Thou Shalt Not Manufacture Spend

Points enthusiasts are always looking for ways to earn more points. The extremes they go through include mileage runs across the globe, stacking promotions, and the infamous ‘manufactured spending’. Manufactured spending, the practice of spending money without spending money, has evolved over the years. In its infancy, it was done by purchasing coins through the Federal Reserve and depositing said coins into one’s bank account. In its glory days, it was done using a shiny red card. Today, the options available are more cumbersome as banks are looking to put an end to this practice.


To be clear, there is nothing illegal about manufactured spending. It is not a crime.  It is, however, the reason provided by banks for shutting down a consumer’s card and wiping away the consumer’s points balance. In fact, some banks now include explicit terms prohibiting manufactured spending. For example, American Express has language in its terms and conditions which states that purchases or reloading of prepaid cards does not count towards meeting the threshold amount required to trigger the sign-up bonus.

For those banks that do not overtly ban the practice, the issue that all points loyalists want to know is when is too much, too much? When will the banks shut down an account? While there is not a specific amount that triggers a shutdown, the fact pattern for shutdowns has some commonalities. It begins with an uncapped category bonus which is subsequently renewed. The consumer continues to take advantage of the offer and accrues tens of thousands of points. The consumer makes some redemptions and may even open more accounts with the institution. Months later, a purchase attempt is declined. The consumer receives a letter from the bank that all accounts have been closed and all points earned have been forfeited. The bank cites a clause in the user agreement whereby it can close account at any time for any reason.

The investigation that leads to the shutdown is intricate. Looking to curtail fraudulent behavior, banks constantly scan consumer accounts for suspicious behavior and irregularities. This mechanism may flag accounts that have peculiar spending patterns. From there a manual audit may be conducted. That is when the decision is made as to whether the consumer’s account should be closed.

The next question is whether banks can do this. After all, the banks did earn a percentage on the transactions and the consumer spent time and money racking up points. It can be argued that the banks induced and ratified the consumer’s behavior by extending the category spend promotion. Unfortunately for the consumer, there is not a bright line rule to solve this mystery. The only recourse for those who believe that they have been shut down improperly is to seek relief through small claims or consumer arbitration. By filing an arbitration claim, consumers can seek significant money damages that commensurate with the value of the points lost.

Consumers who elect either option should be aware that their accounts will be scrutinized and the Internet scoured for any evidence that the consumer crossed the line of earning legitimate bonuses to engaging in fraudulent behavior. If the latter is found, the bank may file a counter-claim against the consumer.

There is a fine line, albeit an invisible one, for what constitutes acceptable behavior in the world of manufactured spending. One thing is clear: If the user agreement specifically outlaws manufactured spending then consumers should not engage in the practice and should not be foolish enough to try and disguise their behavior.  Not heeding this advice can lead to a lifetime ban, something far more serious than the clawing back of points.

Leave a Reply

Your email address will not be published. Required fields are marked *