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This weekend I took a peek behind the curtain of the world of manufactured spending – and what I discovered surprised me just a little bit!
In the world of manufactured spending (MS for short), relative anonymity is critical. And as such, many veteran accumulators who practice MS do not welcome publicity to what some consider a hobby and others consider a legitimate business.
I’m grateful to have given this insider view of their world – and in exchange, I’ve promised not to reveal the specifics of any of the specific tricks and techniques I learned about or the identities of those I met. But they did give me permission to share the generalities of the MS world with you and I hope you will find the peek as fascinating as I did!
Amplified Extreme Couponing
Manufactured spending has origins dating back to the beginning of credit cards offering cash-back or mileage bonuses. As well, there are also details that trace back to the beginnings of travel loyalty programs.
Remember Adam Sandler’s character in Punch Drunk Love? He’s based on a real-life guy (who I met several years ago) known in frequent flyer circles as Pudding Guy. He figured out how to maximize a Healthy Choice mail-in promotion that allowed purchasers to redeem for frequent flyer miles. While his scheme is forever memorialized in celluloid, there have been dozens of other earning strategies that have made the rounds over years as savvy mileage junkies have found ways to twist program rules to earn the maximum number of miles or points possible.
MS takes this kind of obsession to the next level and involves utilizing credit cards to generate purchases that earn frequent flyer miles. But MS is not just about using a mileage earning card to buy an airline ticket or new pair of shoes. At these levels, it involves regularly applying for new cards that promise mileage bonuses, figuring out how to squeeze every last bonus from that card by maximizing the dollars charged to it, and with incredible frequency accelerating the process so that the spend turns over as quickly as possible – sometimes two to four times in one card billing cycle.
“It’s essentially extreme couponing, taken to a much higher level” one veteran told me. And instead of boxes of cake mix or bottles of shampoo, some regular MS practitioners are sitting on hundreds of thousands of airline miles and hotel points.
There are many ways to complete the MS cycle, but the basic strategy is to purchase some type of third-party currency using a mileage earning credit card (prepaid debit cards, gift cards, etc.) and then either use those to pay for things OR convert them to yet another type of currency so they can be redeposited in some way to close the loop. Critical to idea of MS is also finding a way to funnel everything you spend money on (car payment, mortgage, even your actual credit card bill) back onto the card itself. For some, speed of this cycle becomes key… if one can max out a $5,000 credit card and then pay off that credit card in a 10-12 day cycle, it becomes possible to turn over the card more than once during the month.
But others say the real payoff on manufactured spending comes with cash-back or other bonus transactions. Some cards, for example, will give 5% back on gas station purchases (or grocery stores or drug stores or restaurants) so much of the “scheme” in MS revolves around finding ways to max out cards in those places (buying prepaid debit cards at a gas station, for example) and thus not only earning miles but also making money in the process.
Some of the MS transactions have ways of skirting the actual terms and conditions of the programs which is why many are hush-hush about MS in practical application. As well, the higher end of MS earners are also taking advantage of new sign-up bonuses on cards which means “churning” cards (opening and closing accounts regularly) to maximize those bonuses.
Meeting in Darkened Rooms
The group I sat in with began meeting this past spring and has been growing larger each time by word of mouth. This groups have been popping up in many cities, sometimes publicized on travel message boards.
One of the organizers reserved a back room in a restaurant on the outskirts of a suburban mall complex. It’s the kind of place you’d wander into for lunch in the middle of a back to school shopping outing (which is exactly the crowd that had gathered there during the Texas annual tax-free shopping weekend). I doubt many of the families eating lunch that day paid much thought to the variety of individuals walking into a private back room.
“I wasn’t sure how many people would be here… but we are growing each time” an organizer shared, as our group continued to swell. There were a total of 15 individuals there that day, more than double any of their previous meetings. “Next time we may need to plan for more!”
The room was large so there was plenty of room to spread out, important on a 100+ degree Texas day. After ordering cold drinks and being served free chips and salsa, they started around the table with introductions – name, neighborhood/town, how long they’d been in MS, and why they were doing it. The group was varied in ages – from college-aged to near-retiree – and hailed from a wide radius around our meeting spot. Many were brand-new to MS but all were doing it to find another way to pay for travel expenses, either for themselves or for a family. A couple individuals brought family members with them – either for a sense of safety in numbers or to indoctrinate them to the world of MS.
“Where did you say you lived?” was asked several times. I’d find out later that this is of extreme importance to the crowd.
One enthusiastic member introduced himself by showing his latest stack of prepaid debit cards… “this is my latest haul”. Others nodded their approval while some of the newcomers (me included) were wide-eyed at the size of the stack.
When they got to me, I decided to lay all my cards on the table too – not debit cards, but why I was there! “I’m Jennifer, I’m from Fort Worth, and I’ve never done this before… in fact, I’m a blogger.” Nervous laugher… both from me and the others at the table. “But I promise I’m not going to share any of your secrets… I just want to understand what this is about!”
The MS crowd has many reasons to not trust bloggers – or outsiders. The world of MS is complex and often operates on the edges of the rules of credit card companies. For this reason, lucrative deals often get shut down when a loophole is too flagrantly violated by many. Or often the companies themselves are not aware of the means for exploitation so low volume and no traceable documentation keeps the transactions off the radar.
Some of the conversation took me back to my early career days as a credit analyst for a retail card issuer. I spent much of my time on the “special projects” desk and one of our tasks was to review seemingly unrelated transactional data to look for common trends that might point to fraud or abuse. Once we found patterns, we researched them and passed on data that would be used to build algorithms that would flag future abuse.
As the group started to break from group discussion to smaller conversations, it became more difficult to listen to the details. I had heard this mentioned by others who participate in the hobby that many prefer to pass their secrets on only on a one-on-one basis to individuals who have been proven to be trustworthy.
“At first, it becomes about just understanding what you are doing”, one friend told me offline, when I mentioned my interest in the topic. “But once you understand the basics, you keep coming back because the really good information isn’t shared online – not until the very end of the deal at least – so you have to have relationships so that you hear about the best transactions and new methods on a private basis.”
Privacy is definitely an issue in this group where practitioners are regularly looking for hidden places to trade secrets. Several mentioned a new travel website I’d never heard of, created with multiple trust levels, so that only vetted insiders could get to the “good stuff”. They want the hidden spots both to steer clear of “spies” (from card issuers, retailers, or travel partners) and to keep some bloggers who are known to widely publicize deals (and get them “killed” quicker) away from their tricks.
This issue was a big one in the last week in the travel blog community actually. A respected travel blogger shared a trick she believed she had come across on her own, but one that it turns out has been whispered about for months in the MS community. She removed her post as soon as it was brought to her attention, but many at the weekend meetup were still discussing it. “I tried it in four places this week… its not working anymore here” one noted about that particular transaction. Another chimed in “I just did it today before I came here”. “I know, I was behind you in line” said another.
It’s for this reason that many of the MS crowd find it important to know the locations of the others in the community – and their relative MS patterns.
“If there is someone going to my regular gas station and doing high volumes, I might need to be on the lookout for a new spot in case he gets it shut down” said one person.
Another disagreed – “I want to know their location so that I can trade tips – it’s much easier than driving all over town looking for the one working machine or a good supply. If someone else is going somewhere nearby, it benefits the community to share information.”
Pushing the Limits
Those practicing the hobby have a wide range of earning levels. Some say they are earning a few hundred to a few thousand miles each month. Others report earning 500,000 to a million miles in a year. And some extreme MS practitioners online claim to be doing $100,000 to $2 million in transactions every month, turning this from a hobby to a full-time business.
Doing that type of volume often requires relying on the accounts of others in order to have enough credit to work with. Several of those present mentioned that they had used the social security numbers of others (spouses, siblings, parents, adult children) to open more accounts and were in charge of MS on those accounts as well.
“Its a family endeavor”, one said. “They benefit from the vacations, so they need to participate with the cards.”
Still, the risk tolerance for those in the group was variable. It seems that each individual has their personal limits of what they feel comfortable doing and no two strategies seemed the same.
“I wouldn’t advise doing that”, one whispered to me when another shared a tactic for opening generic business accounts by using a social security number as an EIN (Employer Identification Number).
Another raised his eyebrows when a group member mentioned that they were converting high volumes of cards back into money orders and depositing them into a bank account. “Aren’t you worried about that?!” one said out loud. To some the connection back to the personal bank account, both incoming and outgoing, poses too much risk.
At the end of the day, MS becomes and exercise in risk tolerance and requires practitioners to carefully consider their own actions versus blindly following instructions.
Speeding Towards a Useless Currency
One question I asked a few of the veterans was whether they thought that the rapid accumulation of miles was leading to increases in redemption “costs” (in miles) for coveted awards. American Airlines, for example, recently steeply raised the prices of their AAnytime mileage awards while also eliminating a multi-partner product that was popular among the extreme mileage crowd for creating around-the-world tickets at reasonable mileage rates.
They all said no. “We were headed towards inflation on mileage prices at any rate” said one. Another commented “we aren’t putting that many additional miles into the mix. We are just earning them by spending instead of flying.”
Still, several mentioned to me that while they were having no trouble accumulating miles, redeeming them was tough. MS meetup groups may attract newcomers to learn about the tricks of earning, but several veterans mentioned that came also with the hope of learning the tricks of using their miles. They all scour travel blogs looking for hints on how to search for awards or best windows for redemption.
As I was wrapping up this summary, I took another glance through the blogosphere and the credit card offers are everywhere. In fact, a couple issuers regularly pay for advertising on my blog (even though I personally will not place credit card affiliate links here). There is clearly bigger money at play than to worry about the world of MS too much. Or perhaps its still a small enough subset that the credit card companies still make their money at the cost of those who try MS and fail. They max their cards and then can’t afford to pay them off. They open too many cards and hurt their credit and get stuck with the higher interest cards. Or they underestimate the time and perseverance it takes to properly engage in MS and end up only earning a few thousand miles that they never end up redeeming.
And that’s okay with the MS crowd. Next month there will be newcomers to the hobby. There will be a new strategies to try or share. And there will again be chips and salsa in a side room in the suburbs.