The Risks Of Manufactured Credit Card Spending

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Bluebird, REDbird, gift cards, Walmart Money Center.  These are all terms you’re very familiar with if you engage in “manufactured spending”, where you create spending that costs little to nothing but earns you lots of points/miles from a credit card.  It’s a typical strategy for maximizing the generous sign-up bonuses many card companies are offering now.

Manufactured Spending

One of my readers (Anton) relates the following story to me about a problem they encountered.  I’ve paraphrased where necessary:

 Anton has a great credit score (FICO over 800).  Anton doesn’t carry balances on any credit card.  He has more than one card with US Bank, including a Club Carlson personal credit card (rarely used) and a FlexPerks card.

Anton applied for, and received the Club Carlson Business Rewards Visa.  He made a couple of small charges on the card and then bought $2500 in gift cards to meet the requirements of the sign-up bonus for the card.  The charge was initially declined and then approved after he called US Bank.

A few days later, he tried to login to his US Bank account online and found he couldn’t.  He called customer service and was given a different phone number to call.

Upon reaching an agent at the second phone number, he was told that the recent gift card transaction raised a flag on his account.  The bank had decided that he had too many recent inquiries and new cards open, and was closing all his accounts due to a higher than acceptable risk level for him as a customer.

The agent he spoke with voided all of his points (almost 100,000).

After another call to US Bank to appeal the decision, he was able to get an agent to convert his accounts into a status where he could redeem points but all of his accounts remain closed.

This is one of the risks when you apply for multiple cards and manufacture spending.  Frankly, this is a risk that’s always present when you have a credit card, the bank retains control.  But, when you do things the banks don’t like, they can close your accounts.

I don’t hear of a ton of instances where this happens, but it’s out there.

I do believe the bank has a right to void your account for any number of reasons.  The tougher question is whether they have the right to take back points you’ve already earned for transactions they approved.

If US Bank approves the transaction that awards Anton the points, should he be entitled to spend them if they change the status of his account later based on that transaction they already approved?

The post The Risks Of Manufactured Credit Card Spending was published first on Pizza In Motion.

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  1. Exact same thing happened with me with US Bank 4 years ago. I was able to prove proof of income statements to them and they were more than happy to open my accounts back up and even increased my credit line. Gotta start slow on the newly acquired cards…

      1. There may be hope… But the logic the bank is using to shut the card down (inquiries, open accounts, etc.) should be towards the “approval” of the card, not closing an existing card. He was already approved. Therefore, it may be worth calling back and asking he can provided proof of income if they will reconsider so that they can see his purchases were not “risky” per se…

  2. Sorry Anton, and that sums up MS in general. Is it worth losing all of that over some extra points? Nope. I earn a ton of points each year thru legit spend (or as I call it LS). It’s the byproduct of 25 years of me busting my rear building my business that allows me to purchase all of my materials and almost all my other expenses on credit cards. Amex, Chase, US Bank and Citi seems to be fine with a ton of LS as it’s so random and after all it’s legit. No issues making business spend on personal cards either. As long as I PIF and don’t abuse things all is good.

    1. Graydon, LS, hah! I’ll have to add that to my lexicon. I’ll admit, I tried to get involved in the MS world for about 30 seconds. I’m lucky enough to generate enough points from daily spend for everything I need.

  3. In my opinion, MS is just about as close to fraud you can get without crossing the line. And some banks believe it *IS* crossing the line.

    I believe there is a special place in Hell for people who MS.

    1. Darth, interesting perspective. I don’t think it’s fraud, per se. But, I do think the banks are well within their rights to kill your card for it (and many other reasons). I mean, in theory they do make money on the transactions when you buy a gift card, though I’m sure it varies greatly.

      1. If it is an interesting perspective, then it is also one shared by me. As Graydon mentioned above, The card companies LOVE to reward big spenders, if it is legitimate.

        However, when a card company see anything fishy, they have several options, reduce the credit line, close the card, blacklist the user, take back the points, etc.

        Rewards are a marketing cost. They come out of the marketing budget, just like the money paid to bloggers who get people to sign up for credit cards. When someone games the system, they are taking from the profitable customers who then get smaller rewards to make up for a few people manufacturing large rewards. No surprise that the banks want to shut down those people.

        Do I think taking back the points is too extreme? Well, what about the guy who ran up 800k Thankyou points by recycling VR cards at CVS? When Citi caught him, they confiscated all the points. No one who I know suggested he should be allowed to keep those points. He didn’t pay for them, they were manufactured.

    2. So according to Darth, MS is not fraud. Thanks for the tip. Could you please tell me about your AMEX Platinum and your business trips to China where your earn lots of points?

      1. Happy to. I work for a multinational company that has significant dealings in China and Europe. There are no “Corporate Cards”; each employee is expected to pay for his travel up-front and is reimbursed in a timely manner after filing the proper paperwork with documentation (receipts) for tax purposes. The annual fees associated with a card are the responsibility of the employee (the fees are not reimbursed).

        By company policy, we fly in Business Class for flights over 10 hours. These tickets are not cheap, and I need a card that allows me the flexibility for that kind of spending on legitimate services; sometimes I may have to purchase multiple tickets at the same time. By the way, I have had my AMEX Platinum since 1996, and they treat me very well.

        The trips I take are on short notice and happen at (unfortunately) random times. However, I can document that a) I paid for a ticket, and b) I flew on that ticket – not to mention other expenses such as hotel and meals. I can document that I am using the card as intended – spend real money on goods and services and get rewarded for the spend. There is no general pattern to my spending that can be attributed to any nefarious activity – I go when and where the company tells me to go.

        This is far different than MS churning. For that someone a) loads some sort of gift card (or reloadable; both are usually considered as “cash” for accounting purposes), and b) uses the gift cards to pay the bill incurred in step a). While this generates “swipe fees” for the CC issuer, it also cost the CC issuer real cash to purchase the points to “reward” the MS.

        The main problem I have with this arrangement is that this is no different than getting a “cash advance”, and paying the bill with the cash advanced all the while collecting points. But cash advances are not a) eligible for points, and b) trigger interest accrual. However, the MSers are buying “cash equivalents” and earning points on them while not triggering interest accrual.

        This is probably the issue the bank has with MS.

        Now, if you happen to buy a few random gift cards at random times, that may just be for Christmas or a birthday, or what have you. But when a bank sees someone spending $5K/mo and pays off the balance in full without seeing income to support it, it raises flags. And it can make the banks suspicious of everyone.

        So, the difference is, as far as the banks are concerned, that I use a CC for a legitimate purpose; MS churners are gaming the system.

        Happy now?

  4. Can I ask what the credit limit Is? $2500 seems like a small number for a bank to take this kind of actions.

    1. Chister, I don’t know but I’ll ask the question. I can see a bank balking at a $2500 charge.

  5. I had a purchase declined on a US Bank card. When I called in, the agent said that it was because it was an exact dollar purchase ($250), they assumed it was gift cards. I did not reattempt the purchase. I would not MS on US Bank cards.

  6. Some amount of MS is implicitly encouraged by banks (e.g., high sign-up bonuses for high spend), and the banks know and accept the risk of paying out more than they recover in fees over the long-term. I have no problem with banks later (re)evaluating risk and deciding to close unprofitable accounts. I also have no problem with zeroing rewards points if there were violations of the terms and conditions. However, if the Ts & Cs were followed, there’s no way a bank should be able to claw back what is essentially a rebate that has already been awarded.

  7. @ the holier than thou DC d*^che …. well, let’s see, the ONLY reason BA exists is to shill credit card affiliate links for these banks AND a primary topic is MS. FM had a million mile march madness couple years back dedicated to manufacturing 1mm points in 1 month. yeah… it’s the customers who are wrong here. right. pay bloggers to paint aspirational pictures to encourage signing up for lots of cards and overspending. they HOPE we get so carried away with the ‘reward’ that we carry balances to negate the reward by a factor of 10. for someone with so much incredible back breaking business experience, you don’t know much about business. get real.

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