Weird implications of a credit card trick

[Angelus359]

So: I realized an interesting trick someone can play

Sign up for credit card processing.

The cheapest I've found online is 20$/mo, 0% fee, 35 cents per charge.

Alternatively, if that's too complicated, just pick up the amazon local register with a 1.7% flat fee, or something.

Get a barclay arrival credit card (2.2% cashback, 95$ annual fee)

Max out your credit limit on the first day of your statement period, every month (do not go over)

Profit on the difference

So, weird implication comes in... how does the IRS interpret this? Is this like a bank transfer to yourself, or do they see it as income?

[LeeMKE]

Problem is, the merchant agreement specifically prohibits you from doing this.

[Angelus359]

Problem is, the merchant agreement specifically prohibits you from doing this.

I can't find the terms on the amazon local register, anywhere. That's concerning.

[Mudpuppy]

People have tried this before, and variations of this (such as a spouse or friend with the merchant account). All involved are quickly detected and dealt with by the credit card companies. Besides violating the terms of merchant agreements, the rewards card companies are very familiar with this "trick", and prior variations like buying coins, buying gift cards, etc. They don't find it amusing.

[The529guy]

Problem is, the merchant agreement specifically prohibits you from doing this.

I can't find the terms on the amazon local register, anywhere. That's concerning.

Go to http://localregister.amazon.com > Scroll to bottom of page > Click on "User Agreement"

[Raymond]

Section B-3.2.4 of the user agreement: "...You may not use Cards to make payments to yourself or to add money to your account..."

[chipmonk]

Problem is, the merchant agreement specifically prohibits you from doing this.

Interesting. Credit card companies typically prohibit this kind of behavior on the consumer side as well as the merchant side. There's typically some fine print in the contract that says, "we can choose to bill charges as cash advances rather than purchases, even if they weren't originally classified as cash advances, if there is evidence that they are being used like cash advances." With most cards, cash advances are subject to a high interest rate with no grace period and do not earn rewards.

You can probably get away with doing this to a small degree, like by buying prepaid debit cards with your credit card. Just search FatWallet for "manufactured spending" or "churning" to find out how people do this to meet minimum-spending requirements with new credit cards. But if you start maxing out your card every month to earn the rewards differential, I'm sure they will catch you and penalize you or just cancel your card.

I consider it pretty ethically dubious to exploit loopholes to convert purchases to effective cash advances, even with the not-exactly-upstanding CC issuers as my counterparty . On the other hand, I am happy to use credit cards to donate to charity or to pay my tax bill (PayUsaTax charges a 1.87% fee), both of which are billed as purchases, in order to meet minimum spending requirements on new cards and to earn a slightly higher level of rewards.

[UnclePennybags]

So: I realized an interesting trick someone can play

Sign up for credit card processing.

The cheapest I've found online is 20$/mo, 0% fee, 35 cents per charge.

I'm reasonably sure no such merchant agreement exists. Their marketing material may look like it does, but nobody charges a flat fee and not also a percentage. There are several players in the game who extract a percentage fee (interchange fees and so on). The bank that originated the card generally gets 15 points itself.

Alternatively, if that's too complicated, just pick up the amazon local register with a 1.7% flat fee, or something.

Most people believe that the new Amazon processing agreement is actually losing money for Amazon on each charge. We are going to switch over because our average charge is a hair over 2% today. Amazon only promises to maintain that rate for a limited time.

[Angelus359]

So: I realized an interesting trick someone can play

Sign up for credit card processing.

The cheapest I've found online is 20$/mo, 0% fee, 35 cents per charge.

I'm reasonably sure no such merchant agreement exists. Their marketing material may look like it does, but nobody charges a flat fee and not also a percentage. There are several players in the game who extract a percentage fee (interchange fees and so on). The bank that originated the card generally gets 15 points itself.

Alternatively, if that's too complicated, just pick up the amazon local register with a 1.7% flat fee, or something.

Most people believe that the new Amazon processing agreement is actually losing money for Amazon on each charge. We are going to switch over because our average charge is a hair over 2% today. Amazon only promises to maintain that rate for a limited time.

Payment depot is the credit vendor I was mentioning

Their website has clear pricing, and marketing info claims they specifically do *not* charge said fees, while saying their competitors do.

I actually didn't intend on using this trick, I just was curious the implications and rules.

I actually use square to help with credit card sign up bonuses sometimes, and after reading their agreement I don't see any rules preventing it. To be fair, they're 2.7% fee and my charges have never exceeded 950$ so I'm small fry chump change to them.

[ajcp]

People have already thought of this, the processors know about this, and they will shut you down for it.

[UnclePennybags]

So: I realized an interesting trick someone can play

Sign up for credit card processing.

The cheapest I've found online is 20$/mo, 0% fee, 35 cents per charge.

I'm reasonably sure no such merchant agreement exists. Their marketing material may look like it does, but nobody charges a flat fee and not also a percentage. There are several players in the game who extract a percentage fee (interchange fees and so on). The bank that originated the card generally gets 15 points itself.

Alternatively, if that's too complicated, just pick up the amazon local register with a 1.7% flat fee, or something.

Most people believe that the new Amazon processing agreement is actually losing money for Amazon on each charge. We are going to switch over because our average charge is a hair over 2% today. Amazon only promises to maintain that rate for a limited time.

Payment depot is the credit vendor I was mentioning

Their website has clear pricing, and marketing info claims they specifically do *not* charge said fees, while saying their competitors do.

I got very excited about this because my wife's law office runs probably mid five figures a month in relatively few charges and this would save us a ton of money, but I think I've found the fine print. If you drill down into their FAQ they say that they charge something called "True Cost" which is the interbank charge for processing without any markup. It is true than many processors do in fact mark up their processing fees, but if you look at this pop-up image:



You'll see that the category of "reward cards" which is most modern cards (any that have cash back or some kind of airline miles or other such benefit) carry a 1.65% charge and some cards range up to 2.20% -- I'm willing to bet that when you actually use them you will find that their average transaction will end up with 2% or so and the fact that they are relatively misleading in their advertising makes me very skeptical about them.

[rustymutt]

It's not a trick, it's deception, and isn't allowed.