Two Men Indicted In Credit Card Bonus Scam

I’ve written about people convincing all of their friends and family to get lucrative credit cards, meeting the spend requirements and paying off the cards, and keeping the points. That takes a tremendous amount of trust and I wouldn’t suggest anyone letting their credit be used this way.

There are schemes like this on a larger scale, and they often involve fraud, as Dan’s Deals writes about. People have been offered as much as $10,000 for scammers to use their credit, open up cards for the bonuses. However that doesn’t mean they actually get paid as promised, and they’ve been left holding the bag with charges on the cards that were opened in their name.

And since scammers gonna scam, they may even open the accounts, make purchases, earn the bonuses, transfer points out and return the purchases. They’re doing this intentionally to defraud the banks and keep their costs as low as possible, since they’re generally not redeeming miles for themselves they’re selling premium cabin tickets booked with the miles and are trying to maximize their margins.

Here’s what to do if your frequent flyer account gets audited but the bottom line is I stay as far away from mileage brokers as possible. You may lose your mileage account. You may not even get paid. As they say “The problem with living outside the law is that you no longer have its protection.” You can’t really go enforce the contract. Do you really think you can trust the broker, and the traveler, after you’ve already given them the miles and they no longer need you?

Two men have been indicted in U.S. District Court for the District of New Jersey for opening up small business rewards credit cards in other peoples’ names, earning initial bonuses, refunding the purchases used to earn the bonuses, and selling the miles.

Though they paid real people to allow them to do this, according to the indictment they falsified income information on card applications. They opened up as many as 99 cards per person’s credit.

Oh and by the way they’re alleged to have gotten themselves authorized user cards on the small business card accounts they opened.

In total over 7000 accounts were opened generating over 790 million points, at a cost to the issuer of $8.2 million in miles.

Interestingly that tells us the bank was buying miles on average at 1.04 cents apiece between August 2014 and May 2016 when he scheme is said to have taken place.

  • Assume that the price of miles has gone up overall since then with renegotiated card deals.
  • I wouldn’t take this number too precisely, my experience in similar matters involving airline miles is that value estimates provided by airlines are sloppy.
  • This is an average, many international carriers charge less for their miles than U.S. ones do.

Nonetheless if I had to guess I’d have guessed something more like 1.1 to 1.2 cents.

My ultimate advice remains, though: never sell your miles, never lie on a credit application (that’s a crime, though only the main perpetrators are charged here), and look skeptically at people contacting you to participate in schemes, there were even multiple assumed names apparently being used here.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. So what happens as a legit cardholder if you make the purchases to get the bonus miles, use said miles and then refund the purchases? The credit card issuing bank can’t claw back the miles if they’ve already been redeemed. Just curious how they’d handle this type of situation?

  2. @Jonathan

    Amex will put a negative balance on the account. You will have to make up the points before you will start accumulating new ones. Amex can also bill someone for the points who has just closed a card. They will set a valuation on the points. Can Amex force you to pay, probably not (it’s a murky area I don’t want to go into. Let someone else do it). This will carry on for many years. If you are able to open a MR earning Amex card, you will have the negative balance carried over.

    Other issuers do similar things. Banks do spell it out in the agreement. Since points and miles have no value according to the agreement, legal recourse is a grey area.

  3. Gary: Two questions:

    1. Who’s the bank?

    2. “…in order to maximize their margins”. Didn’t Tony use that phrase with his nephew Michael in Season 5?

  4. @Sam.

    Seems only AMEX allowed a card to have 99 additional card holders. And that was part of the crime. (also AMEX offered additional bonuses on opening additional cards in the past, plus the defunct Small Business Saturday on each AU card – being encouraged by dans deal big time back then – and the same year AMEX stopped the Small Business Saturday promotion).

  5. “AMEX offered additional bonuses on opening additional cards in the past”
    In those good old days, I opened 2 additional HHonors AmEx cards for both of my dogs. Since no SSN was required. I got 5,000 pts bonus for each.

    I used the cards to buy dog food exclusively. 🙂

    The same trick doesn’t work anymore, since SSN is required.

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