The Ban on Credit Card Funding Programs

The Ban on Credit Card Funding Programs

In the U.S. the financial industry is watched closely by the National Futures Association otherwise known as the NFA. A recent proposal was given the green light by another regulating entity called the Commodity Futures Trading Commission a.k.a the CFTC, and the new reforms will take place early next year.

The ban on credit card funding for U.S. high-risk derivative transactions will officially take effect January 31, 2015. The new reform act will apply to both new and existing customers, prohibiting them from funding their futures, binary options or Foreign Exchange trading accounts using credit cards.

Keep in mind that this regulation is a compliance requirement from U.S. regulated brokers and NFA members, the majority being retail Forex brokers such as OANDA, FXCM, and Gain Capital’s

Why Forex Traders Use Credit Cards

In other words, unlicensed-offshore Forex brokers are not covered by the regulation and may still be able to accept credit card funding. If you are still looking into this method to open or fund an account using credit cards, bear in mind that U.S. financial authorities are discouraging the use of borrowed funds to trade because of volatile nature of the markets. Read more about why Forex traders use credit card funding.

The new credit card act includes electronic payment methods that link to credit cards, and they are also banned. Providers such as PayPal, Skrill, and ChinaPay are few among many others. According to the NFA, this move would limit potentially fraudulent activity and would encourage traders to stick to using funds they already have.

On the other hand, traditional bank transfers methods and debit card transactions are considered acceptable ways to open or fund any trading account. NFA CEO Dan Roth explains, “The Forex and futures markets are considered high-risk and very volatile. Individuals should use precaution. Those who wish to participate should use only risk capital to fund their accounts.”

U.S. check payments and fund transfers conducted through an automated clearing house are still viable options, although some brokers are already anticipating a decline in new clients due to this regulation.

According to the NFA, members and their associates should observe high standards of commercial honor and just and equitable principles of trade in the conduct of their Forex business.

If your Forex broker is accepting credit cards as payment methods from their retail clients, brokers might wind up breaching these compliance rules, as an extensive study of 15,000 retail Forex accounts revealed that majority of those funded through credit card transactions turned out to be unprofitable.

Credit card holders should review their card agreement to determine whether the card company considers credit card funding to be a cash advance. Companies often charge different interest rates on borrowed funds depending on the type of transaction, with purchase rates typically being lower than the interest charged on balance transfers and cash advances. There are many ways to save money and make money with credit cards.

For risky ventures, such as investing and speculation, the use of credit cards is restricted or banned because the cardholder may lose the deposited funds and be unable to pay back.

Credit Card Funding

Small businesses may find it difficult to obtain the start-up capital to purchase inventory, make a rent deposit, or any other functions that require cash.

If the business owner does not have savings on hand and is unable to acquire a loan, credit card funding may be an option. This is especially the case when a minimum amount of funding is required in order to keep an account open.

Posted by on September 18, 2014
D'Vaughn Bell