This week, the CFTC approved a NFA Interpretative Notice that prohibits a Member from accepting credit card payments from customers to fund retail forex accounts. The NFA recently reviewed how customers fund their retail forex accounts and found that customers overwhelmingly funded their trading accounts using a credit card. The NFA noted that credit cards permit easy access to borrowed funds and the highly volatile nature of the forex and futures markets create a significant risk of substantial loss in a short period of time. The NFA cautioned that it is not prohibiting other forms of electronic funding so long as the funds come directly from a customer’s bank account. Members will be permitted to accept debit card transactions assuming that Members are able to distinguish between a debit card and a credit card transaction. Member firms must comply with the interpretative notice by January 31, 2015.
For some Members, the new guidance will cause a substantial change in the way they accept customer funds and will add to the long list of regulatory compliance requirements. Members that want to allow customers to fund their accounts using debit cards will likely have to retain a third party vendor to help in differentiating between debit card and credit card transactions. Also, Members will have to ensure that they do not accept funds from electronic payment facilitators (i.e. Paypal) that commonly draw funds from a customer’s credit cards. Certain customers may also ask why the NFA is no longer allowing them to get frequent flyer miles before they start forex and futures trading.