12. Buying and Returning
Let’s start with this: This is the sleaziest method of earning points.
But if we really look closely, you might find it isn’t that much sleazier than all of the other methods. At this point, it’s probably time we stop and ask ourselves, “Who really pays for all these points and miles we’ve been earning?” The answer, in most cases, is both banks and merchants.
When you earn a large pile of points as a sign-up bonus or for meeting a minimum spend requirement the majority of this comes straight out of the bank’s purse, although banks negotiate good rates for purchasing airline and hotel miles from their partners because they purchase so many of them.
But when spending is manufactured through the methods discussed in this series, the hit is really split right down the middle among the credit card banks and the merchants from whom we buy these prepaids. Take a 5% category bonus as an example. When I buy a VR at a CVS for $503.95 with my now extinct Citi ThankYou Preferred 5x, I earn 2520 TY points. I value these at $25.20 because that’s what I can easily get when I redeem them for gift cards. But what happened behind the scenes? The answer is that CVS was charged for about 2% of the transaction because this is the standard credit card fee for merchants. That’s about $10 of the $25.20. The remainder is coughed up by the bank.
Banks know that category bonuses and sign-up bonuses will be their loss leaders. They hope that users will make up for category bonus spending by regular spending and everything else is more than covered by the predatory interest fees that are charged to users who keep a balance. People like myself are highly unprofitable for these banks. I have churned somewhere near a half a million dollars through credit cards and haven’t paid a cent of interest. But these banks will continue to issue me new credit cards and more credit. The more rope they give you that you don’t hang yourself with, the more rope they try to give you so you do. It’s impossible for them to know that no matter how much credit they give me, I will never pay a cent of interest.
The picture on the merchant side, however, is a bit more puzzling. I just don’t see why CVS continues to take credit cards as payment for Vanilla Reloads when they know they are paying more in merchant fees than they are recouping from the $3.95 fee. Amazon Payments is even worse because they don’t make a cent of revenue if you keep payments below $1000 a month. I can only justify these situations by the explanation that we are currently living in the “Golden Age” of manufactured spending. These business have decided that it’s worth it to them to take a little loss they get you in the habit of shopping with them or using their service. I can’t believe this will last forever.
The method I am about to cover is extremely sleazy to me because it puts the entire burden on the merchant. When goods are purchased and then returned, the bank gets its merchant fees and the merchant doesn’t make any profit. If a category bonus is earned, the bank still pays some, but the difference is that they are making some revenue from the transaction while the merchant is making none. It’s with hesitance that I reveal this method but I do so because others have already covered it and I believe in full disclosure.
Buying and Returning at Costco
I love Costco. I buy all my groceries from Costco as well anything else I use that they sell. I buy my gas from Costco and everything I need for my car like tires. They are my favorite store and one of the best run American businesses. For these reasons, I have not used this method but I know it can be done.
Costco only accepts American Express cards. Before I mistakenly believed that they only accepted their co-branded Costco TrueSavings American Express card, so I signed up for one. Then I realized they accepted all Amex cards, so now I use my SPG card for purchases in store and the Costco Amex at the pump because it gets 3% on gas. By the way, this is still usually cheaper than using a card that gets 5% back on gas at other gas stations because Costco’s gas prices are usually much cheaper than other gas stations to begin with.
While Costco only accepts Amex in store, they accept Visa and Mastercard as well online. They have no way to put a charge back on a Visa or Mastercard if you return an item to a store that was bought with a Visa/MC.
- Buy merchandise at Costco.com with a Visa or Mastercard that earns points or miles. Don’t buy diamond rings or other jewelry. Buy small expensive items with very small shipping fees.
- Return merchandise at a Costco store.
- Explain that you paid with a Visa or Mastercard and have them write you a check.
- Deposit check and pay off credit card bill. Net points/miles.