What Your Credit Card Won’t Let You Buy

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Some card companies have policies that restrict even legal purchases.
[smcreditcard] Getty Images

A little-noticed move by American Express to ban the purchase of medical marijuana with its credit cards has reignited a longstanding debate: How much can a credit card company control what you buy?

To the surprise of consumers, major credit card companies are making decisions about what they can and can't buy with their credit cards. What's off-limits? Legal purchases like gambling chips and donations to at least one controversial non-profit organization; in some cases, buying pornography is also restricted, and so, increasingly, is medical marijuana. Last month, shortly before Delaware became the 16th state to legalize medical marijuana, American Express told merchants that its cards could not be used to buy it.

Companies say they're protecting themselves against legal risk, but critics say this kind of corporate policy is an inconvenience for merchants, infringes on consumers' rights and amounts to moral policy-setting. "You ought to be able to use a credit card for any legal purchase," says John M. Simpson from the non-profit Consumer Watchdog. "It seems to me that credit card companies are imposing their moral values on the world."

The specifics of the companies' policies vary. American Express is the most conservative of the big three: it bans the purchase of medical marijuana in the 16 states that have legalized it and online pornography. Visa and MasterCard allow both for their credit and debit card holders. Last winter, Visa and MasterCard prevented cardholders from using their cards to donate to the whistleblower website WikiLeaks. (The site never accepted American Express.) All three forbid using their cards to buy chips in a legal bricks-and-mortar casino. (Paying for online gambling, which is illegal in the U.S., is also prohibited.)

But the gambling restrictions also point out the gray areas in these policies, which critics say don't always make sense. While cardholders can't charge gambling chips, they can use their cards to get a cash advance at a casino's ATM — cash they might then use to buy chips. "It's arbitrary," says Curtis Arnold, founder of the credit card comparison website CardRatings.com.

MasterCard and Visa said that their cards can be used for any legal purchases, though they declined to comment on the legal purchase of gambling chips. A MasterCard spokesman also said that the company has a number of programs that it uses to "combat illegal or brand-damaging behavior."

American Express explained a more nuanced calculus: It said its business model, which primarily issues cards directly to customers instead of through a bank, requires it to be more conservative about risk. The company says it abides by federal law and prohibits transactions where the risk of dispute is unusually high.

The company also says its total ban on online pornography helps in the fight against child pornography, which is commonly disseminated or sold online. The ban on all pornography, even legal adult material, is "an additional safeguard," said company spokeswoman Christine S. Elliott. As for marijuana, American Express points to federal law, which still prohibits the use of marijuana even for medical purposes. "We wouldn't want to unduly inconvenience cardholders," Elliott says, "but we are adhering to federal law."

That's not unreasonable, says Warren Redlich, a lawyer in Albany, N.Y., who specializes in consumer issues and criminal law. If the federal government were to ramp up its efforts to stop the sales of medical marijuana in states, it could theoretically try to implicate financial services companies that support the industry, he says. "You could sympathize with Amex's position," Redlich says, "I wouldn't be surprised if MasterCard and Visa eventually go along with it."

Some of these policies have been longstanding. American Express first banned the purchase of online pornography in May 2000, saying it faced an unacceptably high level of disputed transactions. "It's a risk-based decision," Elliott says. "This is not a moral judgment." The company allows the purchase of pornography from brick-and-mortar stores.

But as more states legalize marijuana, the company's policies are drawing criticism from new sources, including medical groups and doctors who support the medicinal use of the herb. Lester Grinspoon, Associate Professor of Psychiatry, Emeritus at Harvard Medical School who served for over 40 years as Senior Psychiatrist at the Massachusetts Mental Health Center in Boston, notes its medicinal properties to lessen nausea, incontinence and symptoms of Tourettes' Syndrome. "Yet you get American Express saying they won't honor a charge for that purpose," he says. "That's amazing."

As of now, there has been little pressure on credit companies to reverse their policies. Industry experts says consumers may have little choice but to watch credit card companies further restrict their spending habits, especially where there is a legal question mark. Arnold says, "Given their track record they're going to be much more cautious when it comes to these grey areas given the increasingly strict regulatory environment."

In other words, when in doubt, pay cash.

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