Churning crackdown worries credit card rewards chasers
A move by American Express to crack down on people who earn
multiple sign-up bonuses by opening and then closing the same kind of credit
card repeatedly is causing alarm among credit card churners, who see the
decision as the latest sign that harvesting cards for miles and points is
becoming less lucrative.
To most cardholders, the change might not sound like a big
deal: American Express says that effective May 1, it will not award sign-up
bonuses on new accounts to people who have held that type of card before.
Previously, the company offered bonuses as long as an applicant had not
received a bonus on the same type of card in the previous year. An American
Express spokeswoman told CreditCards.com that the company is making the change
to its consumer cards "to ensure fairness and clarity."
However, to a small but growing segment of cardholders who
apply for cards chiefly for the sign-up miles and points, the new policy
represents a disturbing derailment of the free-travel gravy train -- especially when combined with changes to airline and hotel award programs that make it costlier for leisure travelers to earn free trips.
"This is the beginning of the end," wrote one commenter on DansDeals, a site that directs
people to credit card and Internet deals. "Once churning is gone (as other
cards and banks follow suit), there is nothing much left. The whole credit
card/miles shtick was good while it lasted."
The change is also a sign that churning cards has become
more popular. What started several years ago with a small number of hard-core
devotees of the travel site Flyertalk
has now blossomed into its own industry, with dozens of similarly named blogs
highlighting card deals and advising people on how to accumulate and
spend reward points. The best-known bloggers, who, like this website, receive
payments from card issuers when new customers are approved,
regularly offer their expertise at seminars, travel shows and in national media.
have new blogs popping up every day, preaching this to a whole new audience,
and bloggers are speaking about it in the media," says Ariana Arghandewal,
founder of the blog PointChaser. "The card companies are
starting to realize that [as] more people get into this, [it] is not a
26, says she has about a dozen active cards and has used the points from
sign-up bonuses to take free trips to Maui, Dubai and Turkey. Her rule of thumb
is to apply for four new cards every 90 days to "minimize the damage" to her
credit score from having too many inquiries in a short period.
For consumers, doing the math on churning credit cards is
fairly straightforward. If you pay your bills in full and on time, the only
expense is annual fees, which card issuers often waive on travel-reward cards
for the first year, plus any expenses you have in claiming the rewards. You
also have to be able to spend enough to meet minimum-spending requirements,
typically a few thousand dollars over three or six months -- but bloggers have
tricks to help hit those targets, too.
The card companies are starting to realize that [as] more people that get into this, [it] is not a sustainable model.
After earning those bonus points or miles -- worth hundreds
or even thousands of dollars in free flights or hotel stays -- you can close
your account, wait a little while, then apply for the same card again and earn
a second windfall of points or miles.
That strategy has gained appeal as sign-up bonuses have
risen. Until a few years ago, the standard sign-up bonus from an airline was
25,000 miles, enough for a free round-trip in the continental U.S. Now, offers
of 40,000 or more are common, and in the past two years, issuers including Capital One,
and Chase have offered cards with 100,000 miles or points, enough for four round-trip
Marketing project manager Kevin Barry, 28, of Philadelphia says
he's found it easy to get used to sipping Dom Perignon and sleeping on flat
beds in first class with the miles he has earned from churning cards. That approach
has allowed him to take trips to Europe, Hawaii and Mexico that he otherwise
never would have taken.
"I try to share this with as many people as possible, but a
lot of them think that it's not true, that it's a scam," he says. "I try to
preach that it's real, and it's unbelievable."
He says he has "probably 15 or 20" active cards. In the past
few years, Barry says he's received three separate sign-up bonuses from the
Barclaycard US Airways MasterCard, plus two each from the Bank of America
Alaska Airlines Visa, the American Express Starwood Preferred Guest and the Chase
He acknowledges that his credit score gets dinged by a few
points with every application, but he says it recovers within a few months. He
says his credit score is 765, which he figures is higher than the scores of
some of his friends who do not churn cards. Barry shares tips on his
Disney-travel site, FrugalMouse.
Barry says the biggest obstacle is not earning the points,
but spending them. Airlines and hotels have recently been raising the number of
points required for trips, and many of them make little inventory available or
charge fees to book travel with points.
From the perspective of the banks, the calculation on what
makes a profitable customer is murkier. They receive money from annual fees,
swipe fees from every use of the card, plus any late fees or interest charges. Lately,
annual fees seem to be increasing and spending requirements on new cards seem
to be on the rise as well.
We're going to hear a lot of moaning, there's going to be a lot of hand-wringing, and it won't be pretty.
American Express is launching a new card in April that
encourages frequent use -- and collection of swipe fees -- by tying rewards to continued use of the card. The AmEx EveryDay card (no annual fee) gives
users a 20 percent Membership Rewards point bonus for every month in which they
make 20 or more purchases.
But while banks attempt to increase card revenue, they also have
expenses. They have to pay for overhead, such as marketing and issuing cards,
and partnership fees to airlines and hotels that allow them to offer miles and
points in their programs. In 2013, for instance, Alaska Airlines recorded a
gain of $150 million associated with extending its credit card agreement with
Bank of America.
Several banks contacted for this article declined to discuss
their policies on sign-up bonuses.
Veteran award-travel writer Tim Winship, who founded FrequentFlier.com in 1997, says banks
should not be shocked that people are responding to incentives the banks
"In a sense, it's a problem of their own making," he says.
"They're offering these outsized bonuses. What do they expect people to do, sit
on the sidelines and say, 'Gee, I don't want 100,000 miles for a new Citi
American Airlines card?'"
He says those incentives have given rise to a "very small
segment" of the travel market that is likely to complain loudly if other banks
follow American Express' lead.
"For that really focused, savvy group of people that pays a
lot of attention to these cards and will do anything they can to ratchet up
their account balances, that would be a significant setback, no question," Winship
says. "We're going to hear a lot of moaning, there's going to be a lot of hand-wringing,
and it won't be pretty."
See related: Credit card churning: not a game to play while house-hunting
, Professional award bookers promise 'free' flights for fewer miles
, Keeping up with ever-shorter rewards promos
Published: March 21, 2014