Thursday, June 4, 2015

The Current State of Manufactured Spending

UPDATE:  The Amex MS cycle is dead.  At least for now.  Amex has changed the terms for all portals, large denomination gift cards no longer earn cashback.

With the impending demise of the Delta Suntrust Card golden goose, this seems like a good time for a  few words about the current state of the manufactured spending pastime.  If you're reading this, you likely know that Manufactured Spending ("MSing") has long been a good way to meet initial spend requirements for new credit card signups and as a way to directly generate miles and points.

Some of the best MSing opportunities have passed us by.  Please doff your caps for a moment as we reflect on the US Mint Direct Ship Program, Amazon Payments, Square Cash, Vanilla Reloads at Office Depot, unlimited Vanilla Visa purchases at CVS, and our other dearly departed MS methods.  <wipes away tear>  Now, where were we?  Ah yes, the current state of the hobby.

There are still some pretty good MS methods out there.  The single best is the Amex giftcard > Prepaid Debit Card > Money Order cycle.  American Express sells gift cards, up to $2,000 in value, that can be used almost anywhere Amex is accepted.  Amex also allows the option of personalizing the gift cards with your name.  I would highly recommend using this option.  Those gift cards can then be used to purchase prepaid debit cards that are, in turn, used to purchase money orders.  The cycle looks like this:

This method allows the user to generate a reasonable amount of spending without incurring an equivalent amount of debt.  It does entail fees, though.  Specifically at stage one the user will incur a purchase fee of $3.95 per $2,000 Amex gift card.  The user will also incur a shipping fee, unless he opts to purchase a year of free shipping from Amex for $99.  Then, at stage two, the user will incur a purchase fee for the Visa/MC prepaid debit card (typically $4.95-$5.95 per $500 card).  Finally, at stage three, the user will incur a money order purchase fee (typically $0.69-$0.99 per $500 in value).  These purchase fees, alone, total around $26.51 per $2,000 in manufactured spend (a rate of approx. 1.3% of the amount of spend manufactured).  Thus, this method could be equated to purchasing miles or points at a rate of 1.3CPP (assuming you are using a card that earns 1 point per dollar spent).  That's not a bad rate, particularly if you only need to spend a few thousand dollars for an initial spending requirement.

However, it gets better.  At the time of writing, many shopping portals pay a rebate on purchases of Amex Gift cards.  For instance, my favorite shopping portal, Topcashback, currently offers a rebate of 1.5% on the purchase of Amex gift cards.  By clicking through their website before you purchase, you can earn a rebate that will offset the fees that I've described above.  Of course, there is still the opportunity cost of the time it takes one to purchase the debit cards and money orders.

So, how does one go about it?  Well, there's a lot of information in this Flyertalk thread.  CVS still sells various forms of Vanilla prepaid debit cards that can be loaded with up to $500.  There is currently a limit of $2,000 worth of cards per rolling 24 hour period.  This limit is enforced by a scanning (and presumably recording) drivers license information.  Vanilla cards are very easy to use because they activate instantly and the PIN is set by entering any four digits the first time you use the card.  Thus, one could order a $2,000 Amex Gift card and take it to CVS to purchase 4 variable load Vanilla debit cards, paying $4.95 to load each one (determining the amount to load on each card is left as an exercise for the reader).  One would then open the Vanilla debit cards, take them to a grocery store that sells money orders (such as Winn-Dixie or Publix), purchase money orders with the Vanilla debit cards, and deposit the money orders in one's own bank account.

CAVEAT EMPTOR:  This is not a foolproof method and things could go wrong.  For instance, CVS could stop allowing the purchase of Vanilla cards with a credit card.  Or Western Union or Moneygram (the two larges money order companies) could forbid the purchase of MOs with debit cards.  Or Congress could repeal Dodd-Frank or the Durbin ammendment (which made PIN-based prepaid debit card transactions possible).  That's a good reason not to purchase more Amex Gift Cards than you can easily liquidate.  It's also a terrible, no-good, bad, bad, bad, idea to engage in any manufactured spending unless you pay your credit card bills off, in full, every month.  Carrying a balance, and paying the ruinous interest rates that entails, means that any miles you earned would be far, far too expensive.

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