Registered: Oct 2002
05-24-12 09:49 AM
Would you feel safe funding your brokerage using a credit card? The reason I ask, card companies have different attitudes (and rates) about cash advances vs purchases. If you make a purchase, as long as you pay off your end of statment balance by the following due date, you pay no interest. A cash advance, on the other hand, has an upfront fee of usually 3-5%. And if you don't pay an advance or purchase off by the due date, you more than likely pay a higher interest rate on cash advances vs purchases.
So, a broker accepts credit card payments, for transfering funds into your brokerage account. They report this to the card companies as a purchase. Card company later does some investigatiion, and finds out that there is no merchandise exchanged or service performed on these transactions. They conclude that these transactions are being performed illegally, and even if they were being performed legally, they would be considered cash advances instead of purchases.
I know from first hand experience how touchy the card companies can be about such issues. I worked for a small business, and one of the owners charged a large amount of money using his credit card. He didn't purchase anything, he was basically using our credit card machines as a way to get a cash advance. The card company called our business, and said if that happened again, they would no longer allow us to use their machines to accept payment from customers.
I'm mainly concerned that there is some misunderstanding going on, on the part of the broker. I don't know that for a fact, but I can't imagine VISA of MasterCard being cool with a broker using them just to transfer funds. That belongs in the definition, again, of cash advances, I believe. And if the broker got in trouble over this, I wonder would there be any spillover into the customers who funded their accounts with credit cards.