Miles with Gift Cards
 

I recently heard of a way to accrue miles by buying gift cards. The plan is basically free and seems to be perfectly legal. I was wondering if anyone has heard anything about or tried it - here it is:

Card holders use their rewards credit cards to purchase gift cards at Charter One, in person, online or by phone. Once they receive the gift card, they use it to pay for a money order from their post office. Charter One's gift cards work like a Mastercard debit card. Next, they either deposit the money order right into their checking account or cash it and use the cash to pay bills.

I have heard that a growing number of people are doing this and though I do not plan to do it myself, I am curious to see if anyone can add any insight about what this may mean for individual frequent flyers and the airline programs.

Extensive coverage of this on flyertalk and www.fatwallet.com finance forum, not to mention an article in the Wall St. Journal.

I doubt it will have any direct impact FF programs. Might cause credit card issuers to restrict award programs.

I get the sense that this is possible, but from what I can tell, the yield doesn't justify the time/effort involved. Not to mention the raised eyebrows at the post office or bank.

Perhaps my opinion would be different if I lived or worked in a building that had both a post office and my bank in the lobby. For me, this strategy would involve a lot of driving and waiting in lines. I always thirst for FF miles, but not that much.

does AAA offer money orders for free? if so, can you use a debit card to purchase them?

I don't see why miles credit card should care if you're doing this sort of thing. They charge the merchant a certain fee per transaction and this fee is taken whether you buy gift cards or merchandise so they earn the same amount of money either way.

They care because they are worried you will use this as a cheap way to get a cash advance, which has a higher default risk.

Of course, anyone playing this game probably plans to use the money orders to pay off the credit card debt, but there is some risk of blowing it instead at the casino and then defaulting on the credit card. Credit cards are happy to let you do that, but only up to your cash advance limit which is typically lower. than your full credit limit. Plus they want to charge you extra cash advance fees for allowing these higher risk cash advances.

Maybe because it's tantamount to a cash advance, which is reportedly riskier for the issuer than purchases. For example, AMEX treats the purchase of a CharterOne giftcard as a cash advance rather than a purchase.

In any event, one wonders how long the program CO will last.

EDIT: ananthar beat me to it


[This message has been edited by richarddd (edited Jan 27, 2004).]

The much larger thread about this is at http://www.flyertalk.com/forum/Forum1/HTML/009846.html

It has answers to all the questions.