How you may be violating your card’s terms of service


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Card issuers impose certain restrictions on card use. Know what they are

Personal Finance Writer
Writer and blogger covering topics on personal finance and entrepreneurship

6 ways you may be violating your card's terms of service


Using a credit card should be straightforward
and simple. You’ve had plenty of practice, so it’s not likely you need a primer
on how to “operate” one, right?

However, it’s possible that you could be
inadvertently committing credit card fraud or at least violating your card
issuer’s terms of service in some way. If you don’t comb through your credit
card agreement (few people do), you could end up violating card issuers’ terms
which could have consequences such as:

  • Denial of consumer protections for
    certain purchases
  • Credit card account cancellation
  • Prosecution

Understanding your cardholder agreement

Before diving into all the ways you could be inadvertently
committing credit card fraud, it’s good to be familiar with your card issuer’s credit card agreement (also known as a
cardholder agreement). All card issuers must make these documents available to
cardholders and they typically arrive in the mail with your new card.

This agreement spells out what you can and
cannot do with your credit card along with rights both you and the card issuer
have regarding your credit card use.

“Cardholders should adhere to the agreement,
which details the terms and conditions of their credit card account and
includes information such as the rate, fees and other cost information
associated with the account,” says Sarah DuBois, assistant vice president of
communications at Wells Fargo.

For example, an important piece of information
in these agreements deals with what types of purchases you can use your card
for:  “You may use your consumer credit card account for purchases, balance
, cash advances and any other transactions we allow. You promise to
use your account only for lawful personal, family or household purposes.”

Though using your credit card for illegal
purposes (such as trying to buy online pornography, bitcoin or other
cryptocurrency) would be the most obvious type of infraction if your charge was
actually allowed to go through, there are plenty of others to watch out for. Here
are some examples of practices that issuers either frown upon or regard as a
direct violation of their terms of use.

1. Lying on your credit card application

When you complete a credit card application,
you must certify that the information you provide is true and correct. Because
card issuers are making a decision to extend credit to you based on this
information, it’s important to represent it truthfully.

This is a measure that protects both you and
the issuing bank. After all, you wouldn’t want to be approved for a credit card
without enough income or personal responsibility to handle it appropriately. Be
truthful with every aspect of your application to avoid problems down the line.

What can happen: If you’re caught providing
false information on a credit application, you could face
fines of up to
$1 million
. You could also be imprisoned for up to 30 years. Or both!

See related: Legal consequences for lying on a credit card application

2. Manufactured spending

Once upon a time, manufactured spending was a travel hacker’s
dream. Manufactured spending is using a credit card to purchase cash equivalent
items, such as reloadable prepaid cards.

Popular among the credit card churning crowd, manufactured
spending can help them meet spending requirements for sign-up bonuses and boost
credit card rewards points. However, the strategy has been facing more scrutiny
tas both credit card issuers and retailers make changes in their business operations to crack down
on this type of activity.

For example, American Express recently updated
its terms of service
to reflect its new policy toward what could be
considered manufactured spending. Now, its terms exclude manufactured
spending as eligible purchases to count toward earning bonus miles with the
Platinum Delta SkyMiles Card:

“Eligible purchases to
meet the Threshold Amount do NOT include fees or interest charges, balance
transfers, cash advances, purchases of traveler’s checks, purchases or
reloading of prepaid cards, purchases of gift cards, person-to-person payments,
or purchases of any cash equivalents.

What can happen: Though this activity will not
land you in jail, you do run the risk of clawbacks (losing the rewards you
racked up with this practice) as American Express terms also state, “American
Express reserves the right to modify or revoke offer at any time.”

“We do not necessarily know whether
or not our customers are using their personal credit card for business
purposes. However, we do reserve the right to close down an account that is
being used for business purposes.”

3. Using your business credit card for
personal use (and vice versa)

When applying for a credit card, the terms of
service usually will indicate what kind of purchases can be made on the card –
whether for business or personal use.

For example, a business credit card’s terms
will prohibit users from making personal purchases with the 
business credit
. For example, here is language that now appears at the bottom of Chase
business card monthly statements, “Your account is a business account, to be
used only for business transactions. It is not intended for personal, family or
household purposes.”

What can happen: Though your “inappropriate”
business or personal transactions will go through on a card not categorized for
that type of use, you run the risk of your account being closed. Wells Fargo’s Dubois details how her bank handles this behavior: “We do not necessarily know whether
or not our customers are using their personal credit card for business
purposes. However, we do reserve the right to close down an account that is
being used for business purposes.”

Whether you have a credit card for business or
personal use, be sure to observe card issuer rules on the types of purchases
that can be made with your card.

4. Illegal credit card purchases

Credit cards cannot be used to make illegal
purchases. For example, Chase’s terms of service states that, “You
cannot use your account for illegal purposes, such as internet gambling and
writing checks against uncollected funds”
(i.e. convenience checks that exceed
funds available through your credit card account).

Furthermore, American Express, prohibits participating merchants from accepting
payment for items such as illegal drugs, adult content, lottery ticket sales
and more.

What can happen: Whether your card will be
accepted for these types of transactions depends on if the purchase is flagged
by the seller’s
merchant category code. Card issuers will immediately decline
purchases related to charges they don’t allow on their network. 

See related: How to find a business’s merchant category code

5. Selling your card’s tradeline (aka pay
for piggyback)

Selling a “seasoned” tradeline of credit used
to be a common practice to help people with poor credit histories by adding
them as an authorized user to a card with a stellar payment history. 

Though not all creditors report authorized
user status or activity, it’s a practice that some still use to
improve their credit score, and there are even companies dedicated to
matchmaking tradeline sellers to would-be buyers hoping to boost their score.

However, unless you are adding a spouse or
other family member to your card, issuers frown against this practice. You
cannot assign your rights for payment to someone else to use your card. For
example, Discover’s cardholder agreement states, “You
may not sell, assign or transfer your Account without first obtaining our prior
written consent.”

What can happen: If you are caught violating
your card terms, your account could be closed. According to Barry Paperno, a credit
score expert and former columnist for, “People who think a score achieved
in this surreptitious way can lead to, say, an easy mortgage approval, will want
to think again. Mortgage lenders rely on much more than a score. Good score or
they will want to see how that score came about, i.e. accounts in your own
name, any pending disputes, recent new account openings, etc.”

6. Committing chargeback fraud

Chargebacks occur when someone makes a
purchase, then disputes it with their bank for reimbursement. Though there are
“honest” cases, such as never receiving goods or receiving damaged goods or services  that result in a chargeback, there are some
credit card users who will use the credit card dispute process to avoid paying
for goods or services received.

According to the Federal Trade Commission’s
summary of the Fair Credit Billing Act, consumers do have the right to dispute inaccurate information on
their credit card statement. The FTC website indicates they can also dispute,
“charges for goods and services you didn’t accept or that weren’t delivered as
agreed.” The problem is that there are some people who dispute charges for
goods they did receive and that were delivered as agreed, but they
simply don’t want to pay for them.

Credit card users should know issuers are
changing the way they deal with chargebacks. For example, Visa is implementing a new system that will
streamline the chargeback process to help merchants offset losses on fraudulent
chargebacks. Consumers should expect there may be more scrutiny applied to
their chargeback requests going forward.

If you do have a genuine dispute, the
recommended approach is to first reach out to the merchant directly to see if
you can resolve any issues. Merchants are often willing to resolve issues to
avoid chargeback fees levied by a card issuer. This keeps their costs low and
helps with their customer retention rate. If you are not successful in finding
resolution, only then should you contact your issuer to file a dispute.

What can happen: The need to request a refund
is one of the advantages of using plastic for your purchases, but always
resorting to the dispute process is both costly for merchants and could have
repercussions for you. Your card could be canceled for violating your card
agreement or you could even be flagged
as a credit risk for future purchases with certain vendors or
payment processors.

If you’ve engaged in one or a number of any of
these activities without being flagged
or having your credit card account canceled, congratulations. However, now that
you’re aware of what constitutes fraud or credit card terms of service
violations, you’re now accountable for this newfound knowledge. So, use your
credit cards responsibly.

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