Wonder where your ethical barometer kicks in. I've tried to arrange the scenarios in increasing order of questionability:

1. I need a new widget. I go down to the widget store, pick out a nice one for $5000, and pay for it with my credit card. I get the miles.

2. My buddy is excited about my new widget. We go to lunch to discuss it. The bill comes to forty bucks. I tell him "Give me a twenty and I'll take care of the bill." I put it on my credit card. I get the miles.

3. My buddy likes the deal, so we go down to the widget store and he picks out a nice one. He doesn't like credit cards, so he tries to pay by check. No dice - the store doesn't take checks. I know his check is good, so I put the widget on my credit card. The widget is in his name, and he gets the warranty, etc. I get the miles.

4. The widget store owner is now my friend. He tells me that any time anyone pays by cash, he'll put it on my credit card and give me the cash. The customer gets the widget and the warranty, I get the miles.

5. The owner is really my friend. He says he'll "sell" me a widget every week and put it on my credit card. When the payment comes back to him, he'll turn the money over to me and I pay the CC bill. I get lots of miles.

6. I force the owner to credit me with miles at the point of a gun. (I put this one in so we all know where to stop ).

OK - when does clever manipulation become cheating? How is this different from buying 100 magazine subscriptions for the miles? With a T&E card (AMEX,DC), it's expected that I will be paying for things that other people use or consume - where does one draw the line?

I just had some dental work done - I'm going to put it on a mileage-earning CC. How would anyone know whether or not you were having $15,000 worth of dental work done? (assuming you have a friendly dentist).

Where does it all end?

Here's how it works: The credit card companies make their money by first charging the merchants a fee on every transaction (around 2% - 3%) and then by charging interest to the cardholders (for ones that don't pay off the balance each month). They use the part of the money they make to buy miles from the airlines. The airlines are happy to sell them the miles and your credit card company would probably be happy to have you charge lots of things for your friends
(because they are making money every time you do so). As far as getting the widget store owner to charge items to your card and give you the cash when it comes in from the credit card company, yes he could do it, but he would lose money every time he did (For example, if you charge a $100 item, the credit card company takes a 2% or 3% cut and reimburses him $97 or $98).

the percentage of the charge that it costs the merchant is why people cant abuse the system too much.... if it was free to charge a credit card then im sure each one of us would have our own merchant accounts and would be maxing out our airline cards every month with 1 charge...but at 2.5% those are very expensive miles.

I agree with the previous two posters. I don't find any of the possible scenarios (save the one involving a gun) to be unethical. But that's only b/c fees are involved. If there were no fees, and it was taking advantage of the credit card company, then it would be unethical.

Yeah - I know about the fees.I wanted to address the ethics first.

Suppose the fee is 2%. Suppose I use my Diner's Club card to charge $100. The fee is $2.00. That transaction gets me 200 DC points, which I can converts to 200 BA miles, at one cent per mile. That's cheaper than I can get them pretty much anywhere else.

[This message has been edited by BigLar (edited 10-05-2003).]

so what's the issue?

There are 2 huge ethical lapses and 1 small one, both committed by the airline.

The small one is selling miles to a credit card to give to customers w/o regard to their loyalty to the airline. This devalues the miles the airline gives to its own customers.

The big ones are more subtle. In order to get you to sign up for the card, you calculated that you needed to spend $25,000 to get an award ticket. But the airline did not disclose to you all of the strings they attach on redemption, the availability of award tickets, etc. That is not ethical to me.

Second, the airline records the liability at a fraction of its value. So its selling miles to credit card issuers for about $.02 per mile while recording a liability of maybe 1/100th of $.02 per mile. This either defruads investors and creditors as a result of inaccurate accounting, or loyal customers who buy into the loyalty scheme (really just another form of creditor). Its this shady accounting that allows them to perpetrate the fraud in the first place; if they had to accurately account for the liability, then they would be less interested in distributing their miles so broadly and diluting their own loyalty program.

In addition to the 2-3% credit card fee, there is also the fraud risk.

Consider this situation: the store owner gives you the cash so he can put someone's sale on your credit card. You take the cash, and file a charge-back 3 weeks later. The merchant is now out of money. You can claim that you never got the merchandise etc.

No store owner, no matter how friendly s/he is, will want to take this kind of risk.

Well, the issue is can I use any or all of these tactics to build up my mileage balance without running afoul or either the cc company or the law.

Outside of the scenario involving the gun, it would seem that most of the scenarios are legal, assuming you can line up a cooperative vendor. The last scenario, where the transactions are made up out of whole cloth, seems like it might be illegal. In fact, wasn't there someone who got busted for something similar to that recently?

Anyhow, if the cc companies in don't care where the business comes from, it might be worth my while to see what I can do. I was just wondering whether I would get a call from Diner's Club or whatever inquiring what I was doing with 13 plasma tv's or some such.

There's always a fraud risk. One doesn't do this sort of operation with strangers. If my brother owns the store, for example, there's little chance of me stiffing him. Doing that charge back thing is probably fraud in the broad criminal sense, as opposed to screwing the merchant.

I don't have anyone lined up at the moment, but there are possibilities...

If you don't mind about the fees... then it's very possible. Just go ahead and transfer yourself some money using Paypal. You can get all the miles you want... at the cost of paypal merchant fee.

Your original hypothetical question will have no ethical or legal problem. It is however finanically not feasible due to the fees. Why would you want to change cash into miles? Reward miles are not considered commodity. They can be voided by the airlines at any time, using simple excuses.

Also, if you charge too much (let's say a few million $ / year)... IRS will knock on the door soon asking for audit.

I think 5 & 6 are unethical, but 4 also smells a little fishy. But, when you think about the fact that lots of us use mileage cards for company expenses (or even entertain for work at Idine restaurants to get miles through AAdvantage or Mileage Plus Dining), that is sort of like 4. And, since I don't think anyone would say that paying for expenses you're going to get reimbursed for in the manner that happens to earn you miles is unethical (assuming, of course that you don't intentionally take an important client to a hideously overpriced, terrible restaurant solely to rack up miles), I think 4 is fine.

Why would I want to change cash into miles? Well, if a First Class ticket costs $7000 or more, and I can get the miles needed for between $1000 and $2000, it's a no-brainer. If I was planning on "banking" the miles (for my retirement?) then your argument is more valid, especially in light of the changes to various programs recently.

As far as the fees go, I'd have to do an analysis on a card-by-card/airline-by-airline basis. The best deal is Diner's Club/BA and the annual 2-for-1 deal. Other cards/airlines might not be as attractive.

IRS - if what I'm doing is not illegal, they may take a dim view of what I'm doing but I don't see any basis for tax liability. I could be wrong, and in any event I'm not planning on any million-mile deals in the near future.

This post borders on the ridiculous, but I also believe you and the merchant may have criminal and tax problems with example #5. The merchant has to carry the weekly sale on his books, so he would be liable for tax purposes, and if he just "runs" the charges through for you without actual sale and bookeeping, I believe there are some criminal and civil charges possible against both of you. (for example, the feds may see this as money laundering)

Example #4 - If I'm a stranger at your friends store, buying a $5000 widget for cash, I want the receipt to show that, so just in case I need to return it I get cash from the merchant. So again this would defeat any possibility and the merchant and you would have to resort back to #5, which could be very costly in your time(jail) and money(civil and tax)

The first 3 examples are all ethical and legal, but how many friends do you have to buy a $5000 widgets on a regular basis. Why don't you get all your friends together and offer to put them on your CC and have them charge everything and just give you cash? Somehow I don't see your friends jumping at this idea, but hey you never know.

What if you go to lunch, and you are at an Idine restaurant. Your friends gives you cash for their share, and you use your credit card because you are getting 10 miles per dollar.

Or, if instead of earning miles from Idine, you get 20% back in cash.

I see this as a bigger ethical problem than the others - in the ones involving a friend who is going to let you make many purchases you have a friend who knowingly is costing himself a lot of money so you can get miles. And I don't expect that too many friends like that exist.

In the Idine case, though, you are intentionally benefitting from your friend - in effect letting them pay more than their share of the bill.

Is this ethical, or should you feel obligated to tell them and ask if it is okay, or should you pay more than your share since it will balance out later?