Sunday, August 28, 2022

The Frequent Flyers' Wily World of 'Manufactured Spending'

While the name David Phillips seems commonplace and unexceptional, substitute his nickname Pudding Guy and you have a legend among travelers involved in the game of manufactured spending.

What did David Phillips do? Back in the 90s he was inspired by a Healthy Choice mail-in promotion to buy thousands of dollars worth of pudding and mail in the barcodes for air miles, earning well over a million air miles (referred to as "points") in the process. He's a member of FlyerTalk (as we have been since 2002), where there is an entire forum devoted to Manufactured Spending

You can read about Pudding Guy here. His exploits even inspired the subplot for an Adam Sandler character in the movie Punch-Drunk Love. Incidentally, Pudding Guy's five suggestions* quoted in that article are spot-on and well worth reading. We've followed every single one of them since our earliest days of intensive travel in the early 2000s.

Manufactured spending is usefully defined in the Doctor of Credit blog as "the process of purchasing cash equivalents with a rewards earning credit card, where the rewards earned are greater than the fees incurred."

There have been other legendary uses of the manufactured spending ploy. For example, the US Mint set up a promotion to encourage the use of dollar coins. Someone quickly discovered they could order the coins with a credit card, After the Mint shipped them for free, the customer turned them in at a bank, and paid the bill with a points-earning credit card. Many people earned millions of points buying dollar coins. 

Hilariously, after the US Mint finally caught and stopped the promotion, the Royal Canadian Mint set up exactly the same scheme and ran it even longer than had the US Mint, with the same results: a windfall for practitioners of manufactured spending. 

Then there was the guy who hired a team of out-of-work Thai rice farmers and paid them more than the Thai minimum wage just to be on a plane all day long, back and forth between two Thai cities on an airline running an $8 fare special, thereby earning millions of points. In the process, the US Drug Enforcement Administration called him in for a chat, initially suspecting he was the "stupidest drug-runner they'd ever seen." By the time he was done explaining, one of the agents allegedly asked if he could get in on the action. 

Years later, people continue to buy various kinds of gift cards and money orders, only to churn them and cash them in.

Setting aside the question of whether or manufactured spending is a moral endeavor, the fact is that people engaging in manufactured spending are behaving in a way similar to those involved in the definitely criminal practice of money laundering. That can raise suspicions with credit card providers, banks, and merchants. You can read a description of an individual who says he was detained and questioned by the police and the IRS after buying gift cards at a Walmart. 

You can read a discussion here about whether manufactured spending is illegal "or just a great travel hack."

You can read here about another couple who largely beat the IRS when the latter came after them for taxes on about $300,000.

It's easy to understand why the blogger at God Save the Points says "I think manufactured spending is dumb," and gives reasons.  

Is manufactured spending worth the time and trouble and risk? It definitely isn't for us, but it obviously is for some. 

*Pudding Guy's five suggestions on earning and traveling with airline miles:

1. Become a travel industry guru by studying travel blogs and deal sites.

2. Be ready to purchase a last-minute deal. Don't hesitate.

3. Be flexible with your travel calendar.

4. Don't always use your airline miles. 

5. Check these websites daily [open the article for the details].


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