U.S. Mint blocks frequent fliers' scheme to collect easy miles
Arizona Coin Collector
http://www.latimes.com/business/la-fi-briefcase12-2009dec12,0,193113.story
U.S. Mint blocks frequent fliers' scheme to collect easy miles
Some credit card holders bought coins to earn
rewards, then used the coins to pay their credit
card bills. Net cost: $0.
By Hugo Mart�n
December 11, 2009 | 9:04 p.m.
The idea behind credit cards that offer airline rewards
is simple enough: The more you spend on the card, the
more free airline miles you get.
But the U.S. Mint recently broke up a scheme by
cardholders who figured out a way to get money for
nothing and rewards for free.
Under the scheme, people used their credit cards to
purchase dollar coins from the U.S. Mint. They then
deposited the coins in the bank to pay off the credit
card balance. In the end, the cardholders were out no
money but their credit cards registered thousands of
dollars' worth of spending, and thus they earned
thousands of rewards points or miles from the
airlines.
"It's not the right thing to do," said Tom Jurkowsky,
a spokesman for the U.S. Mint. "It's not what the
program was meant to do."
Since November, the U.S. Mint has written letters to
about 75 cardholders who may have tried the scheme to
collect airline rewards points.
The trouble began in June 2008 when the U.S. Mint
launched a "direct ship" program to sell dollar coins
directly to the general public in hopes of increasing
the use of the coins, which last longer than paper
currency. Under the program, individuals could buy a
maximum of 500 of each of five presidential dollar
coins issued by the mint (Washington, John Adams,
Jefferson, Madison and Jackson). But the mint set no
limit on purchases of a sixth coin, which bears an
image of Sacagawea, the Shoshone woman who guided the
Lewis and Clark expedition. The mint allowed people
to buy the coins with credit cards and offered free
shipping in the continental U.S.
Several savvy frequent fliers got the idea to buy
the coins with credit cards to accumulate reward
points and then pay off the credit card balance
after depositing the coins at a bank. (Some banks
charge to count coins; others offer the service
free.)
Word spread about the scheme on Internet blogs,
such as Flyertalk.com. The Wall Street Journal,
which broke the story last week, quoted a frequent
flier who identified himself as Mr. Pickles and
claimed he bought $800,000 in coins with his
credit cards to jack up his rewards point total.
He told the Journal that he pulled off the scheme
by using several banks and numerous credit cards.
Other frequent fliers picked up the idea online
and immediately ordered the coins in bulk.
"I just placed my order," said a Flyertalk member
dubbed "matagal." "A painless way to get miles.
Thanks."
A member with the moniker "chasethemiles" called
the coin-for-miles deal "one of those fantastic
deals that only come once in a great while."
Although no laws were broken, officials at the
U.S. Mint said the deal conflicted with the intent
of the program, which was to circulate the coins
throughout the economy. Under the scheme, the
coins were deposited directly into banks. Jurkowsky
said the mint already has a program to distribute
the dollar coins in bulk to banks.
Since the program began, the mint recorded about
40,000 "direct ship" coin orders. Jurkowsky said
the mint believes fewer than 1% of those orders
may have been made to generate airline miles.
In the letter sent to the biggest coin buyers,
the mint asked the cardholders to explain their
unusually large purchases.
Jurkowsky said some of the people who responded
to the letters had legitimate explanations, such
as owners of coin-operated laundromats who need
the coins to operate the washers and dryers.
But so far about 20 people who couldn't explain
the need for so many coins have been barred from
ordering more coins, he said.
The mint is now making a permanent fix to the
problem, Jurkowsky said. In the future, credit
card purchases will be recorded as cash advances
rather than credit card purchases. Credit cards
typically do not give reward points for cash
advances.
Industry insiders say the real losers in such
schemes are not the airlines but the banks that
buy the rewards points from the airlines and
offer the rewards to cardholders to encourage
them to spend on their cards.
A spokeswoman for Bank of America said the bank
was aware of the matter and was looking into
it. Representatives for Chase and Citibank
declined to comment.
Rick Seaney, founder of Farecompare.com, a
website that monitors airline fares and fees,
said frequent fliers are always trying to find
shortcuts to boost their airline reward points
to win free flights and get seating upgrades
or other perks, such as access to VIP lounges.
"This is not the first one I've seen," he said
of the coin-for-rewards deal. "It's sort of a
hobby for many people."
'Basic' rights for stranded fliers
The U.S. Department of Transportation seems to
be on track to adopt new rules to protect
stranded airline passengers.
For years, passenger rights groups have pressed
the federal government to adopt guidelines to
ensure that passengers who are stuck on a
delayed flight are given access to food, water
and bathrooms and allowed to get off the plane
if the delay lasts more than three hours.
The airlines have resisted such guidelines,
saying the decision to let passengers off of a
delayed plane is safety matter that should be
decided by pilots, air traffic controllers and
other airline personnel at the airport.
But last month the Transportation Department
slapped Continental, ExpressJet and Mesaba
airlines with $175,000 in fines for stranding
dozens of passengers for nearly six hours on
an airport tarmac in Rochester, Minn.
And in a recent blog post, Transportation
Secretary Ray LaHood expressed outrage over
the Rochester incident, saying, "Look, this
is just no way to treat passengers, customers,
or anyone. You can't strand people overnight
without access to the basics. It's not
right; it's against the rules."
His closing line may spell bad news for the
airlines: "And I know we will use what we
have learned from this investigation to
strengthen protections for airline passengers
subjected to long tarmac delays down the
line."
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