Tuesday, May 7, 2013

How the Credit Card Companies Get You!

Yesterday I posted an ethical question that was posed at my Shabbat table last week.  "Is it ethical to work the system and cash in on credit card rewards with no intention to be a customer?"  There was a great deal of off line discussion on the matter.  My uncle Mark Honigsfeld (yes the same famous Uncle Mark who had the idea to sell Warren our chametz!) sent the following response which I found informative and compelling:

Credit card companies (CCC) are managed by some of the savviest known business minds in the financial world. They are also experts in marketing strategies (often referred to as gimmicks) to lure consumers using legitimate legal methods of what many consumer advocates would call "bait and switch". 

Credit card companies, as you noted in your blog, earn their fees in different ways. It would be totally naive to believe that CCC don't expect a certain percentage of consumers to take full advantage of the offer and subsequently canceling or not renewing their subscription. 

As by your example, I don't equate this to shoplifting but would offer a different example: 
If a store were to run a sale and promote the sale as follows "selling the 1st 100 customers a certain item at below cost" I assume there would be no question of ethics regarding anyone who arrives 1st, intending only to purchase the item on sale. Although the full intent was for the store to lure you in and expect you to purchase something else while in their store. Does this pose any moral or ethical question?

Is intent not to respond to a promotion in a way the merchant "may" have hoped for considered unethical or rather is it merely a consumer's inherent rights in fair dealing practices?  

So too as my example above, with these offers from the CCC, they lure you in, hoping to get a long term customer and with that "bait" they offer you a promotion. The majority of subscribers do in fact keep the card, and those who don't have given the CCC other fair consideration and financial returns. 

  • Fees for the sales that the consumer must purchase with the card for the consumer to earn the rewards, also get paid fees from the merchant. 
  • In some cases consumers who intentionally think they will beat the system, pay exorbitant interest charges when they are not able to pay off the CC balance at end of billing cycle. CCC know this fact and factor it in to the cost of the promotion. 
  • Awards often expire and also become worthless. This is known as breakage and is also used in calculating the cos of any promotion. 
  • CCC also use the data the consumer provided when applying for the credit card for marketing purposes and often sell this information to mailing list houses for significant fees.  

When one understands the profiteering that results when such offers are made by CCC then one should be comfortable in taking full advantage of the offer. 

If canceling the card after awards are realized are of concern, then I would think the CCC would charge a penalty for doing so but they don't because they understand the business advantages not to do so. 

This is one man's opinion which is not based on Halacha but rather an understanding of business and as a credit card merchant.


  1. What about selling the miles when the CC company 'doesnt let'?