Manufactured spending: Is it illegal?

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‘Manufactured spending’ is a complex and enticing rewards strategy, but it’s not as easy as it seems – and may violate your card’s terms

Cashing In with Tony Mecia

Tony Mecia is a business journalist who writes for a number of trade and general-interest publications. Every week, he answers readers’ questions about credit card rewards programs in his “Cashing In” column.

Ask Tony a question, or see if your question has already been answered in the Cashing In answer archive.

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Is it OK to pay myself with my business credit card in order to earn rewards?

Charging goods or services you sell on your own cards can be considered “manufactured spending,” and while it may not be illegal, it may violate your credit card’s terms or service.

This might lead to the cancellation of your card, so you need to proceed with caution.

But you should also consider the credit card processing fees you’ll have to pay on those charges.

Expert Q&A

Check out all the answers from our credit card experts.

Dear Cashing In,

I started a business that involves selling tickets to events I host. All the money from ticket sales goes to me, but sales are brokered by the venue where our event is held.

Could I buy the remaining tickets on my personal credit card to get cash rewards or miles, knowing that I’m essentially just paying myself? Is this illegal? – Rob 

Dear Rob,

The pull of credit card rewards is strong. Miles and cash back have actual value, so if you can figure out a way to increase your charges without increasing your debts, you can reap substantial rewards.

The most obvious way to accomplish this is to steer as much of your existing spending as possible onto reward cards, then paying off the balance each month. The key is not to spend more money in pursuit of rewards, but to shift purchases by check and cash onto your rewards cards.

See related: 6 ways you may be violating your card’s terms of service

What ‘manufactured spending’ is, how it works

There are plenty of other ways to pad your rewards card charges without adding extra costs, an advanced strategy often referred to as “manufactured spending.”

These strategies are either ingenious or devious, depending on your point of view. Most of the time, they do not constitute outright illegal fraud.

But just because they are legal doesn’t mean you should do them, because card companies and banks are sophisticated at detecting suspicious transactions and can shut your credit card or bank accounts if you are engaged in something they consider fishy.

One of the early efforts at this was about a decade ago, when the U.S. Mint began selling $1 presidential and Native American coins – and accepting credit cards for the purchases.

In a famous article, the Wall Street Journal showed how some people bought thousands of dollars of coins on credit cards, with free shipping, then just deposited the coins into their bank accounts to pay the credit card bills.

One customer, who identified himself online as “Mr. Pickles,” said he bought $800,000 in coins, helping him earn lifetime platinum elite status on American Airlines. The Mint eventually shut down the program.

Risks of using ‘manufactured spending’ to rack up rewards

There are smaller examples, too. For instance, you might find a grocery store that allows you to buy a money order on credit. The trouble is, if you try to do this too much, the credit card issuer’s or your bank’s fraud detection systems will flag these as suspicious transactions and shut down the accounts.

The same principle applies here to your situation. It’s not illegal. But it probably violates the agreement between the merchant and the credit card processor.

Typically, those agreements require merchants to guard against fraud and avoid using their own cards on their terminals, because that can have the appearance of fraud.

Even if you don’t technically violate that agreement, processors typically have the absolute right to discontinue credit card processing for any reason. If a significant portion of sales suddenly starts going on a single card, that could look suspicious to the card processor (or to your bank), and they could stop processing credit card payments altogether.

Tip: The internet is filled with plenty of ideas for “manufactured spending,” including specific blogs and forums devoted to the topic, but you must proceed with caution and take the advice you find online with a grain of salt.

Also to consider: processing fees

There’s also the issue of the credit card processing fees, which are usually a small percentage of the amount charged and are paid by the merchant – in this case, the event venue.

So, the venue might not be too keen on paying those fees so you can earn reward points, or they might pass along those fees to you – which makes your plan much less rewarding.

For more information on ways you might boost your credit card spending for points, you can read “8 creative ways to build credit card rewards points quickly.”

There are plenty of people who are thinking along the same lines as you and who realize the value these reward programs can have, and you can learn what might work and what won’t. But don’t take any unnecessary risks.




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