Los Angeles Times Covers the End of the US Mint Buying Money For Miles Deal

The deal was on the way anyway, in all likelihood, but certainly Wall Street journal coverage has to be the nail in the coffin.

There are plenty of reports that purchases of coins from the US mint no longer earn miles, at least via those credit cards where I’ve seen reports.

The Los Angeles Times covers the end of the deal.

Here’s their summary of the opportunity, which is pretty much accurate:

The trouble began in June 2008 when the U.S. Mint launched a “direct ship” program to sell dollar coins directly to the general public in hopes of increasing the use of the coins, which last longer than paper currency. Under the program, individuals could buy a maximum of 500 of each of five presidential dollar coins issued by the mint (Washington, John Adams, Jefferson, Madison and Jackson). But the mint set no limit on purchases of a sixth coin, which bears an image of Sacagawea, the Shoshone woman who guided the Lewis and Clark expedition. The mint allowed people to buy the coins with credit cards and offered free shipping in the continental U.S.

Several savvy frequent fliers got the idea to buy the coins with credit cards to accumulate reward points and then pay off the credit card balance after depositing the coins at a bank. (Some banks charge to count coins; others offer the service free.)

Word spread about the scheme on Internet blogs, such as Flyertalk.com. The Wall Street Journal, which broke the story last week, quoted a frequent flier who identified himself as Mr. Pickles and claimed he bought $800,000 in coins with his credit cards to jack up his rewards point total. He told the Journal that he pulled off the scheme by using several banks and numerous credit cards.

The mint took an interim step, as I’ve written about here in the past, of confronting those who they thought were ‘abusing’ the offer:

Since the program began, the mint recorded about 40,000 “direct ship” coin orders. Jurkowsky said the mint believes fewer than 1% of those orders may have been made to generate airline miles.

In the letter sent to the biggest coin buyers, the mint asked the cardholders to explain their unusually large purchases.

Jurkowsky said some of the people who responded to the letters had legitimate explanations, such as owners of coin-operated laundromats who need the coins to operate the washers and dryers.

But so far about 20 people who couldn’t explain the need for so many coins have been barred from ordering more coins, he said.

Unquestionably there were more than 400 orders placed for the purpose of earning miles. The mint’s “fewer than 1%” claim is clearly false, if their report of the number of total coin orders placed is true.

Finally,

The mint is now making a permanent fix to the problem, Jurkowsky said. In the future, credit card purchases will be recorded as cash advances rather than credit card purchases. Credit cards typically do not give reward points for cash advances.

But their analysis of who ‘paid’ for the deal is completely off the mark:

Industry insiders say the real losers in such schemes are not the airlines but the banks that buy the rewards points from the airlines and offer the rewards to cardholders to encourage them to spend on their cards.

Wrong.

Airlines got paid by the banks for the miles.

Banks got paid by the US government for the credit card merchant fees.

The airlines and banks were absolutely no worse off for these purchases than for any other.

The cost of the deal was borne by the Treasury (credit card merchant processing fees) and Mint (for the free shipping).

On the other hand, of course, the cost to manufacture a $1 coin plus shipping and merchant fees is less than $1. So we can all have arguments over whether the govenrment is actually worse off. But unquestionably the article is wrong to say the banks were made worse off through this deal.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Gary,

    What concerns me is everyone who wants to go ahead and point out the obvious holes about the reports in the media that prove that this thing isn’t dead.

    I prefer to let everyone thing it’s dead and still be able to take advantage of it…

  2. @Chris, I pointed out an error in the analysis of who was paying the cost of the deal,not the various ways people are working on still getting the coins 😉

  3. i think the question is whether the cost of minting a coin and getting it into circulation is more or less than that of a dollar bill. Assuming that all coins ordered circulate at the expense of bills, the mint cleaned house on this deal (the math is 16 cents per bill that lasts 22months vs 70 cents per dollar and it lasts 30 years, at 4 percent long term interest rates, discounting back the cost of the bills is $1.86 per dollar per 30 years, vs 70 cents per dollar per 30 years.) This assumes those coins replace bills and those bills would have continued to be printed for 30 years. Most likely we come out somewhere between, so it is possible the mint came out ahead, but given the magnitude of the abuse i would guess not.

  4. i think the question is whether the cost of minting a coin and getting it into circulation is more or less than that of a dollar bill. Assuming that all coins ordered circulate at the expense of bills”

    But they didn’t get into circulation! That’s the whole point; people were bringing unopened boxes of coins directly from their front doors to their banks, and (as I understand it) the banks were sending them back to the government.

    If coins really were being circulated by people buying them for miles I don’t think the Mint would’ve had a problem given the desirability of replacing bills with them. But they weren’t.

  5. The people that got screwed were those holding frequent flyer miles. Schemes like this create miles/points inflation. It makes rewards flights and rooms less available and incites rewards programs to change their redemption levels (see Hilton). So, in theory, we all are paying for it.

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