Reader Phil passes along by email a nice retrospective on some of the ‘loopholes’ that proprietary rewards progreams (earn points in their non-airline program, they buy you tickets on airlines) have offered in the past.

The touchstone of course is the devaluation of the Thank You Network program, which used to buy you a ticket between two cities with no cap in price, folks would buy exraordinarily expensive tickets and cancel the itineraries, using credits towards other travel.

Then Citi realized this wasn’t profitable for hem, they offered a fixed point redemption chart that capped the value of a ticket, for business class redemptions it was 3 cents per point. People did the same thing, on a less grand scale. This too came to end — it was announced to stop at the end of March but was pulled early in mid-February. So many a folk complained to Citi corporate and got them to honor the old rate for a few more weeks.

These things never last, but they always seem to be replaced by othe lucrative offers, you just have to keep your eyes and ears open.

The Citi Thank You Card is the latest in a string of private bank programs that used to have lucrative loopholes. Back in the mid-90’s, Old Kent Bank started offering a program where, after $20,000 in spend, they would buy you a domestic nonrefundable ticket with 14 days advance purchase – no price caps; no 30 day maximum stay.

Old Kent cancelled their program after a couple of years, but then Centura Bank offered similar benefits with their TravelSmart program. It took them 3-4 years to catch on and cap the benefits. They were followed by WebMiles, which was a private company started specifically to sell points to finance travel rewards. Their business model was based on offering points for grocery purchases – having a large number of accountholders with small balances, who would never build up enough points to redeem, or could only redeem for $100 (8,000 points) or $200 (15,000 points) off a ticket. But they also offered a credit card which could accumulate large balances quickly, and they had no cap on the price of a domestic ticket once you reached $25,000 in spend. Their business model collapsed when the supermarket chain pulled out of the program during the 2001-2002 recession. (Their credit card was originally with Direct Merchant’s Bank, which was borderline unethical; they later switched to Zion’s Bank. After Webmiles collapsed, Zion’s offered a program with a maximum exchange rate of 2 cents/point for a few years, then gutted it down to 1-1.5 cents/point.)

I redeemed points in these programs for tickets mostly from small towns on the West Coast to small towns on the East Coast, sometimes travelling out the Sunday after Thanksgiving and returning the weekend before or after Christmas. :-). I figured out how to use itasoftware.com to search for “highest priced qualifying itineraries” with my carrier of choice; would purchase domestic tickets with a nonrefundable segment, then exchange them for multiple itineraries I (or my friends) really wanted to fly. I was able to get an “exchange rate” as high as 7-8 cents/point.

One other wrinkle: I learned that Centura Bank was changing fulfillment vendors. I work as a software technical consultant, so I know how these things work. I redeemed for two tickets the last night the old fulfillment vendor was handling the account. Sure enough, when I called the new vendor a few days later, the points were still available in my account; I was able to redeem the same points a second time. What had happened was that they took an extract (copy) of the old vendor’s database at least a day before the switchover; imported the data to the new vendor’s database, and never reconciled last-minute transactions with the old vendor.

I’ve written in the past about devaluations over at Capital One, but then that program wasn’t particularly valuable to start with…