A wave of ‘no notice’ card account closures hit many of the most points obsessed travel hobbyists this week, signaling once again that banks are looking to limit risks and exposure on abusive points earning loopholes.
Message boards and Facebook Groups lit up like a Christmas tree with thrifty travelers comparing notes on how, and why their card accounts were abruptly closed.
It all centers around a long abused loophole involving PayPal which allowed people to run thousands in charges, sometimes daily, without actually spending any money in some instances, and racking up hundreds of thousands of points in the process.
These type of practices are a key contributor to airline and hotel loyalty program devaluations, where they charge more points, or take away benefits.
Manufactured Spending: A Backstory
Points inherently democratize travel, and allow people making ordinary livings to experience extraordinary particularly in the USA where anyone with decent credit can earn 100,000 points from a singular rewards credit card bonus. That’s a wonderful thing. But some travelers want to have their cake, and eat it too.
Rather than pay for day to day things, and a few key bills, like rent or car payments with a credit card; earning a steady stream of a few thousand points a month towards one or two great trips a year, people try to create artificial spending. For the greediest in this game, the spending is often a multiple of what they actually earn.
People with five figure incomes have used murky loopholes and outright breaches of ‘fair use’ policies to rack up high six figures in personal spending in a year, by abusing loopholes which create “manufactured spending”, earning hundreds of thousands, or even millions of points annually without actually traveling, or without even actually “spending”.
These loopholes allowed travel points fanatics to run charges through a credit card, but almost immediately churn those credit card charges into assets like home equity or cash, to then pay the bill. It was like a hamster wheel, with points instead of cheese.
To many, it’s an awful lot of work for some extra points, but not to others. Of course, approving someone who makes $50,000 a year to spend $10,000 a day, raises many red flags with banks, and loyalty programs too.
Enter: PayPal Key Amex Shutdowns
PayPal set up an innovative product which allowed people to create one time use debit cards online, for added security. These debit cards were intended to cloak your real debit card number during transactions, and to be funded with a PayPal balance, or an actual debit card.
People quickly figured out ways to fund these PayPal Key one time debit cards with rewards credit cards, circumventing areas, like tax bills where fees apply for using a credit card, as opposed to a debit card with lower or no fees. It also created ways to use credit cards to pay for transactions which are debit only, like buying gift cards.
Think: using an Amex card to fund a PayPal key debit card, to buy Amex gift cards, or pay an amex bill, or things which can’t usually be purchased with a credit card, namely to prevent money laundering and most importantly – rampant fraud.
A key reason banks intervene here, rather then enjoy their swipe fee, is that when the rules change, and people do get ‘shut down’ via these grey, or ultimately wrong areas, the person with limited income may be holding the bag on a huge charge, which they won’t be able to pay off.
The most egregious abusers were running $10,000 in charges per day, often funding a gift card, cash card, paying their Amex bills, or paying home equity lines, earning what would be up to 300,000 points a month, or more, and paying off the balance in full. It’s not hard to see how the analysts would figure out the abnormality of it all, over time.
Over time, as abuse became more and more shocking, banks locked onto the idea that it seemed a bit odd for someone with $50k in income to be spending $50k a month.
A variety of payment services such as Plastiq, which allow anyone to pay *nearly* any bill with a credit card, quickly revised terms for PayPal Key debit card uses, and shortly thereafter, news began pouring in of Amex closing accounts of those who abused the policies. For many champagne socialists, it meant the end of their extreme points.
Amex Shuts Users Down
Over the span of 48 hours, thousands on the internet received messages that with immediate effect, all of their Amex Cards were shut down, credit lines nixed and a letter stating the reasons would be in the mail. Virtually everyone who received such notice had participated in the abuse of PayPal Key.
This not only means a lost avenue for earning points, but also potentially significant charges left to pay on any balances remaining, particularly without ways for people to continue liquidating their debit cards in such a hamster wheel way.
In addition, loss of credit lines can make other credit balances more impactful, and less overall credit can also hurt, which can mean actual short term credit score ruin. If you were hoping to buy a house, it could be game over. It’s hard to think that an extra first class ticket is worth the risks.
GSTP Stands By Amex Here
One might find it odd for a site dedicated to earning points and encouraging savvy travel to hate manufactured spending, but the reasoning is very simple. People who engage in manufactured spending are the outsized reason for airline and hotel loyalty program devaluations, which end up costing EVERYONE more points.
It’s unfair to anyone playing remotely by the rules.
Points were never intentioned for a Emirati Prince to be earning the same amount as a Starbucks barista in Tulsa, but it’s an amazingly cool world we live in, where every once in a while, they can end up in the same cabin.
Manufactured spending means the extra braggadocious holiday gains of relatively few points obsessives makes it much harder for everyone else who earns points through the many legit, and above board methods to enjoy great trips. as airlines and hotels take redemption values out of sight to protect from this gaming.
Airlines, hotels and credit cards spend an almost abnormal amount of timing fighting “gamers”, and while they exist, we just won’t be able to have nice things.
They’ll continue to constantly shut down the best opportunities, because a relatively small number of people earn enough miles to book a first class ticket every month, through dubious means, and they take that opportunity.
You simply cannot be the loudest voice complaining about devaluations and the decline of airline, hotel and general travel industry service levels, while also being the root cause of why they happen. It just doesn’t work.
GSTP is here to share sustainable and effective ways to navigate the world of points and travel loyalty, which help anyone to experience the best adventures and holidays.
No offense but this article is inaccurate at many levels as I don’t think you understand what is going on in this arena. The numbers of folks closed down is probably at most in the low 100s extrapolating from the DPs I am aware off and certainly not in the thousands. I am not sure how you define “long abused loophole” but PPK has only been a thing since mid-August 2020 and only widely available since sometime in late September. You don’t understand how PPK works as you don’t “load” it. It passes through the charges directly through to your CC, debit card or bank account. It was *designed* to do that nobody had to figure out anything PP encouraged you to link your CCs. It also isn’t one time use unless you request it to generating a new number. You can buy gift cards easily on credit from any number of sources including (both online and in person) including from Amex so not sure why you think it is debit only. Also big hint Amex gift cards are pretty much useless for manufactured spend. Nobody buys them unless they are getting some major discount on them. The magic of PPK was not to buy GCs that would have been largely pointless (no pun intended). Plastiq didn’t change their terms on PPK PayPal did (read the email Plastiq sent out). Finally your hypothetical math is way, way, way off on what somebody could earn (no I didn’t hit it that hard). I like your blog and actually have it on my Feedly feed but maybe stick to areas that you know better.
I agree with GTSP that these gamers hurt the rest of us by increasing points inflation. But I’m puzzled by how the scheme worked. American Express cardholders funded PayPal Key cards with $50k each month, using Plastiq to fund the PayPal Key card from their American Express card? So they then had a $50k virtual debit card, which they used to pay their American Express card? Is that it? And how were they left on the hook for the $50k or whatever when AmEx closed their account? Wouldn’t the $50k or whatever be on their PayPal Key, which they’d use to pay American Express one last time?
Love it! Can’t wait for the fights in the comments section though haha
Spot on Gilbert.
Agreed… I always wondered who had enough time in life to try and game points to make a living rather than working a real job….and living a real life.
I don’t really believe that it’s the abusers causing point devaluations other than sweet spots redemptions that get published on blogs.
Luckily AA has given us opportunity to see if this is true. With AA effectively shutting down the abusers with recent account closures for Citi credit card signups they eliminated the easy ways of accumulating miles (No transfers partners from bank points as well).
If AA has no devaluations in the future then it would be evidence that the abusers were causing the devaluations. Will be interesting to see what happens, would be happy to be proved wrong being OneWolrd Sapphire.
Oh please…. there are sweet spots that everyone has known about for years, they never cause a devaluation. Hmmm, let’s see, Korean Air, AF RT J for 80K, VS ANA F RT 120K, gee nobody knows that one, Asiana, Star alliance, US -EU LH RT J 80K, F 50K OW…JAL for EK, no devals here. Show me one.
Fun read but your tone turned oddly at the end there. You say you stand by Amex but then say they shouldn’t be complaining about industry devaluations? I actually agree more with your final paragraphs but self-contradiction bemused me.
Do people seriously go to all that trouble just to earn points? You can’t even travel right now!
You can travel now, in a limited, strategic way, and there are some great values, especially to Florida.
Some points can be converted into cash or Amazon GCs for those that choose not to travel.
Yes, some gamers need to get a real job; but there is still some amazingly profitable tax-free profit to be made in some locations with *some* products/banks.
If you have a high income, and not much free time, you might as well not “game.” It takes considerable planning and organization to effectively game the system while evading a shutdown.
It would be nice to see someone do a historical analysis for the last 10 years on devaluations, because MS was not so easy back before PIN-based debit cards were available, perhaps before 2014. I would like to see proof MS was the driver behind devaluations.
You can travel, and can travel at a GREAT discount if you know how to work the system. I just took an ~$6500 vacation to Hawaii that instead cost me ~$850 because I used points. I can take 3-4 of those a year if I wanted. Itās unlikely points devaluations come from manufactured spenders. Itās because the cash price of tickets increases. A $10k first class seat is not going to cost, say, 20k points if every $1 spend earns a point. And credit card companies arenāt going to lower the earning value because letās be honest, nobody is going to use their chase sapphire card if chase said, āHEY, use our card and get 1/3 of a point for every dollar you spend!ā Psychologically it doesnāt get people to use their card. Points get devalued because CC companies offer more earnings for every dollar you spend. If someone hears their AMEX earns 4x at a grocery store, theyāre probably gonna use that over a card that earns 1x at a grocery store. Most donāt focus on the fact that the redemptions down the road cost more with the Amex than say a Citi card.
IMO devaluations are more on the individual banks and airlines because they started offering ridiculous sign up and spending bonuses in order to get traction for new cards or make existing cards top of the wallet.
If youre regularly giving out 3X or 4X points like the CSR/CSP combo, the banks and airlines are going to protect their downside by devaluing the miles.
This is not to say that the people who are the focus of your article had nothing to do with devaluations. Its just that I am not well versed enough to comment on that.
The approach to exploit a loophole to use A to pay B to get C to pay off A isn’t new, only the program is. I knew of people who engaged in this type of gaming practice with AT&T True Rewards, AT&T gift certificates and AT&T Universal Rewards Visa back in the mid-1990’s. In the late 1990’s, people used PayPal a rewards credit card to churn out millions of points/miles. (Back then, PayPal did not charge a fee to use a CC for peer-to-peer payments.)
But here we are, decades after such activity was known, that people are exploiting loopholes. I think the difference today is that there are enough tracking systems in place along with the T&C language to enable miles/points hustlers to be shut down.
āPeople who engage in manufactured spending are the outsized reason for airline and hotel loyalty program devaluations, which end up costing EVERYONE more points.ā This is false Gilbert. Airlines and hotels have devalued their own programs largely for financial reasons, very little of which directly relate to MS abuse. I never did any of these PP shenanigans, but if youāve looked at actual data about loyalty program redemptions and seen how small of a fraction premium cabin flight redemptions are (with even less redemptions being with partners), then youād realize this isnāt a serious point. Some programs with some particular redemptions have perhaps been devalued for these reasons, but on the whole devaluations happen for financial reasons. And if you truly believe this, then how do you explain devaluations in the programs that people canāt transfer AMEX/Citi/Chase points to? Or random loyalty programs that donāt have associated transfers or card rewards to game? I appreciate your insight, and the point youāre trying to make, but this simply isnāt true. And you donāt have to take my word for it, read the SEC reports of airlines like Delta, which explicitly state that their business model allows them to preserve margins and control costs (i.e. devaluations).
Lol you just make out to sound like a hater, who gets left behind in the dust by MSers, because you happened to leave your balls in the playground in elementary school.
So much nonsense in the post, but if you actually think MS is the reason for devals you’re just as delusional as those crying election fraud. Heavy hitters are such a tiny part of the overall population that actual loyalty programs aren’t affected by them. Banks different story. Shut downs are part of the game. Go big or go home. And hopefully grow another pair
Dude you sound like an 18 year old who just learned about Ms 6 weeks ago.
“you’re just mad getting left in the dust by MSers”
Oh God the cringe is oozing out of every pore in your body.
MSers are like the broke version of gamblers but still want that high. Sorry you got your daddy’s Amex shut down.
This has next to nothing with why mileage schemes are devalued and to say so is just pure speculation. The real reason is the value of the scheme itself and the cash that a scheme holder can obtain from the market.
If you can get away with devaluing a scheme, you increase the value of that scheme by an inverse amount, in purely mathematical terms.
If that value has increased, then you can securitise it and get more from investors.
Loopholes are an irritation but they are not game changers whereas devaluations are worth billions.
imo, banks and Loyalty Programs (“they”) are also gaming cardholders, and its shady. Why don’t “they” focus on establishing methods of confirming that cardholders are genuinely paying off their card balances promptly with a verified checking account, rather than precluding cardholders from, say, paying monthly mortgage payments with their card?
Its inane that “they” allow cardholders to pay rent with CCs but when it comes to mortgage payments they don’t. As long as the person reimburses the CC from a legitimate checking account right away, what’s the problem? Ans: when you pay your mortgage youre investing in an asset that is yours – youre paying into an asset that will eventually be yours; in a manner of speaking, investing in yourself. When you pay for groceries, concert tickets, apartment rent, appliances etc. etc. youre investing in corporate business relationships to “they.” Its all dodgy af, unscrupulous and purposed.
Then “they” get riled up when people turn the table on them. I don’t condone anyone gaming the system. But lets face it, the system is slanted grossly out of favor of the cardholder. Im sure people will just cone up another workaround… and “they” and cardholders will continue to game each other until the end of time if common ground isn’t stumbled upon.
What happened to just using a credit card for its intended purpose? I see people in a particular Facebook group always bragging about how they buy thousands of dollars of merchandise for āstrangersā just for the points. Itās all good,
When they are doing it, but when that financial review hits…they want to come an whine about it. Stop trying to steal points and you can sleep at night knowing you wonāt wake up to a closed account.
Why would I be worried about losing my ability to get a home mortgage after getting shutdown……when I can just pay for my new house with the profit I made from exploiting PPK? I think it’s a fair trade off.
Yep those of us that live anywhere apart from the US are already hit by the massive points inflation driven by US credit cards so I’m glad to see some effort is being put into closing some of these loopholes.
These “wave of Amex shutdowns” blog posts are totally pointless. This is not something affecting the wider churning/MS community. This was a very small, targeted purge of secret group abusers, and they know who they are and should have seen it coming. Normal people don’t need to worry. There’s no unannounced shutdown coming.
Never read so much bullshit and over the top crap. It was shared it a private slack channel due to how crazy it is based on no facts. Guess you have a job at fox news
I’m always one to say, close the loophole rather than punish people for maximizing something because there is never a clear line (your example highlights the extreme use…but what’s the cutoff?).
I feel a bit more for Amex here since Paypal Key is outside of their ecosystem; however, I think Amex should only be shutting people down for bust out risk…not their method of becoming that risk. IMO, that’s none of their business (although I know from their agreement they can do whatever they want).
I’m curious how wide Amex dragged their net on this…the RAT team has been known to be kinda petty about things lately.
Tangential to this article, for those who buy directly from the U.S. Mint, is what destroyed a “wonderful” program about twenty years ago.
Metal coins have a lifespan that is an “order of magnitude” longer than paper money. U.S. taxpayers, for example, would save billions of dollars each year if the various dollar coins were to become more commonly used than the paper dollar.
So the U.S. Mint initiated a program that waived the “markup” on bags and rolls of the dollar coins. So you could buy a bag of 100 dollar coins for exactly $100. But there was still a shipping charge. So the U.S. Mint went one step further. As long as the buyer agreed to put the coins into circulation, the U.S. Mint would provide free shipping.
Enter the greedy Points Enthusiasts. They began to purchase thousands and thousands of bags and rolls of dollar coins with their Points Rewards cards. But rather than honoring their Agreement to put the coins into circulation, they raced to the banks, cashed in the coins, paid off their Points Rewards cards, and bought more coins.
They quickly amassed millions of “dishonorable” Points, quickly destroyed the well intentioned U.S. Mint program, and destroyed the opportunity to save American Taxpayers billions of dollars per year.
Literally the snobbiest article I have read in a long time. The only way I can afford to travel internationally with my moderate-income job is by manufactured spending, and I look forward to traversing the oceans in a lie-flat seat for years to come. Call the corporate thugs who loot our tax money āgreedy,ā not middle-income people who use legal loopholes.
You’re absolutely right Gilbert. All of this free money stuff is just too complex and dangerous for your readers, and I for one appreciate your advice to follow the rules and walk the straight and narrow. Well done and keep it up!
Wow, you sound like a jealous whiny bitch.
Sitting here munching on my popcorn, best read I have had for ages! š
I used to do 5k a week at CVS getting Vanilla Reloads and then loading to my Target card. I essentially was buying points for .2 cents a point. It was hard work and I had fun doing it. I didn’t make the rules I just lived in the boundaries and got a lot of points until the rules changed! But manufactured spend is a constantly moving target and my experience is whenever you deal with PayPal bad things happen. I do understand your point and philosophically don’t disagree but please don’t be a hater because all of us has pushed the limits of this at one time or another!
What if the spending in Millions monthly on credit card that contains travel category. but it’s a real spend. Would that make the account closed too and considered as a manufactured spend.
airlines make more money selling miles to credit cards than any other part of their business. here’s a Bloomberg article if you’re interested – https://www.bloomberg.com/news/articles/2017-03-31/airlines-make-more-money-selling-miles-than-seats. as someone who works at a card issuer, I can confirm we’re buying these points for .7 to 2.5 cents per point. so I don’t follow how MS is devaluing points – more points earned and redeemed by card customers = more money for the loyalty programs.
afaik manufactured spend is only useful for hitting minimum spend bonuses, I’m not really sure where you’re getting these examples of someone running $50k/mo through PayPal Key or gift cards. also, isn’t everyone who’s optimizing credit card points technically ‘gaming the system’?
Uh oh, has Ask Sebby been caught?!!
I get into arguments about this on reddit all the time… Yes banks/airlines/hotels are always making changes, and they do some devaluing on their own, but it’s the people who churn and use MS that cause a attenuation and devaluation. They are the reason that redemptions are harder and harder to get…. Yet they are the ones who are usually complaining the most about devaluation.
Gilbert, I sincerely respect your acumen and demeanor. I travel a fair amount and would seriously enjoy a conversation over coffee one day.
is this a case of people , the higher ups, being upset that programs they created to make them money are being used to make others money. To be fair , the gamers aren’t doing anything illegal are they(as it pertains to the points programs anyway) ? I have never participated in any points or rewards program and do no pretend to know anything about it. But , if someone does something that isn’t prohibited by the terms of service and yet they get their accounts nixed isn’t that just the higher ups throwing a sort of business tantrum fit because someone has gotten over on them by their own rules. forgive me if what I said is ignorant but I see no issue with what they are doing as long as it is legal.
MS is not causing devaluations. CC transaction volume in 2019 was over 6.5 trillion dollars. https://nilsonreport.com/publication_chart_and_graphs_archive.php
Itās like saying taking a piss off a dock in Florida will affect the water quality in Brisbane.
I donāt have an issue with the rest of the argument here. MS is at your own risk and the people doing it know exactly what they are doing.
But mileage prices are going up for people playing by the ārulesā (or MSing conservatively) because of the sheer money involved for the banks and loyalty programs.
Iām pretty confident that more points were earned with CSPs 80k offer over 60 days than all the MS in the past 5 years. The need for all-time-high, ever increasing offers to attract new customers is driving the inflation.
Itās just a matter of scale. When you print money, prices rise.
I think Mimie has the best comment published so far. Your reply isnāt wrong, but there is some poetic justice to banks incurring extra costs to police the system for which they literally write the rules.
In the end, paying the RAT 50k/yr salaries to do damage control on .05% of their customers is pennies on the dollar compared to the revenue from the other 99.95%.
Honest question: which is bigger? MS volume or people actually doing something illegal?
I admire the controversial post and especially the willingness to publish comments and respond.
Thanks for the post Gilbert. Very interesting read. I use to see my points go alot further than what I see now. Since you said that these people cost the devaluation of the points. Do you think the points value will go up again? Now that they shut down this loop hole.
Also, I think most people that devote the time into figuring out this system. they love the feeling of beating the system, having the points is just secondary to it.
Put in simple plain language : Their PPK is Funded through Amex , which opens the window to create the manufactured purchases , etc , which generates points rewards. This cycle is repeated perhaps multitudes. Continuous repeat cycles of course yields – equates to points rewards.
At the end of the day , this was done perhaps solely to accumulate points rewards. Therefore I DO NOT AT ALL forsee why anyone would be left with the bag / bill to pay , especially this was a wishy washy , rinse , repeat cycles ,thats why the funds to repay the manufactured purchases would ALWAYS be available on hand to pay , and some according to this article were doing this daily. Most likely for large purchases , one can only pull this daily , weekly , based on repaying each time in order to continue the cycles.
Thus the OBJECTIVE here is , a repeat cycle = Available Funds , charge = points rewards = payback = repeat all over again and again and again ; buy and pay back with the same funds , flip and repeat.
At the end of the day , ABSOLUTELY no one should be left with a bag of debt to pay because the funds were for that specific intended purpose , unless they choose not to pay back , well that’s a whole different situation altogether.
Good for AmEx, just another thing to like about them. There are always some people who take something good and ruin it for everybody. Glad to see them smacked back every now and then.
I agree with this and AMEX wholeheartedly. I dont mind getting a few gift card here and there but doing it on a systematic way and a regular basis is just hurting the system in the long run. I earn my all my MR organically and it may take me 2-3 years to save up enough point for a one way business flight but I dont mind that. Plus with the help of rakuten these days, it’s really easy to earn point on a lot of things. Hope AMEX will continue to crack down on the abusers.
What a loser you are Gilbert. No ambition whatsoever