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Is manufactured spending legal? I have been asked that question many times, so I want to clear it up for the masses.
The simple answer is no, manufactured spending is NOT illegal. The long answer is a little more complex.
Let’s dive in…
What is manufactured spending?
Manufactured spending is where you use a points/miles earning credit card to purchase something that is equivalent to cash such as gift cards, money orders, or reloads. If you are new to manufactured spending you can check out one of my previous posts on MS.
What is the point of manufactured spending? (pun intended)
Simple, the point is to get points and miles at a cheaper-than-they’re-worth price. Then you can use those points and miles to book flights and hotel rooms for a fraction of the original price.
Is manufactured spending illegal?
No, manufactured spending is completely legal. All you are doing is making the rules work in your favor, rather than against you.
One of the easier manufactured spending methods is where you buy a gift card with a credit card, then use the gift card to buy a money order, which you then deposit into your bank. This is 100% legal. The problem is that money orders are commonly used for money laundering and other illegal activities. That being said, simply buying them with YOUR money to pay YOURSELF back, is completely okay.
Let’s look at this one step at a time.
First, you buy a gift card using a credit card. You can use a credit card for many things: buying gift cards, paying for meals, you name it, credit cards are used for everything. There is nothing wrong with buying gift cards using a credit card, you just may have a problem finding a store that will allow you to do that since most stores pay higher fees when credit cards are swiped vs debit cards. People (cashiers, CSRs, ect.) tend to be the real issue. A cashier may get sketched out to see you buying $1,000+ worth of gift cards or reloads. They may call their manager over, not allow you to use a credit card, or they may simply run the cards and have no issue with your purchase at all. This will vary significantly by store and person. If this happens, simply try a different store or cashier. It is far from illegal to buy the gift card with a credit card.
Next, you use the gift card to buy a money order. Many stores including Meijer, Walmart, and many other grocery stores allow you to purchase money orders with a debit card or cash. I have yet to find a store that will allow you to purchase a money order with a credit card, but that is beside the point. Since April 2013, gift cards have been able to have PINs put on them. When a gift card has a PIN, it works just like a debit card, so it will work to buy a money order with. That isn’t to say that the store will let you, however. Some stores require that the “debit card” you use to purchase a money order, must have your name on it, others couldn’t care less. This will vary from store to store and from cashier to cashier. If you run into this issue, try different stores, and different people, I’m sure you will find someplace that will allow you to use a gift card for a money order. If that fails, you could also use a gift card to load Bluebird.
Finally, you deposit the money order into your bank account. This is probably the most “illegal looking” step. That doesn’t mean it is illegal, but as I mentioned before money orders are commonly used for money laundering. If a bank suspects money laundering they will fill out a SAR (Suspicious Activity Report) on you, which will cause a few different government agencies to start looking into your finances. This is very unlikely to happen, but if you are depositing $3,000+ a day or $10,000+ a month there is a chance you will have a SAR filled out on you. Those numbers are not guaranteed to cause a SAR, but this Flyertalk thread suggested those numbers. Money orders are legal as long as you use money that was legally obtained, which in this case you are.
What part of manufactured spending is illegal?
There is no actual part of the manufactured spending process that is illegal, however parts of it could be if you make them that way. One example would be lying on a credit card application. This is illegal and you could be fined or get jail time from doing so. This is not necessarily part of the MS process, however it is likely you will be filling out multiple credit card applications if you decide to manufactured spend.
Credit card terms of service.
Manufactured spending may be legal, however that doesn’t mean credit card companies want you to do it. For example, if you are counting cards in a casino and they catch you, chances are they will kick you out. The same goes for manufactured spending. If a credit card company sees that you are spending $60,000 a year, but based on your application you only make $50,000 a year, they very likely will close your account. I’m sure most of you don’t read the terms of service for each credit card (I don’t), but if a credit card sees that you are MSing and they are not making money because of it, why would they allow you to keep the card open?
Manufactured spending is tricky. You want to make sure you are staying on everyone’s good side, because even though you are not doing illegal activities, you don’t want people thinking you are. That would cause problems, that don’t need to be problems.