I write often about techniques for manufacture spend. These are techniques designed to increase credit card spend in ways that result in getting most or all of your money back. The purpose of these techniques is to help meet minimum spend requirements, earn big spend bonuses, or to simply increase credit card rewards. While there’s nothing illegal about these techniques, sometimes they can be used for illegal purposes: fraud, theft, money laundering, etc. As a result, banks and other financial institutions watch for suspicious activity and will often shut down suspicious accounts, usually without warning. Similarly, banks that believe you to be a bad financial risk or an unprofitable customer can shut you down.
If a bank or credit card issuer shuts down one of your accounts, it will most likely shut down all of your accounts. For example, if Chase shuts down your checking account they will most likely close all of your Chase credit card accounts as well.
Almost everyday I get questions about this. People ask… what is safe? Let’s try to figure that out…
A couple of years ago I broached this subject specifically with respect to Chase accounts. I wrote: Why Chase cancels accounts (and how to protect yourself). In that post I suggested that accounts were shut down for two primary reasons: Bad credit risk, and “Perk abuse” (a term I made up for that post). Both are valid concerns today, but its necessary to add another shut down trigger: suspected money laundering.
Let’s look briefly at each…
Bad credit risk
When a credit card customer suddenly starts charging more to their card than they earn, it’s perfectly reasonable for the card issuer to worry that the cardholder won’t be able to pay them back. When this happens with American Express cards, you’re likely to receive a financial review. If that happens, your Amex accounts will be frozen until the review is done. If you pass, you’re good to go. Otherwise, you’ll need to look to other card issuers for credit cards. View from the Wing wrote up details about Amex financial reviews here. Other banks may not be kind enough to give you the chance for review. They may decide to cut their potential losses and simply shut you down without opportunity for review.
Credit card companies often offer bonuses as loss leaders in order to attract new customers, retain existing customers, or to keep their card “top of wallet”. In many cases, these bonuses are “game-able”. If you game the system too much, though, you may get shut down.
One famous example was when the Chase Freedom card used to offer checking account customers an extra 10 Ultimate Rewards points per transaction. Since Ultimate Rewards points can be redeemed straight up for 1 cent per point, this meant that a one cent purchase turned into a 9 cent profit for the consumer. Of course, it wasn’t long before people figured out ways to script the purchase of 1 cent gift cards. They ran their scripts thousands of times, earned huge piles of Ultimate Rewards points, and then had their accounts shut down.
Then there are cases that many of my readers are familiar with. One example was when Citi had a signup offer for their ThankYou Preferred card in which customers would get 5 points per dollar at gas stations, groceries, and drug stores for 12 months. Needless to say, many customers spent a lot of money at those locations buying gift cards and reload cards. And, for a few weeks one May, many people had their accounts forcibly shut down.
Suspected money laundering
Some manufactured spend techniques result in cash or money orders that need to be deposited to a bank in order to pay one’s bills. In small amounts, that’s fine. In large amounts, banks are likely to suspect you of money laundering. How much is “a large amount”? Due to the Bank Secrecy Act (which requires financial institutions to assist government agencies in detecting money laundering), deposits (or transfers or withdrawals) of $10,000 or more must be reported to the government. So, it seems likely that regular deposits over $10,000 will be more closely looked at than smaller deposits.
That does not mean you should actively deposit “just under” $10,000! If you do that, your manufactured spending will suddenly become illegal after all. The reason? Structuring. It is illegal to “structure” deposits in order to evade these reports. Banks are required to report potential structuring as well. Travelblawg has a couple of in-depth posts about manufactured spend and structuring. These are worth a read:
So, what’s safe?
I don’t know. I don’t work in the banking industry. I have no inside knowledge of… anything. That said, I do get asked this question all the time. So, for those who don’t mind taking advice from someone who knows almost nothing about this subject, here are my best guesses as to what is safe:
Bad credit risk
To avoid looking like a bad credit risk, I recommend keeping credit card spend below the salary stated on your credit application. For example, if your stated salary was $60K per year, that averages to $5,000 per month. Keep your balance with that bank below $5,000 at any one time. For most people, that means spending less than $5,000 per billing cycle. Some like to pay off their credit card multiple times per billing cycle, though, so you may be able to spend more than $5,000 without raising concerns that you’re a bad credit risk. Warning: paying off your credit card many times per month may raise other red flags. I don’t know this to be true, but it seems reasonable.
To avoid getting shut down due to perk abuse, many think that it’s a good idea to mix bonus spend with “regular” spend. In older posts, I’ve been known to recommend that myself. For example, I used to recommend that people use their Chase Ink cards not just for 5X bonus spend but for 1X or 2X spend as well. But… I’ve long since stopped listening to my own advice here. I have a number of credit cards with 5X categories and I use them exclusively within their bonus categories. I’ve never had any problem with that approach.
I believe that a more important safeguard is to limit the credit card issuer’s losses. If you cost them too much money, they’ll eventually notice you. How much is too much? Since we have no other information to go with (that I can think of), let’s go with the bar set by Amex recently. Their “old” Blue Cash card lets people earn 5% cash back at grocery stores (after the first $6500 spend each year). This benefit used to be uncapped, but Amex has recently imposed a $50K per year cap on that spend. In other words, they’ve limited their exposure to 5% of $50,000 or $2,500 per year, per person. Chase has the same $50K limit on 5X spend with their Ink Plus product. This leads to a few recommendations:
- For cards with great spend bonuses, limit bonus spend to $50,000 per year
- For cards with other types of “game-able” bonuses (like the Freedom example), limit the bank’s payout to you to less than $2,500 per year.
- Spread out the spend as much as possible. For example, if you plan to spend $50,000 per year, try to keep to less than $5,000 in any one month.
Suspected money laundering
The best way to avoid suspicion of money laundering is to avoid depositing cash or money orders at all. Sometimes the same techniques that are used to buy money orders can be used, instead, to pay your credit card bills. Or, rather than depositing your cash or money orders, try going into your bank and asking to pay your credit card bill with cash or money orders. If cash or money order deposits are unavoidable, I’d recommend keeping such deposits to $3,000 or less per week. My guess is that that’s low enough to avoid suspicion. No self respecting money launderer would do such low amounts, right?
Have you had credit card accounts or bank accounts shut down due to manufacturing spend? From your experience, do you think that the above guidelines would have kept you safe? Do you have other suggestions for staying safe? Please comment below.
Last updated on February 23rd, 2016