Originally Posted by freakflyer
Of course its fraud - against bank number 2. They will end up eating the interchange rate (e.g., if the store pays 3% for the card and you charge $1,000 on card 1 but return it to card 2, the supplier is whole but bank 2 will only get back $970 and have to pay you $1,000). Sounds like theft to me. Let alone the cost of the item that you have to return if the seller has to resell it as used.
Nothing illegal. Yes, bank 2 is out of $30, but bank 1 gained $30, that's why visa and MC rule require merchant to refund to the original card to prevent this type of problem. However, there is a loophole here since you can buy the item, pay off bank 1 and cancel the card, then return the item, since the original card no longer exist any more, the merchant have no choice but to refund to a different card.