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infecto 3 days ago

Is that a law?

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kachnuv_ocasek 3 days ago | parent [-]

I'd guess that's a part of the TOS.

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infecto 3 days ago | parent [-]

TOS is not the point.

The root of this thread was surprise over rules around interest. I am saying it’s not surprising because companies could then easily create weird schemes.

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alias_neo 3 days ago | parent [-]

I think you're overcomplicating it.

It's "ok" _because_ the credits can't be turned back into cash (thanks to their TOS).

If some business tried some clever scheme where they offer this "interest" on credits that _can_ be turned back into cash, they'd be breaking the law and would need a banking license, it's already covered.

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infecto 3 days ago | parent [-]

I think you’re oversimplifying it. “They can’t be redeemed for cash” isn’t a universal legal test. Financial regulation generally looks at the substance of the product. Otherwise every company could sidestep banking and payments rules by calling customer balances “credits.”

Now let’s go full circle back to the original point. I don’t think it’s surprising that a company paying interest on credits may face more paperwork and rules for what is truly a gimmick that most large customers will never even care about. Which was my only point and I think the plot has gotten lost as this keeps going deeper.

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alias_neo 3 days ago | parent [-]

I think there was an original "given" which was that in the US, (where I assume this is), these "credits" don't complicate anything nor create any regulatory burden.

That's not to say in the EU, or the UK (where I am) the case isn't different; but if it _were_ the same as the US, I can totally see why that's fine.

We have loyalty programs, a coffee shop gives you "credit" when you get stamps for your 6th coffee free etc, none of that seems to complicate matters... all because of the key point "it can't be turned back into cash".

EDIT: I would add, in the hope of further supporting my argument, that many places that offer loyalty and discount schemes, their ToS explicitly states that it's "not exchangeable" and "has no cash value", which would support my point (at least in the UK).

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infecto 3 days ago | parent [-]

You started by telling me I was overcomplicating it, but I think you also missed the context of the thread. The original post was specifically about why they decided not to do this in the EU because it created additional regulatory overhead.

My only point from the beginning has been that this isn’t surprising. If paying interest on prepaid customer balances were legally trivial just because they’re called “credits” or have “no cash value,” companies could structure around those rules very easily. That’s why I questioned whether “can’t be redeemed for cash” was actually the legal test.

The loyalty points example is a different product entirely. Even for the linked company I imagine the only reason they do this is a fun marketing angle for winning a finance customer.

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alias_neo 3 days ago | parent [-]

> The original post was specifically about why they decided not to do this in the EU because it created additional regulatory overhead

Yes, but I'm not convinced they mean what they're saying, I took that to mean they were trying to do this as _real_ interest.

> If paying interest on prepaid customer balances were legally trivial just because they’re called “credits” or have “no cash value,” companies could structure around those rules very easily

I still stand by my argument, I think it's only "interest" in name; from a banking or financial perspective it isn't. I don't see why it's any different to a company just setting a number in your account. Say I run a SaaS and give you £1000 credit, is that bound by the financial regulations? I don't think so.

If you put a single £10 credit on your balance and I offer to give you "10,000%" "interest" to top it up in credit for my service, I don't think that does either; the wording doesn't suddenly make it covered by financial regulation, it's whether it's _real_ money or not.

Credits on a service, whatever it is, isn't real money, and as long as the ToS doesn't let you turn it into real money, there's nothing complicated to worry about, but if the org _does_ let you turn it into real money, it suddenly becomes covered by financial regulation.

I'm just debating here, I'm not saying I know this to be true, I just think it make sense (to me).

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infecto 3 days ago | parent [-]

I think we’re actually debating a narrower point than you think.

I agree that simply calling something “interest” doesn’t magically make it a regulated financial product. My disagreement is with the idea that “can’t be redeemed for cash” is the dispositive test. Regulators generally look at the substance of the arrangement, not just the label.

Also, your £1,000 credit example isn’t really analogous to the original post. If you simply gift me £1,000 of service credits, that’s very different from me prepaying £1,000 of my own money and you then paying me a return based on how long that prepaid balance sits with you.

The original discussion wasn’t “are loyalty points regulated?” It was “why would paying a return on prepaid customer balances create more regulatory work in the EU?” To me, the answer “because regulators care about products that start looking financially deposit-like” seems entirely plausible.

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alias_neo 2 days ago | parent [-]

> because regulators care about products that start looking financially deposit-like

I totally agree with this point, but I don't see how the topic we're discussing would be seen that way.

From a "common sense" point of view (which I know, financial regulation is absolutely not), no matter what you call this act of giving someone extra credit (let's call it "interest") for your service based on the amount they've previously paid for your service (let's call it "deposited"), you're still just giving them monopoly money that serves a single purpose and that is to use more of your service.

If they can't turn it into cash, why should any financial authority care? It's got nothing to do with them.

That said, to take your side for a moment, what's to stop me depositing boat loads of cash up front to pay for your service using the "interest" you'll give me, rather than paying it regularly out of company earnings? Now it starts to sound like something a financial authority might take interest in (pun intended).

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infecto 2 days ago | parent [-]

I think your last paragraph is the answer.

My only point from the start was that I’m not surprised the EU imposes extra compliance here. Once you’re incentivizing customers to leave prepaid funds with you in exchange for a return, it’s reasonable that regulators would take a closer look.

Whether they ultimately regulate it as deposits, e-money, or something else is for the lawyers. I was never arguing that “credits paying interest” automatically makes you a bank. Simply put it’s not surprising you would have to go through extra hurdles for this kind of gimmick.

I think you are taking this a bit too far. I don’t think it’s shocking that even credits which have a dollar value would need to pass a smell test.

	▲	alias_neo 2 days ago \| parent [-]
		> I think you are taking this a bit too far I just find it an interesting thought experiment. I wonder if this has anything to do with why a lot of companies convert your money into a variety of virtual currencies, "bells", "gold, "gems" etc. I'll leave it there but nice chatting with you about it!