Would this be illegal?

robfosters · 13 Apr 2016 at 16:09

Just wondering, you know credit cards charge extortionate cash advance fees and APR's, is there any way you could set up a company with a website whereby a user could purchase say, £100 worth of cash as a product for £105 on their credit card. You then put the money in their account within 15 minutes. They have avoided their massive fees and you make a fiver on the transaction.

I'm sure it's illegal, I was just wondering what laws it would break?

You can tell I'm bored can't you.

Tunney · 13 Apr 2016 at 16:10

You won't make a fiver as the credit card company will charge you a transaction fee. Square charge between 2.75% and 3.75% for example.

Also, isn't the charge for taking out cash around 4% usually?

joeyjojo · 13 Apr 2016 at 16:12

I've wondered about something similar as a way of getting cash off gift cards. Say I got a 100 USD prepaid card as a gift, I'd gladly buy slightly less than 100 USD worth of GBP with it if it could be put into my bank account or sent as a cheque. I'm surprised paypal don't offer something like this - "we charge you $x and you get £y into your paypal balance" - but apparently you can't deposit from such cards.

Schlong&Stable · 13 Apr 2016 at 16:15

robfosters said:
Just wondering, you know credit cards charge extortionate cash advance fees and APR's, is there any way you could set up a company with a website whereby a user could purchase say, £100 worth of cash as a product for £105 on their credit card. You then put the money in their account within 15 minutes. They have avoided their massive fees and you make a fiver on the transaction.

I'm sure it's illegal, I was just wondering what laws it would break?

You can tell I'm bored can't you.

I doubt it would break any laws, but it probably wouldn't be very profitable. When you start factoring in the risk of credit card fraud and so forth, 5% is not going to be worthwhile.

To make £30,000 gross, you'd need to process £600,000 in transactions. And that is without taking into consideration your costs. Once you start to push the % up, it makes less sense to use such a service.

And honestly, anyone drawing cash with a credit card probably doesn't think too much about interest rates in the first place.

robfosters · 13 Apr 2016 at 16:15

Tunney said:
You won't make a fiver as the credit card company will charge you a transaction fee. Square charge between 2.75% and 3.75% for example.

Also, isn't the charge for taking out cash around 4% usually?

It's about 3-4%, but I'm thinking more of the APR they charge as well. If someone wants to spread £300 out over 3 months, it would be a lot cheaper to do it the way I have said.

robfosters · 13 Apr 2016 at 16:17

Thompson_NCL said:
I doubt it would break any laws, but it probably wouldn't be very profitable. When you start factoring in the risk of credit card fraud and so forth, 5% is not going to be worthwhile.

To make £30,000 gross, you'd need to process £600,000 in transactions. And that is without taking into consideration your costs. Once you start to push the % up, it makes less sense to use such a service.

And honestly, anyone drawing cash with a credit card probably doesn't think too much about interest rates in the first place.

If the credit card has to match the details of the current account holder, wouldn't that help with the fraud side of things?

The Geezer · 13 Apr 2016 at 16:17

Not illegal however you would need to be a registered money lender if you were going to offer the service commercially

fezster · 13 Apr 2016 at 16:18

I've made online payments before using a payment service (similar to paypal), but I forget the name of it. My credit card company classed it as a "cash advance" and charged me interest on it from day one. I complained that as far as I was aware, I was making an online purchase, and how would I know this particular payment service was a cash advance. I think they refunded me the fee the first time.

My point being, yes it would work, but if it became too popular, the service would probably be classed the same by most credit card providers.

robfosters · 13 Apr 2016 at 16:21

fezster said:
I've made online payments before using a payment service (similar to paypal), but I forget the name of it. My credit card company classed it as a "cash advance" and charged me interest on it from day one. I complained that as far as I was aware, I was making an online purchase, and how would I know this particular payment service was a cash advance. I think they refunded me the fee the first time.

My point being, yes it would work, but if it became too popular, the service would probably be classed the same by most credit card providers.

That's an issue. The banks and card companies would just end up clubbing together and getting you shut down or useless within a few months.

Guy · 13 Apr 2016 at 16:23

I've always wondered how the Travellex Supercard works for things like this. As I use it withdraw money from ATMs abroad, but it just charges my credit card for the money that has been withdrawn (in sterling), but it looks like a standard transaction.

killsta · 13 Apr 2016 at 16:24

I imagine the transactions would be categorised as cash withdrawals, and so the credit card issuer would charge cash withdrawal fees...

robfosters · 13 Apr 2016 at 16:27

I think it came up in my head as I have just been hit with a £300 bill that I need to put on my credit card, but the place (mechanics) doesn't take them, so I've got to stump up the cash, which is a pain tbh.