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.