Is this legal or illegal?

Archived From: Finance
  • Page :
  • 1
  • Text Only
Voting History
rated:
I have a Heloc, with a large balance and my bank allows me to pay with my credit card. My credit card has available balance of 15k.

So, let's say I paid my Heloc 15k with my credit card. My Heloc now says I have 15k available. I then transfer my Heloc balance of 15k to my checking account. I then pay off credit card balance with the 15k from checking account.

After everything is done, I receive $300 from my 2% credit card. Is this legal or illegal?

I pay interest with the Heloc and $10 fees for using a credit card to pay for Heloc.

Member Summary
Most Recent Posts
Credit card kiting is not illegal unlike check kiting. But banks are better are detecting it and will take adverse actio... (more)

Shandril (Apr. 27, 2017 @ 3:16p) |

If you make no attempts to deceive the bank, you are in the clear.

This Australian guy spend over $2mil on credit cards a... (more)

Al3xK (Apr. 27, 2017 @ 3:22p) |

There was once a late night infomercial that promised a secret for saving money if you paid them
  The secret was to get ... (more)

JonnyRock (Apr. 30, 2017 @ 1:14a) |

Staff Summary
Thanks for visiting FatWallet.com. Join for free to remove this ad.

All the criminals on this forum will probably tell you its legal. Theyll probably speak in code about making ice cream and reloading money orders at walmart or something. Ignore them, nothing to see here.

So what are you saying?

What bank do you use for your HELOC?

Credit union

Legal. Buy ice cream at Walmart if you want to add some legitimacy to the transaction

IANAIL (I am not an ice cream lawyer)

jd2010 said:   All the criminals on this forum will probably tell you its legal. 
  What part of that scenario is illegal? Just hard to believe Heloc only charges $10 to use a credit card and not a percentage fee.

nicoya4x4 said:   I have a Heloc, with a large balance and my bank allows me to pay with my credit card. My credit card has available balance of 15k.

So, let's say I paid my Heloc 15k with my credit card. My Heloc now says I have 15k available. I then transfer my Heloc balance of 15k to my checking account. I then pay off credit card balance with the 15k from checking account.

After everything is done, I receive $300 from my 2% credit card. Is this legal or illegal?

I pay interest with the Heloc and $10 fees for using a credit card to pay for Heloc.

  Nothing illegal about that.  There might be some debate about whether the $290 ($300 cashback less $10 fees) is taxable income, but there's nothing illegal about what you're describing.  If you do it frequently, I can't imagine the bank with the HELOC would appreciate it (since they're paying the credit card fee), but there's certainly no law against it. 

atikovi said:   
jd2010 said:   All the criminals on this forum will probably tell you its legal. 
  What part of that scenario is illegal? Just hard to believe Heloc only charges $10 to use a credit card and not a percentage fee.

  Agreed. 

We'll need specifics on the bank that offered you a heloc that allows credit card payments. Were there any closing costs? Any closing fee clawback if the heloc is closed early - even if it's by the bank?

One thing is for sure, calling the bank to ask about this won't help anyone. There's been some sarcasm in replies so far, but this is sincere.

Well, I did my research and learned that the bank does view this as credit card kiting. I read an online forum for bankers and they closed a person's account for this behavior.

Also, the credit card company can also prosecute those that practice credit card kiting, once they prove the intent to decieve. Making extra money sounds good but not worth losing my job due to being imprisoned. I'll stick to my credit card churning ways and enjoy sleep at night.

nicoya4x4 said:   Well, I did my research and learned that the bank does view this as credit card kiting. I read an online forum for bankers and they closed a person's account for this behavior.

Also, the credit card company can also prosecute those that practice credit card kiting, once they prove the intent to decieve. Making extra money sounds good but not worth losing my job due to being imprisoned. I'll stick to my credit card churning ways and enjoy sleep at night.



I don't think credit card kiting is illegal.

Of course it's legal. Just keep in mind that there's some amount of dollar churn that will make the bank nervous enough to take countermeasures.

Credit card kiting refers to the use of one or more credit cards to obtain cash and purchasing power they do not have, or pay credit card balances with the proceeds of other cards. Unlike check kiting, which is illegal under nearly all circumstances, laws against credit card kiting are not completely prohibitive of the practice, thereby allowing it to be done to some degree. It is up to the banks to detect the practice and when necessary, stop it.

In order for prosecution to occur in a credit card kiting scheme, a bank must prove intent to deceive.[1] Eq seq reference infers paying credit card minimum balances with credit card proceeds is de facto evidence of deceit.

Just googled the above information.

What you quoted that you "just googled" does not fit the hypothetical situation you outlined in the OP. The situation you outlined does not involve obtaining credit you do not have through the float time of the transaction posting (actual kiting).  Nor does it involve using proceeds from one credit card to pay another card (this poorly defined "credit card kiting").  Unless you were proposing to repeat the series of actions multiple times in a row as soon as possible and your bank gives you same day availability of the HELOC withdrawal before the HELOC records the loan. The only thing in common with what you quoted and OP situation is that it has the word "credit card" in it.

Credit Card suspicious payments & Risk Reviews

None of These Apply at a credit_union ($525MUSA)
Recently a credit card account was brought to my attention regarding the recent suspicious activity. The activity consists of using almost their entire credit line to pay on other credit cards like Citi, Barclaycard etc.. This activity is reoccurring each month. Using all of their credit to pay off another than pay us down and use again. The activity is like kiting but with credit cards. I am looking to see if other institutions have seen this and if so, are they shutting these cards down? If you do close the credit cards, what reason are you giving to your customer? Does anyone have any procedures, policies or best practices to share?
April 20, 2016

Employee at a bank ($6.7BUSA)
It does sound suspicious. We don't service our credit cards so I have no experience monitoring for this type of activity. Our BSA Officer did recently describe "manufactured spending" to us. This activity involves 1) purchasing money orders using a rewards credit card; 2) depositing the money orders into a checking account at our bank account; 3) paying off the credit card using the checking account funds; and finally 4) repeat this cycle to accumulate more rewards points. Could your credit card payments to other credit card entities represent some sort of version of this activity? We will close the checking account if this activity is identified.

ReplyThanks!0April 20, 2016
None of These Apply at a credit_union ($525MUSA)
It looks to be that they are card kiting. When closing down the account, do you send a letter detailing the reason being was suspicious? Would you be willing to share the letter used to close down the account?

I found this conversation online, between banking managers. This describes my scenario.

A heloc is not a credit card. You also did not ask about repeating it multiple times in a statement cycle. Not sure why you say "this describes my scenario". Its very much different than the scenario you described, in every way except there's a credit card involved.

Its also only discussing closing the accounts. Which can be done at whim, no need for legal/illegal. They CAN close your accounts if anything looks suspicious, and it's up to the individual company or even person viewing the file to determine if something "looks suspicious".  They can also close your accounts IF THEY REALIZE YOU COST THEM MONEY, which you definitely would in the situation you outlined.

I can't wait until OP gets hit with BT fees, BT interest rate and no rewards.

I would how many times OP can do this churn before they close his account.

nicoya4x4 said:   Credit card kiting refers to the use of one or more credit cards to obtain cash and purchasing power they do not have, or pay credit card balances with the proceeds of other cards. Unlike check kiting, which is illegal under nearly all circumstances, laws against credit card kiting are not completely prohibitive of the practice, thereby allowing it to be done to some degree. It is up to the banks to detect the practice and when necessary, stop it.

In order for prosecution to occur in a credit card kiting scheme, a bank must prove intent to deceive.[1] Eq seq reference infers paying credit card minimum balances with credit card proceeds is de facto evidence of deceit.

Just googled the above information.

  What you mean to say is such activity might look like it could be kiting.  Even a cursory review would clearly establish it is not.  The bank would only react to such activity on the grounds that it's easier to kick you out than continue monitor the activity to ensure it remains legit.

nicoya4x4 said:   Credit Card suspicious payments & Risk Reviews
...
I found this conversation online, between banking managers. This describes my scenario.

  Yes bank employees may find it suspicious and may shut down an account. That doesn't mean its illegal.   Banks don't like it because its likely posing a high risk of default.While your situation isn't the same as described I would not be surprised if one of the banks doesn't like it and halts it. 

What you described in the post is perfectly legal.

Unfortunately, POSTING about it on FatWallet is definitely illegal. Expect the NSA and SEC and FDIC and a few other guys with acronyms on their vests to break through your door any moment now.

The risks are not worth the gains. I have a great county job and earn good money. Although I may be able to exploit them, it won't last long, if not get prosecuted.

I make enough money churning credit cards, so I won't get greedy. I like sleeping at night too.

This is my worst case scenarios...

1. Credit card gets shut down after they see that I'm making money monthly.
2. I fly under the radar for years, but once they spot my behavior, they go back and find that I made $10k from them. An investigation breaks out and I get ordered to court, facing felony charges and prison time. I will not risk all of this for $300 a month. Just not worth it.

nicoya4x4 said:   The risks are not worth the gains. I have a great county job and earn good money. Although I may be able to exploit them, it won't last long, if not get prosecuted.

I make enough money churning credit cards, so I won't get greedy. I like sleeping at night too.

This is my worst case scenarios...

1. Credit card gets shut down after they see that I'm making money monthly.
2. I fly under the radar for years, but once they spot my behavior, they go back and find that I made $10k from them. An investigation breaks out and I get ordered to court, facing felony charges and prison time. I will not risk all of this for $300 a month. Just not worth it.

  You came here asking if its illegal or not.Now you're telling us its illegal.  ? How about you tell us the bank offering the HELOC and the credit card in question and we can test it for you.

jerosen said:   
nicoya4x4 said:   The risks are not worth the gains. I have a great county job and earn good money. Although I may be able to exploit them, it won't last long, if not get prosecuted.

I make enough money churning credit cards, so I won't get greedy. I like sleeping at night too.

This is my worst case scenarios...

1. Credit card gets shut down after they see that I'm making money monthly.
2. I fly under the radar for years, but once they spot my behavior, they go back and find that I made $10k from them. An investigation breaks out and I get ordered to court, facing felony charges and prison time. I will not risk all of this for $300 a month. Just not worth it.

  You came here asking if its illegal or not.Now you're telling us its illegal.  ? How about you tell us the bank offering the HELOC and the credit card in question and we can test it for you.

What's funny is that the entire feature in question consists solely of using your credit card to pay your HELOC - if such activity were in fact illegal, the bank would be the one offering an illegal service.  What OP seems to think is that merely adding a zero to the amount being paid changes it from being legal to being a felony...

A HELOC that accepts $15k credit card funded payments for a $10 fee would be the new holy grail of FatWallet.  But a flat $10 fee also sounds a lot like it'll be processed as a cash advance not a purchase...

What is deceptive about paying a HELOC balance with a credit card, and drawing on the HELOC balance, even repeatedly?

In the $10 fee/purchase transaction scenario you seem to have made up, it's very unprofitable and risky for the banks, and it would be reasonable for them to put a stop to it. But this talk of illegality and felony is crazy.

What CU let's you pay a HELOC with a CC?

Classic troll. Starts believable, hooks responders, goes wild...

jerosen said:   
nicoya4x4 said:   Credit Card suspicious payments & Risk Reviews
...
I found this conversation online, between banking managers. This describes my scenario.

  Yes bank employees may find it suspicious and may shut down an account. That doesn't mean its illegal.   Banks don't like it because its likely posing a high risk of default.While your situation isn't the same as described I would not be surprised if one of the banks doesn't like it and halts it. 

  What default? It's a heloc and $15K borrowed against a $100K+ house is no risk for the bank.

nicoya4x4 said:   Well, I did my research and learned that the bank does view this as credit card kiting. I read an online forum for bankers and they closed a person's account for this behavior.

Also, the credit card company can also prosecute those that practice credit card kiting, once they prove the intent to decieve. Making extra money sounds good but not worth losing my job due to being imprisoned. I'll stick to my credit card churning ways and enjoy sleep at night.

  Why would a credit card company care if you were engaged in credit card kiting unless you were attempting to discharge your debt or otherwise not paying? Aren't these the exact people they want? Only time I've ever legitimately heard that term is in relation to bankruptcy cases. The only criminal aspect of it not related to bankruptcy that would make any sense to me would be if "check kiting" is mislabeled as "credit card kiting" because the entity receiving the check is a credit card company, but it'd still be check kiting. You'd have to have a credit card company that makes funds available prior to them actually receiving a payment, and then you'd have to immediately use the availability of those funds to get a cash advance and put money in your checking account (or something similar to this).

atikovi said:   
jerosen said:   
nicoya4x4 said:   Credit Card suspicious payments & Risk Reviews
...
I found this conversation online, between banking managers. This describes my scenario.

  Yes bank employees may find it suspicious and may shut down an account. That doesn't mean its illegal.   Banks don't like it because its likely posing a high risk of default.While your situation isn't the same as described I would not be surprised if one of the banks doesn't like it and halts it. 

  What default? It's a heloc and $15K borrowed against a $100K+ house is no risk for the bank.

  Turn over your HELOC credit limit once/week, then after 2 months all the credit card charges you used to pay down the HELOC (equally to 8x your HELOC credit limit) get charged back as fraudulent.  Not likely, but still a risk.

nicoya4x4 said:   The risks are not worth the gains. I have a great county job and earn good money. Although I may be able to exploit them, it won't last long, if not get prosecuted.

I make enough money churning credit cards, so I won't get greedy. I like sleeping at night too.

This is my worst case scenarios...

1. Credit card gets shut down after they see that I'm making money monthly.
2. I fly under the radar for years, but once they spot my behavior, they go back and find that I made $10k from them. An investigation breaks out and I get ordered to court, facing felony charges and prison time. I will not risk all of this for $300 a month. Just not worth it.

Credit card kiting is not illegal unlike check kiting. But banks are better are detecting it and will take adverse action promptly if suspected.

HELOC bank may simply close your line of credit altogether if you cost them $300 per iteration. Or change their policy to not accept credit card payments or by introducing a 2%+ fee. On the other side, credit card may also take adverse action very quickly if they see you instantly max out your card. That's not usual behavior for most accounts. So overall, the likelihood of this scheme going on for long is very remote.  But it's not fraud since at no point did you have the intention not to repay any of your debts.

But to be on the safer side, I'd keep this for MSing for sign-up bonuses.

Edit: oh almost forgot, OP, pm me the name of your HELOC bank. I need to talk to them about a loan... lol

If you make no attempts to deceive the bank, you are in the clear.

This Australian guy spend over $2mil on credit cards and got off free.

SlimTim said:   What is deceptive about paying a HELOC balance with a credit card, and drawing on the HELOC balance, even repeatedly?

In the $10 fee/purchase transaction scenario you seem to have made up, it's very unprofitable and risky for the banks, and it would be reasonable for them to put a stop to it. But this talk of illegality and felony is crazy.

  There was once a late night infomercial that promised a secret for saving money if you paid them
  The secret was to get a HELOC and deposit your payceck into the HELOC
  Then pay your bill from the HELOC saving some small amount of interest every month.
  I have heard people suggest deposing 0% BT checks into an existing HELOC to save interest for 12 months
  I can't see how using a credit card makes it any different, although I am surprised by the $10 fee 



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2017