American Express is like some person with multiple personality disorder these days.

In the last few months, they have granted me credit, and then submitted me to a financial review.

They have written people letters telling them they are being penalized based on where they shop, and then both denied it and said they will stop doing it.

Now, we learn that they are actually paying people $300 to cancel their accounts. What gives?

One Possible Explanation

I can’t explain all of Amex’s recent craziness, but I have been struggling to see why they would pay you to close your account. This story is picking up traction in the mainstream media, albeit several days after my readers learned about it.

Here is my theory: Big Spender X is starting to default on his credit cards. Amex’s computers show this is the case and want to jettison this excess baggage. If they offer him $300 to pay off his Amex account, perhaps he will do so first, before defaulting on his other accounts and/or declaring bankruptcy. Interestingly, the $300 payment comes in the form of a gift card. Why a gift card? Well, it is not a statement credit, it is not an account that could necessarily be visible to a bankruptcy judge, nor is it really cash. If I were about to declare bankruptcy, maybe having a “gift card” wouldn’t be such a bad place to keep some money from my creditors.

Amex Closes The Loopholes

Some savvy reward card aficionados, myself included, have been exploiting a loophole in American Express and other company’s reward cards. Now that Amex is closing the loophole, I don’t mind publicizing it a bit more. The trick is to purchase something that can be deposited in your bank account, netting you free mileage or reward points.

It doesn’t take too long to think of what your bank will accept as a deposit. The most obvious thing a bank accepts is money. Where can you money with your credit card? Clearly, making a cash withdraw on your credit card for this purpose is not wise, as you will be charged several percent as a cash withdraw fee, and immediately start incurring interest. Where else might you charge money to your credit card? Amazingly, the United States Mint accepts credit cards! Even better, they occasionally offer coins such as the new Presidential Dollar series to customers on a direct ship basis, with no shipping charges. Simply order money, and then deposit it in your account to pay off the charge.

The benefits are numerous:

1. You get the reward points for the transaction.

2. You can conceivably either earn interest on the deposit in the amount of time, up to 45 days it may take between when you deposit the money and when it is paid on your monthly statement. You could also use the deposit as a short term advance to smooth out an ripples in your cash flow.

3. You can reach the minimum spend requirements that various credit cards impose for certain benefits and bonuses. For example, last year I spent $30,000 on my Starwood Amex, qualifying me for Starwood Gold Status.

4. Finally, you can actually use the coins for their originally intended purpose. I have learned through my travels that most countries have long offered coins that were at least a dollar. Frankly, it is both novel and convenient to pay small expenses in dollar coins.

For American Express card holders, the same loophole has always been available to purchasers of traveler’s checks. If you lived near an American Express travel office, you could purchase traveler’s checks with no commission. Unused checks could then be deposited in your bank account, just like cash.

Just this week, I received a notice of a change in terms from American Express. It specifically said that, as of April 1st, they would no longer offer reward points for purchases of traveler’s checks and other cash equivalents. That language would seem to include coin purchases.

Is This The End Of That Trick?

Surprisingly, my prediction is that it will not be. As far as I can tell, only the reward points are being withheld. I can see no reason why someone couldn’t reach their minimum spending requirements or take out a free, short term loan, purchasing coins or traveler’s checks. Until Amex starts treating coins and traveler’s checks like cash withdaws, I suspect many people will still order them for purposes other than intended. Furthermore, there are plenty of valuable reward points offered by Visa and Mastercard issuers that can still be accumulated through the U.S. Mint.

At least for now.