In his assessment of the risks involved, the author didn't mention the possibility that purchasing coins from the mint could be considered a cash advance, which is like taking a 15% APY loan with interest accruing immediately after you take the advance.
The immediate bank deposit of $1 coins ordered through this Program does not result in their introduction into circulation and, therefore, does not comply with the intended purpose of the Program.
Not sure that's legally binding, but it's at least a dishonest thing to do.
This was figured out by FlyerTalk last year and worked for about 3 months before the Mint caught on and changed the terms of credit purchase to be a cash advance, which doesn't qualify for rewards and carries additional interest terms. That said, it was pretty clever and awesome while it worked.
That's not true, at least not absolutely true. I've done this as recently as a month ago. I've been doing $2000 a month for the last year on my Bank of America 2% cash back rewards card ($40 cash a month into my bank account).
The way the Mint reacted was by imposing a new limit to the dollar amount one can buy in a month.
With all due respect, is this really the best way you can think of to convert time and risk into $40? Just seems like a lot of hassle for not a lot of money...
Truthfully, it takes absolutely no time at all. I'm not so wealthy that I'll turn down $500 a year for virtually no work. I don't think I'll ever be.
Buying the coins takes a matter of minutes. They sit at home until I need to run to the bank. And at the bank, depositing rolled coins is painless. Never had even a hiccup at the bank.
My usual contracting rates for smaller projects are $75 to 100 an hour so this is right inline with that.
I'm fairly certain FatWallet (Finance) figured it out before it was discussed FlyerTalk. Lots of great finance/deals there, if you aren't in the know already.
This exploit wasn't at the expense of the taxypayer; it's net-zero for the Mint. It's at the expense of the airlines who have to back the miles generated from nothing.
Edit: Ok I admit defeat here. I don't think the costs are anywhere near interesting from a where-does-my-tax-money-go perspective, but I concede that the Mint must spend some amount of money on it. I won't delete the comment for historical purposes but consider it retracted!
How do you think rewards programs work? It comes out of the interchange fees that merchants pay. The Gov't paid a small percentage of the order to the credit card processor, the credit card processor paid a percentage of that out as rewards. The mint was technically always going to lose money, but it was trying to get the coins in circulation. This meant they lost money and failed at their goal.
Oh and there's shipping. 300LBs anywhere isn't going to be cheap.
If the government thinks it can get coins into circulation by having people order them from the government it's going to fail no matter what. Not saying this makes the guy's scheme is OK, just that the mint doesn't have a chance.
Why won't depositing these coins into the bank get them into circulation? It has to be either because the bank won't hand them out unless you specifically ask for them or because people don't want them. That's a sure sign that a coin is DOA.
I never said it was a bright idea to make the offer, just that the rewards money didn't come out of nowhere. It specifically came from the merchant, in this case the US government.
Doubtful. Credit card companies charge a percentage of the transaction cost to the seller. Usually sellers just mark up their goods accordingly, so the buyer is the loser. The buyer's only recourse is to use a rewards program to get some of that markup back. The credit card company lost little if anything, and probably profited on the transaction.
The mint was eating the entire credit card transaction cost, so that $300 came from the mint, and probably more as well. Not to mention the shipping charges, and the cost to re-process all of those coins when they came right back to the mint. The line item profit to the mint is still positive since it cost way less than $15,000 to make those coins and they can re-sell them. But in reality, it just means that either the mint prints more dollars to make up for the loss (taxpayer loses in inflation) or more taxes are raised to pay for the loss (taxpayer loses more directly).
The bank where he deposited the coins also was forced to eat processing cost and shipping charges to return the coins to the mint. If lots of people started doing this, the bank would end up having to raise rates, charge for the service, or put significant limitations that would hurt legitimate usages (ex: laundromats).
All in all, this is a naughty hack. The hacker came out ahead, the credit card company came out ahead. The bank lost a little, the US government and taxpayer lost big. The economy as a whole loses as well - a lot of busywork was created, but no net value.
After setting up my first merchant account for online credit card processing this year, I have to disagree whole heartedly. Rewards program cost the seller of goods. The fancier the card (platinum, cash or frequent flyer programs) the more it costs the seller as a percentage of the transaction. This is why many places refuse to take AmEx. They have high monthly account fees, and their per transaction percentage is considerably higher than a plain old visa.
My AmEx merchant account carries no monthly charge. I do pay a higher discount rate for American Express than I do for MC/Visa/Discover - roughly 1%. I certainly don't pay higher rates because someone uses a rewards card. Nor do I pay a higher rate because someone uses a Gold, Platinum or Black AmEx Card. My discount rate is affected by qualifying discounts, i.e. AVS, AVS+Address, non-AVS.
I find it in my best interest to make it as easy as possible for clients to pay me. If I have to pay a percentage point to make it easy for a client to hand me money, I'll gladly take that as a cost of doing business.
He hasn't really cost anything to the US government or the mint. There's no real harm to taxpayers here.
The people he's getting his money from is his bank/credit card company. If you want to say "screw you" say it not as a tax payer, but as a consumer of credit cards, who will eventually have to deal with higher rates/restrictions/limitations on rewards.
It cost the US government approximately $450 for the 3% or so transaction fee that they paid to the credit card company, and another $500 or so that they paid to UPS.
He gained about $200 worth of airline points, and taxpayers are out about $1000. Sounds like a good deal to me. Or not.
I hadn't realized this before. How is this type of thing structured in the merchant's agreement with the card processor?
Could they in theory issue a 100% cash back card that the merchant gets charged 100% on? How is the merchant supposed to know what they are getting charged when the swipe a given piece of plastic?
The fees depend on what merchant provider a company is going through. Braintree is what I use, and they charge a flat, albeit higher, percentage for all swipes, rather than have a huge list of the percentages. Here is an example of their breakdown of Costco's fee structure (yeah, you can get a costco merchant services account).
I have no idea if what you proposed is possible, but my guess is that no one would accept that card :) I don't accept amex because I think it represents a fraction of actual users, and those users have other cards because they are used to getting told "nope, sorry don't accept amex".
I don't begrudge him the few hundred dollars he made. There was a loophole, he exploited it non-malicously. So did a bunch of other people; eventually the loophole got closed. I am personally out a miniscule fraction of a cent, and I got more than that's worth of entertainment out of reading this article.
But he is just a piker in ripping off US taxpayers compared to banks that borrow from the Fed at 0.25% and turn around and buy treasury bonds paying 3%
How is that a rip-off? In the general case, this is how banks basically work. They borrow short term from depositors and lend long term to mortgagees and businesses.
In this specific case, they are exposing themselves to risk from the time value of money, the capital price of the bond. If rates rose 0.5%, they lose 3% on a 7 year bond.
I think this guy is making this story up. It used to be true, back in early 2009. The mint changed their policies long ago. He wrote this post in summer 2010.
The only thing they changed is allowing you to purchase that much at once. You can get around that by using multiple shipping address and virtual credit card numbers.
I bought a $250 pack (minimum purchase) of these coins from the Mint, incented slightly by the $5 in profit I'd make from the credit card transaction, but mostly because I thought it would be fun.
I however have intentionally tried to "put them into circulation", using them to pay for small items at the farmers market, drive-through windows, tips, etc. I've had to explain them a few times, but most people think it's interesting and it makes for a few seconds of friendly conversation. I think I've burned through around half so far.
"Assuming the US Mint and my bank weren’t trying to scam me, that only left myself as the scam artist and I knew I wasn’t trying to cheat anyone, so that took care of that concern."
I guess if ignorance of the way he's hurting people counts as "not cheating them" this is true.
He gets the airline miles because the US mint takes in between a 1% and 3% loss on the transaction to pay the credit card company. They also lose money when they ship him the coins for free. The reason the US mint is willing to do this is because coins are so much cheaper for them in the long run than bills, once they go into circulation; they're paying this guy and UPS a fee for helping them put dollar coins into circulation. This guy is taking that fee, but not putting the coins into circulation. Its not like the money in his rewards account appeared out of nowhere.
The US Mint buys brass slugs an turns them into US dollars -- I bet there is a pretty high margin in that business so I don't think they are taking any loss. More like the US taxpayer is taking the loss.
The intrinsic value of the metal has literally nothing to do with it. If you take $0.01 of brass and turn it into $1 coin you didn't make any "profit."
He's trying to write this up as a neat hack ($300 for an hour of work? where do I sign up?), but all he's really done is waste a lot of other people's time to exploit a silly loophole. I wonder how many man-hours the bank spent moving and counting 300 pounds of coins, not to mention how much tax money was spent shipping the damn things to him. What an unproductive waste.
Ok, so buying it and immediately putting it back into the bank is not nice... but what about people who pay cash for everything?
Would it be worth it instead of pulling the cash out of the ATM to instead buy coins every few weeks and spend those? You get the best of both worlds: you get the reward points, and you control your spending by only having a fixed amount on you at any time. Bonus is that you're not going to carry $100 around in $1 coins, so your spend is likely to drop more. (or you have to plan ahead)
I'm sure cashiers wouldn't like you (what, you want to pay for your new computer in 1000 $1 coins?)
Neat arbitrage play (with some minor risk as noted in the article).
If the Mint isn't losing any money on the credit card transactions (think PayPal fee's), then he's essentially getting free money from his credit card company. Otherwise I'm curious who wrote the law to let the Mint sell $15,000 for ~$14,500 (guess) after CC fee's and shipping... ;)
The poor bank definitely loses out. They have to spend all those man hours processing coins, money which they won't make back in interest as he'll clear out his savings/checking account rather quickly to pay the credit card fees.
--------------------
EDIT: Per frisco's link:
The Mint says it costs, on average, about $3 to ship each 250-coin box. So $10,000 in coins would be 40 boxes, or $120 in shipping. As for credit-card costs to the government, a Treasury Department agency handles all government credit-card transactions and negotiates costs. No particular credit-card expense is charged to the Mint, a spokesman says.
So, $15,000 in coins would have been sold at a loss of $180 to the U.S. Mint. That doesn't take into a lot of other costs like manufacturing.
I love how that in bold blue letters the page says:
"The immediate bank deposit of $1 coins ordered through this Program does not result in their introduction into circulation and, therefore, does not comply with the intended purpose of the Program."
Damn, I thought I stumbled on a way to cheaply convert foreign currency into US dollars, but their website only accepted US addresses, and now I realize, probably only US currency, too. :(
> that only left myself as the scam artist and I knew I wasn’t trying to cheat anyone, so that took care of that concern.
Er, yes you are. You are causing a bunch of people to do a bunch of work producing no useful value for your own enrichment. Sounds like a scam to me; even if it's technically legal, it's still unethical.
There are really two scams going on here. One is the credit card companies charging merchants fees and passing some of the money on to their customers in order to incentive the use of the cards. This eats into the profit margins of the merchants, who don't have much power to refuse credit card payments because the guy down the street/other store on the web will accept them.
The other is using a credit card to buy cash, deposit it, and collect the rewards. Those rewards are coming out of merchant fees that the mint is paying; you're basically just having the mint pay you to give some extra work to your bank to sort out the coins. And of course, you're abusing the good will of you bank, who's (probably) sorting out those coins for free, which you just have on credit and are doing nothing of value with, and will not be deposited in your account long enough to be worth anything to the bank in interest.
So yeah, it's a scam, and you're the scammer. This is not something to be proud of. Go produce something of value, that someone will pay you money for; don't try to find clever ways to get "free money," since anything that involves "free money" is either a charity or a scam on someones part.
56 comments
[ 3.3 ms ] story [ 112 ms ] threadEDIT: Also, looks like the mint has caught on to this guy (http://catalog.usmint.gov/webapp/wcs/stores/servlet/ProductD...):
The immediate bank deposit of $1 coins ordered through this Program does not result in their introduction into circulation and, therefore, does not comply with the intended purpose of the Program.
Not sure that's legally binding, but it's at least a dishonest thing to do.
For what it's worth, I usually keep one of the $20 rolls for tolls per $1000 order that I buy.
WSJ article: "US Helps Frequent Fliers Make A Mint" http://online.wsj.com/article/SB126014168569179245.html
The way the Mint reacted was by imposing a new limit to the dollar amount one can buy in a month.
Buying the coins takes a matter of minutes. They sit at home until I need to run to the bank. And at the bank, depositing rolled coins is painless. Never had even a hiccup at the bank.
My usual contracting rates for smaller projects are $75 to 100 an hour so this is right inline with that.
Edit: Ok I admit defeat here. I don't think the costs are anywhere near interesting from a where-does-my-tax-money-go perspective, but I concede that the Mint must spend some amount of money on it. I won't delete the comment for historical purposes but consider it retracted!
Oh and there's shipping. 300LBs anywhere isn't going to be cheap.
Why won't depositing these coins into the bank get them into circulation? It has to be either because the bank won't hand them out unless you specifically ask for them or because people don't want them. That's a sure sign that a coin is DOA.
The mint was eating the entire credit card transaction cost, so that $300 came from the mint, and probably more as well. Not to mention the shipping charges, and the cost to re-process all of those coins when they came right back to the mint. The line item profit to the mint is still positive since it cost way less than $15,000 to make those coins and they can re-sell them. But in reality, it just means that either the mint prints more dollars to make up for the loss (taxpayer loses in inflation) or more taxes are raised to pay for the loss (taxpayer loses more directly).
The bank where he deposited the coins also was forced to eat processing cost and shipping charges to return the coins to the mint. If lots of people started doing this, the bank would end up having to raise rates, charge for the service, or put significant limitations that would hurt legitimate usages (ex: laundromats).
All in all, this is a naughty hack. The hacker came out ahead, the credit card company came out ahead. The bank lost a little, the US government and taxpayer lost big. The economy as a whole loses as well - a lot of busywork was created, but no net value.
I find it in my best interest to make it as easy as possible for clients to pay me. If I have to pay a percentage point to make it easy for a client to hand me money, I'll gladly take that as a cost of doing business.
The people he's getting his money from is his bank/credit card company. If you want to say "screw you" say it not as a tax payer, but as a consumer of credit cards, who will eventually have to deal with higher rates/restrictions/limitations on rewards.
He gained about $200 worth of airline points, and taxpayers are out about $1000. Sounds like a good deal to me. Or not.
Second, if he only got $200 out of the deal, his fault. I personally make $20 per $1000 in cashback.
Could they in theory issue a 100% cash back card that the merchant gets charged 100% on? How is the merchant supposed to know what they are getting charged when the swipe a given piece of plastic?
http://www.braintreepaymentsolutions.com/blog/Costco-your-ma...
I have no idea if what you proposed is possible, but my guess is that no one would accept that card :) I don't accept amex because I think it represents a fraction of actual users, and those users have other cards because they are used to getting told "nope, sorry don't accept amex".
In this specific case, they are exposing themselves to risk from the time value of money, the capital price of the bond. If rates rose 0.5%, they lose 3% on a 7 year bond.
Iraq|Healthcare|Welfare|NEA|USPS
Better a taxpayer get back some stolen funds from the government than have it thrown away in another country, or on bloated pork.
what about the airlines?
I call BS.
I however have intentionally tried to "put them into circulation", using them to pay for small items at the farmers market, drive-through windows, tips, etc. I've had to explain them a few times, but most people think it's interesting and it makes for a few seconds of friendly conversation. I think I've burned through around half so far.
I expected to have a "this is a quarter, sir" moment but I've used them hundreds of times and never have.
Leads me to believe this is commonplace.
I'm not sure what certain uh, industries, that deal in single bills a lot would do, though.
I guess if ignorance of the way he's hurting people counts as "not cheating them" this is true.
He gets the airline miles because the US mint takes in between a 1% and 3% loss on the transaction to pay the credit card company. They also lose money when they ship him the coins for free. The reason the US mint is willing to do this is because coins are so much cheaper for them in the long run than bills, once they go into circulation; they're paying this guy and UPS a fee for helping them put dollar coins into circulation. This guy is taking that fee, but not putting the coins into circulation. Its not like the money in his rewards account appeared out of nowhere.
http://en.wikipedia.org/wiki/Structuring
Would it be worth it instead of pulling the cash out of the ATM to instead buy coins every few weeks and spend those? You get the best of both worlds: you get the reward points, and you control your spending by only having a fixed amount on you at any time. Bonus is that you're not going to carry $100 around in $1 coins, so your spend is likely to drop more. (or you have to plan ahead)
I'm sure cashiers wouldn't like you (what, you want to pay for your new computer in 1000 $1 coins?)
If the Mint isn't losing any money on the credit card transactions (think PayPal fee's), then he's essentially getting free money from his credit card company. Otherwise I'm curious who wrote the law to let the Mint sell $15,000 for ~$14,500 (guess) after CC fee's and shipping... ;)
The poor bank definitely loses out. They have to spend all those man hours processing coins, money which they won't make back in interest as he'll clear out his savings/checking account rather quickly to pay the credit card fees.
--------------------
EDIT: Per frisco's link:
The Mint says it costs, on average, about $3 to ship each 250-coin box. So $10,000 in coins would be 40 boxes, or $120 in shipping. As for credit-card costs to the government, a Treasury Department agency handles all government credit-card transactions and negotiates costs. No particular credit-card expense is charged to the Mint, a spokesman says.
So, $15,000 in coins would have been sold at a loss of $180 to the U.S. Mint. That doesn't take into a lot of other costs like manufacturing.
I love how that in bold blue letters the page says:
"The immediate bank deposit of $1 coins ordered through this Program does not result in their introduction into circulation and, therefore, does not comply with the intended purpose of the Program."
Er, yes you are. You are causing a bunch of people to do a bunch of work producing no useful value for your own enrichment. Sounds like a scam to me; even if it's technically legal, it's still unethical.
There are really two scams going on here. One is the credit card companies charging merchants fees and passing some of the money on to their customers in order to incentive the use of the cards. This eats into the profit margins of the merchants, who don't have much power to refuse credit card payments because the guy down the street/other store on the web will accept them.
The other is using a credit card to buy cash, deposit it, and collect the rewards. Those rewards are coming out of merchant fees that the mint is paying; you're basically just having the mint pay you to give some extra work to your bank to sort out the coins. And of course, you're abusing the good will of you bank, who's (probably) sorting out those coins for free, which you just have on credit and are doing nothing of value with, and will not be deposited in your account long enough to be worth anything to the bank in interest.
So yeah, it's a scam, and you're the scammer. This is not something to be proud of. Go produce something of value, that someone will pay you money for; don't try to find clever ways to get "free money," since anything that involves "free money" is either a charity or a scam on someones part.