Tuesday, April 1, 2014

Thoughts on Manufactured Spending

     To briefly explain to those who may wonder what I'm talking about, Manufactured Spending is a term coined to describe ways to spend money on credit cards without actually incurring credit card debt.  In the glory days, it involved buying actual dollars from the United States Mint with a credit card and depositing those dollars into your bank account to pay off your credit card bill.  Nowadays, it mostly consists of purchasing prepaid gift cards and reload cards, liquidating those cards through various means, and using the proceeds to pay off your credit card bill.  Manufactured spending has proven useful for meeting initial spend requirements for many credit card bonus offers and, in many cases, as a means for effectively purchasing miles or points at a very low cost.

     In the past few days there's been a tremendous kerfluffle in the miles & points world regarding the possibility that a national drug store chain will stop allowing customers to purchase a particular reload card with their credit cards.  This "crisis" has generated a over 500 (ed: 503!) page thread on Flyertalk.  The thread is full of much wailing and gnashing of teeth over the possibility that the cards will no longer be available.

     But here's the thing:  this is no surprise.  Manufactured spending opportunities are freaks.  There simply isn't any market-based reason for most of them to exist.  Some, like the Dollar Coin Direct Ship Program, were products of perverse incentives created by the wretched hive of scum and villainy known as the United States Congress.  Others, such as the PIN requirement for prepaid credit cards, are the product of presumably well intentioned regulation by the wretched hive of scum and villainy known as the Executive Branch.  When an organization decides that allowing those opportunities to continue is sufficiently troublesome or unprofitable, they will go away, e.g. Office Depot's decision to stop allowing credit card purchases of reload cards more than a year ago.   As it's been said many times, "if something can't go on forever, it won't."

     The silver lining is that there will almost certainly be new opportunities.  The world didn't end when the Mint stopped selling coins at face value, and it won't end now. 


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