Robinhood Memecoin Investigation
New York Attorney General investigates Robinhood memecoin purchases over bypassed crypto rules.
Anonymous
Key Points
1
One specific meme coin, dogwifhat (WIF), was used in tests for purchasing via Crossmint on Robinhood Wallet and Fomo, illustrating the concrete asset involved in these transactions.
2
Fomo reported a sevenfold increase in weekly active traders after the launch, signaling rapid user growth tied to the memecoin onboarding feature.
3
Chase has opened a case with Visa to investigate the MCC misclassification, signaling that it may violate card-network rules and rewards-program agreements.
4
Crossmint defends the MCC 5815 digital-goods classification by citing SEC/CFTC guidance that some meme coins can be viewed as digital collectibles, while card networks warn this approach could trigger compliance penalties.
New York's Attorney General is investigating how Robinhood Wallet and the Fomo app let users buy memecoins with credit cards while skipping standard identity checks. CoinGabbar reported that these platforms use Crossmint's payment system to process memecoin purchases—including the token dogwifhat (WIF)—classified as digital goods rather than cryptocurrency, a move that lets buyers earn normal credit-card rewards.
JPMorgan Chase opened a formal case with Visa arguing the classification violates card-network rules designed to restrict crypto purchases and limit rewards on them. TheNewsCrypto found that transactions bypass typical KYC (know-your-customer) checks that normally apply to crypto trades, raising consumer-protection red flags as regulators tighten scrutiny on frictionless crypto on-ramps.
How the Credit-Card Loophole Works
Robinhood Wallet and Fomo classify memecoin purchases under merchant category code 5815—a digital-goods classification—rather than as cryptocurrency transactions. This lets the platforms process payments through standard credit-card networks like Visa without triggering crypto-purchase restrictions. Users can buy tokens like dogwifhat directly via Apple Pay or Google Pay, then earn standard cash-back and rewards.
The setup skips the identity verification checks required for typical crypto exchanges. TheNewsCrypto explained that by treating memecoins as collectibles instead of financial assets, the platforms sidestep know-your-customer rules that banks use to block money laundering and fraud. This creates a direct on-ramp from traditional banking to speculative crypto assets.
JPMorgan and Visa Launch Compliance Investigation
JPMorgan Chase filed a formal case with Visa to investigate whether the MCC 5815 classification violates card-network rules. The bank argues that Crossmint's Token Checkout—the payment processor behind these transactions—misrepresents crypto purchases as digital goods to bypass restrictions built into rewards programs and fraud prevention.
Card networks explicitly restrict or heavily limit rewards on crypto transactions to discourage risky spending. By reclassifying memecoin buys as digital collectibles, Robinhood and Fomo allow customers to pocket standard cash-back percentages on what are essentially speculative bets. Visa is now examining whether this violates its merchant agreements and could result in compliance penalties.
Crossmint Defends Collectibles Classification
Crossmint stands by the digital-goods classification, citing SEC and CFTC guidance stating that some memecoins qualify as digital collectibles rather than securities or commodities. The company argues that tokens like dogwifhat, which have no cash flows or utility, fit the collectibles definition and therefore should be treated like in-game items or digital art.
This defense highlights the gap between how regulators and payment networks view crypto. While the SEC has suggested certain tokens may be collectibles, card issuers and networks see the approach as a workaround designed to hide speculative crypto purchases from compliance systems. The New York AG's office is now reviewing whether the structure violates consumer-protection rules and whether users fully understand the risks.
Fomo's Explosive Growth and Regulatory Pressure
Fomo reported a sevenfold increase in weekly active traders after launching the credit-card memecoin feature, signaling rapid adoption of frictionless on-ramps. The surge reflects how easily removing friction—skipping KYC checks and enabling credit-card rewards—pulls retail users into high-risk crypto assets. CryptoSlate noted that Robinhood Chain itself processed $217 million in trading volume on a single day in September.
Regulators are now moving to close the loophole before it spreads. The New York Attorney General's investigation signals that state and federal authorities view the structure as a consumer-protection threat. As payment networks tighten oversight of crypto-related transactions, platforms using merchant-code reclassification face pressure to either disclose risks clearly or abandon the approach entirely.
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