American Express sent a chill across the travel hacker community this week with a warning that it planned to take steps to curtail credit-card churning, a technique used by travel hackers to snag generous travel rewards at little or no cost.
Card churners sign up for new credit cards to earn a bonus, sometimes as high as 100,000 rewards points, after spending a set amount within a specified time period. Having earned the big payout, they stop using the card, moving along to the next card’s new-member bonus. Churners are money-losers for the credit card issuers, who never recoup the high membership-acquisition costs.
At an investor day earlier this week, American Express, which issues a range of rewards cards and has offered some of the industry’s most aggressive sign-up bonuses, said that the company was concerned by the increase in churning and is using analytics to weed out offenders. As reported by Bloomberg, an AmEx spokesperson alluded to the “opportunity to use our analytics and technology to surgically remove gaming and reinvest in higher-quality, more loyal new customers.”
It’s not at all clear how AmEx might “surgically remove” churners, except by ratcheting back the sign-up incentives that have made churning such a lucrative practice. But that would put AmEx at risk of losing share in the market for well-heeled consumers who use rewards cards over the long term and contribute significantly to the company’s bottom line.
There’s no obvious way to identify short-term customers and preempt their taking the up-front rewards and running. It’s a knotty problem not just for AmEx but for its competitors as well. Chase’s solution is the so-called 5/24 rule, which prohibits consumers from opening more than five card accounts within a 24-month period. Although it’s no longer published on Chase’s website, the guideline is assumed to remain in effect when new card applications are considered for approval.
The AmEx warning comes as churning has become increasingly mainstream, with more and more consumers signing up for cards solely to earn the hefty bonuses. Just this week, the New York Times featured an article entitled “How to Make the Most of Your Credit Card Points” schooling consumers on how to most profitably redeem all those credit-card points earned from churning.
To the extent that such churning is a problem for the card issuers, it’s a problem of their own making: They made it too easy to earn enormous bonuses, with no proof of long-term loyalty. It’s hard to see any other solution than an industry-wide cutback in the bonuses. Stay tuned.
Reader Reality Check
How many rewards points have you earned from credit-card churning?
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After 20 years working in the travel industry, and 15 years writing about it, Tim Winship knows a thing or two about travel. Follow him on Twitter @twinship.
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