Travel Rewards Credit Cards

Sep 15

What Is “Manufactured Spending?”

This is a topic that I’ve covered in the past, but it is worth repeating.

There’s one overarching rule when it comes to earning points and miles: Nothing is free. Yes, you will see headlines saying things like, “How I flew First Class around the world for free!” Yes, it’s possible to do so – I just used Citibank points to upgrade to first class on Cathay Pacific. But it involves a lot of time, great attention to detail and a certain level of obsessiveness. Get something wrong and you could end up paying interest on a credit card, annual fees or get stuck with thousands of dollars of Home Depot gift cards.*

Manufactured Spending

manufactured spending

Thanks for the memories                                                              Photo Credit: Creative Commons

Accumulating miles goes beyond credit cards. At one point, mileage runs were very popular, but now that airlines have tied the amount of miles that you get to the amount you paid, the mileage run became a lot less useful. So people turned to Manufactured Spending.

Manufactured Spending, or MS for short, is a way of accumulating credit card points (From here on out, “points” will refer to miles, cash back, etc.).  Like counting cards in blackjack, MS can be profitable if you do it right. But, also like counting cards, most people make plenty of mistakes along the way. The object was to spend money on your credit card without spending any money.  In other words, make a purchase, dispose of the goods and get 100% of your money back in cash. Huh?

Like counting cards in blackjack, MS can be profitable if you do it right. But, also like counting cards, most people make plenty of mistakes along the way and could end up losing more than they were set to gain.

The easiest way to explain it is by example. One of the most famous examples of MSing took advantage of that beacon of fiscal irrationality, the government. Just under a decade ago, the Mint decided to take another run at one of its long-suffering projects: trying to replace dollar bills with coins. In an effort to get the coins circulated, they offered to sell boxes of coins directly to the consumer. You would order them by mail, at face value and, if you bought enough coins, the mint paid for shipping.

It took the frequent flyer community only days to start exploiting the system. Individuals began ordering thousands, if not tens of thousands, of dollars worth of coins. The coins would arrive two days later, at which point the customer would take them to their bank and deposit the stash. Then, it was simply a matter of paying the credit card bill for the coins you bought with the proceeds of the deposit. You weren’t out any money but earned the points for the face value of the coins you ordered. I know of one person who earned in excess of two million points this way, but I’m sure there were many who ordered multiples of that number.

It’s not shocking that this scheme occurred. Only a few years earlier, the government stopped selling savings bonds by credit card. What is surprising is that it lasted for as long as it did. Most manufactured spend schemes last a matter of months, if not weeks. This one went on for years and only ended when the Mint was publicly embarrassed on TV.

What Not to Do

Use them for good, not evil

Use them for good, not evil                                                         Photo credit: Creative Commons

MSing is advanced mileage accumulation. It’s not something that I recommend to most people because of the potential for everything to go pear shaped. It used to be as simple as buying gift cards at CVS and turning them into money orders at Walmart. But both the credit card companies and retailers have caught on.

Complication leads to, well, complications. Not only have fees gone up the point where MSing is mostly unprofitable but there’s also too much room for error. Miss a payment and the credit card company will ding you for fees and interest, not to mention potentially confiscating your points for that earnings period.

The Bottom Line

Traveling is never truly free. It may not cost you money, but accumulating miles has the potential to cause you significant aggravation.


*There is no short version of this story, so this could take a while. A few years ago, somebody discovered that you could buy Home Depot gift cards using your credit card at Office Max. Why does that matter? Because the Chase Ink card pays 5X rewards on office supply purchases. But it got better. People soon discovered that you could use those cards at Walmart to load an American Express Bluebird card, which is a form of prepaid debit/ATM card. In other words, buy a $500 Home Depot gift card at Office Max using your Chase Ink card. You get 5X rewards, or 2,500 Chase Ultimate Rewards points. Take that Home Depot gift card to Walmart and use it like it’s a generic debit card to load the Bluebird card. Then, just use the Bluebird card to take the cash out of an ATM to pay your credit card bill. You get the points for free, minus a few dollars for the ATM fees.

Then it all fell apart. Home Depot or, more likely, the bank that issued the Home Depot gift card, discovered what people were doing. Obviously, you weren’t supposed to be able to use a Home Depot gift card anywhere other than Home Depot. So they blocked your ability to add a PIN and take money off the gift card at Walmart. People were stuck with thousands of dollars of Home Depot gift cards, and no way to get the cash off.


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