NFA Board Approves Prohibition of Credit Cards to Fund Retail Forex Accounts

The National Futures Association ("NFA") announced that its Board approved and submitted to the CFTC for review a ban on the use of credit cards to fund retail forex and futures accounts.

The prohibition, which is reflected in the proposed adoption of an Interpretive Notice to NFA Compliance Rules 2-4 and 2-36 ("Prohibition on the Use of Certain Electronic Funding Mechanisms"), is a result of a study by the NFA of forex dealer members' business practices. In the study, the NFA examined over 15,000 retail forex accounts and found that a number of these accounts were funded by small retail customers using a credit card or borrowed funds, and that a majority of these accounts were unprofitable.

The proposed Interpretive Notice therefore prohibits members from allowing customers to fund futures or forex accounts with a credit card or other electronic methods tied to a credit card. According to the NFA, this prohibition is consistent with the NFA's position that it is a violation of Compliance Rule 2-4 ("Just and Equitable Principles of Trade") and Rule 2-36 ("Requirements for Forex Transactions") to encourage customers to borrow money to invest, since credit "readily allows individuals to borrow funds to purchase goods and services" and "without adequate mechanisms in place to ensure that customers are not borrowing funds to invest in the highly volatile futures and forex markets, Members should not be permitted to allow their customers to invest via electronic funding mechanisms." The proposed Interpretive Notice does not, however, ban forms of electronic funding mechanisms that are tied to a customer's bank account at a financial institution, such as a debit card or PayPal account.

See: Proposed Adoption of Interpretive Notice to Compliance Rules 2-4 and 2-36; NFA Press Release.