Let’s say Bob needs a little extra cash. He could get a cash advance from his credit card, but that will cost him fees and possibly a higher interest rate than a purchase.
But he has a business account with PayPal. If he uses his credit card to make “purchase” from his PayPal account, he avoids the fees.
Is this illegal, or against the rules of the credit card company, PayPal, or both? How can they tell, if the card used is not associated with the PayPal account? What will they do about it if he tries: merely prevent or cancel the transaction, perhaps with a warning, or penalize him somehow?
I’d prefer answers with authoritative cites, or based on real experience or expertise, not just “Of course it’s against the rules!”
Interesting situation. I nearly did something sort of similar last year. I needed $100 cash to put in a wedding card. I was at work (my business) and I realized I could run one of my credit cards, charging myself $100 and then take $100 cash out of the drawer and everything would balance.
As it turns out I just took the $100 cash out of the drawer and replaced it the next day. But my original idea would have cost me (my business) a percentage of the transaction that would have been lower than a cash advance fee, I think.
ETA: huh. PayPal is smarter than I’d given theme credit for.
I’ve done it in the early days of Paypal, I believe before the fees or somehow avoided them. That was when PayPal was a person to person payment system, instead of a method to buy goods. I think you should still be able to do it w/o CC fees but you would get PayPal fees of IIRC 3%.
Thanks, Colophon. That’s no surprise and answers the first question.
The next is, how can they tell if Bob tries it? If Bob is self-employed, the credit card mailing address being the same as the PayPal account’s mailing address would probably be something of a giveaway, although it’s not foolproof. Many people/businesses can have the same street address. And if Bob’s business address is different from his home address that obviously won’t work. The rule’s parenthetical “(or help others to do so)” seems to be intended to prevent Bob from asking a friend or relative with a different name/address to help. But how would PayPal find out?
I got a Square reader a few years back solely for the purpose of dealing with Visa gift cards. My wife and I would get them as gifts from a few family members for Christmas, but then you’re juggling multiple gift cards, checking remaining balances (and not leaving small amounts behind), and trying to stack multiple cards for large purposes – all a hassle. Much easier to just swipe them all into my Square and have the money show up in my bank account immediately. The 3% fee is a small price to pay for the convenience.
I did this for amounts of a few hundred dollars on more than one occasion. No problems on the Square side of it. On one occasion I did have the credit card company freeze my credit card after the transfer as they decided it was a suspicious purchase and “for my protection” they locked my card. Result is I needed to contact card company to unlock the card which can take some minutes of your time until you can get through and talk to a real live person.
I’ve had credit card companies do this to me on at least a half dozen times over the years for online purchases I made.
They’ll try to call you after the “suspicious purchase” via phone but I have a tendency to not answer my phone when I get calls from callers that I can’t identify. In my case that means I didn’t know my credit card was locked until I tried to make a purchase later on.
The discount to run a credit card would have been something like 3% (one time fee), while a cash advance would have been closer to 30% APR.
Now, getting back to the OP, at my store, we did it a few times and they weren’t happy about it. We needed a small cash infusion so the owner took a cash advance from his credit card for a grand or two. After two or three times (over the course of a year or two) I suggested that we just run his credit card instead of doing a cash advance. They (the credit card company) called and wanted to know why we did that and eventually closed that credit card account. IIRC, he did re-open it a few years later.
Semi related, I’ve been using paypal (personal, not business) as a quick way to transfer money from bank to bank. It was easier than figuring out which way to push/pull the funds from/to to avoid fees and I can do it all at home. I send myself some money from a bank account (free) and then deposit it to another bank account (also free).
I don’t know if that’s technically allowed, especially since I set up two paypal accounts to do it, but it works very well.
In any case, now I just write a check from one account and use mobile deposit to get it to the other.
And, for kayaker, since it’s your business and you’re, I assume, the one handling the cash and doing the books, it’s no big deal to just borrow a hundred bucks overnight, especially since there’s no book keeping entries required if you replace it right away.