My friend and I were talking about this today after I recieved a payment from someone via paypal. I envisioned a scam in which one person paypals a recipient (their friend or confederate) money using a credit card, then that person withdraws the payment as cash and gives it back to the original person. They’ve managed to extract cash from their credit card without actually taking out a cash advance; it looks like they bought something via paypal using the credit card.
Taking the idea further, that person could set up this scam with a bunch of credit cards and a bunch of people, get 50 or 100K in cash, then declare bankruptcy to default on the debt, only to invest the cash and make money off of it. Or something.
Well for one, if you deal in larger amounts of money (it used to be ~$300/month) Paypal makes you become a confirmed member, and takes 2% of the transaction or so.
Other than that most people don’t want to borrow on their own credit card, they’re going to have to pay it back or have their credit ruined, so the price is too high. I have access to credit card machines that tie right into my bank account, but I’d never run my own card and take the cash, becauce in the end I’d just lose money from the transaction costs.
If you really wanted to do that, you’re better off doing a balance transfer to another account, such as ING direct or Emigrant Direct to collect Interest. Do this with a bunch of cards up to say, $100,000. And then slowly pay it back, and pay it back in full by the due date for each card. In the end, you could walk away with $4500 in interest, minus fees for the year. Very high risk though. This is discussed quite a bit on FatWallet.com.
You could do this using pretty much any merchant setup - it’s just that Paypal makes it easier to get a ‘merchant account’.
Set up a small grocery store in your basement, invite your friends round to swipe their cards, wait for the payment that comes from the card company in a few days, abscond, profit.
Happens a fair amount, but not as popular as the old scam of just taking a bunch of orders, processing the cardnumbers and then absconding before sending the goods, which also predates the internet by a few years.
A friend did a similar scam in the 70s. He managed a high end audio store. If I remember the details correctly, he would have friends come in and buy things “90 days same as cash”. Some how he would invest the money for nearly 90 days, then treat the transaction as a return. He got caught.
It would be stupid for me, as my cash advance interest rate is the exact same as my purchase interest rate on my credit card, and both are low. I’ve only used the cash advance for any significant amount of money on one occasion. I had just moved and needed to put a cash payment on first month’s rent, and I didn’t get paid until the week after, so I took the cash advance and paid it back 5 days later.
Actually, Paypal is now requiring that anyone accepting a payment made by credit card be a confirmed member, and then they charge you for that privelage. I believe my $10 payment had about a 65¢ fee before I could claim the money.
Well… if you have very good credit you’re often offered cash advances with no transaction fee by card companies just to get you to use their card. Paypal charges you out the ass for taking payments, How on earth is this any kind of a good “deal”?
I can’t speak to your particular agreement, but every credit card I’ve ever had allowed a grace period for purchases, but not for cash advances.
The benefit then is that you could borrow your credit limit, interest free, every month.
But, as people pointed out, paypal charges for credit card transactions: $0.30 + 1.9-2.9%. If you’ve got some investment that can make a guaranteed 3+% growth in one month you don’t need to pull a credit card scam.
I work in the merchant-facing part of the business for a large credit card company. I see people try this sort of thing all the time, and I see an awful lot of people get caught doing it. Really, don’t try this at home.