Working the System

Scheming the Frequent Flier Programs

Wall Street Journal reports a hole in the system

SALINE, MICHIGAN  JANUARY 17,  2004
The Thursday January 15, 2003 Wall Street Journal reported on a new strategy that many consumers are using to exploit and scam the credit card frequent flyer programs.  The strategy was started when MasterCard started its "gift card" program that allows customer to use their credit cards to purchase fixed limit gift cards.  Here's how the scheme works:

1.  Use your credit card (using a card that gives your points or miles or cash back for every purchase) to buy one of these gift cards.  I'm sure there is a limit to how much you can put on a gift card, but the Journal used examples of $5K and $10K.  One website that offers the gift card is charterone.com/giftcards.

2.  Wait for gift cards to arrive in the mail.

3.  Use the gift card to buy money orders from the US post office.

4.  Deposit the money order in your bank account.

5.  Pay off the credit card balance - there is easily enough time to avoid interest charges that occur when you carry a balance.

6.  Do it again

7.  Do it again

8.  Do it again

9.  Fly free to Hawaii, compliments of your wicked scheme.

The companies issuing the gift cards and miles are already fighting back.  They are trying to limit the amount of gift cards an individual can purchase.

My take?  I'm definitely down with the miles and points, but this is ridiculous.