive and abusive practices in the crypto space, for instance.

However, the Chamber of Digital Commerce reports in a white paper, “The CFPB is constrained to regulating consumer financial products offered by covered persons that are not otherwise regulated by the SEC or CFTC. Accordingly, for the CFPB to assert jurisdiction, it would have to be with respect to a digital token that is neither a security nor a commodity, that constitutes a financial product, and is offered to consumers.”

A promising sign is the 2021 introduction of the Consumer Safety Technology Act. This rule would have the Secretary of Commerce consult with the Federal Trade Commission and other relevant agencies to study the applications of blockchain technology. It also requires the FTC to report on its efforts relating to digital tokens with the aim of curbing unfair and deceptive practices in this space.

Various states are also in the process of regulating the crypto space. In Maine, for one, action has been taken to improve certain consumer credit protection laws and confirm “the ability of the Bureau of Consumer Credit Protection to regulate transmission of digital currencies, such as Bitcoin,” the National Conference of State Legislatures reports.

New Jersey has acted to regulate digital currencies and set up certain consumer protections relating to them. And in Texas, “legislation seeks to address the control of virtual currency and the rights of purchasers who obtain control of virtual currency for purposes of the Uniform Commercial Code.”

The bottom line

The crypto space is constantly evolving and consumers who use their credit cards to buy these digital currencies face a lot of risk and little consumer protection. In case you have any issues, you could file a complaint with the Federal Trade Commission, your state attorney general, the Commodity Futures Trading Commission or the U.S. Securities and Exchange Commission. You could even report a scam to the cryptocurrency exchange company involved in your case.

However, given that there are no defined consumer protection laws for cryptocurrencies, it is not clear what actual consumer protection recourse you have legally.

Contact me at with your credit card-related questions.