Swiping a Credit Card and Borrowing Cash: Legal Implications and Merchant Responses
When faced with a dire emergency, the question often arises whether it is legal to swipe your credit card and borrow the equivalent cash from a merchant. This practice involves two distinct parts: the card transaction and the request for cash. Both processes have legal and practical implications that merchants and cardholders must consider.
Understanding the Transaction Process
In the first part of the process, swiping a credit card involves the merchant receiving a reduced amount compared to the total swiped amount. This is a standard practice where the credit card provider deducts a certain margin for their service. For instance, if you swipe a $100 credit card, the merchant might only get $98. The credit card provider receives the rest, and in exchange, they provide a service for processing the transaction. This is akin to an immediate cash transaction rather than a credit transaction, as the merchant is entitled to the cash without an outstanding credit balance.
The Practice of Borrowing Cash from a Merchant
The second part of the transaction involves the merchant lending you a sum of money that is less than what you swiped. Continuing the example above, the merchant might give you $98 or less, thus saving them from absorbing interchange fees. Whether the merchant keeps a margin on the amount given depends on their relationship with the customer and their business practices.
Legal Considerations for Merchants
From a legal standpoint, merchants are often reluctant to engage in this practice. Here are a few reasons why:
Interchange Fees: Merchant acquires a reduced amount, which includes interchange fees. These fees are charged by the credit card network to cover the cost of processing the transaction and handling potential fraud risks.
Fraud Risks: Such a transaction increases the risk of fraud, as the merchant is now more inclined to be involved in a high-risk transaction.
Merchant Agreements: Merchants have agreements with credit card issuers and processors that prohibit such practices. Engaging in unauthorized transactions can lead to penalties, fines, or even termination of the merchant agreement.
However, some exceptions exist. For instance, Discover allows this practice subject to a 120 daily limit at participating merchants, provided the cardholder makes a purchase. Some credit cards also allow cardholders to withdraw cash at ATMs using their credit card, a process known as a cash advance. This can be done in emergency situations, although it comes with higher transaction fees and interest charges.
Conclusion
In summary, while the practice of swiping a credit card and borrowing cash from a merchant is not illegal, it is subject to various legal and practical constraints. Merchant fees, high-risk exposure, and violation of merchant agreements are primary concerns. Discover and some credit cards offer options, but the transaction carries specific risks, especially regarding fees and interest. In a dire financial emergency, cardholders should consider alternative options to ensure they make the best decision for their financial situation.