Credit card churning jumping the shark?

I got the following piece of spam in my inbox. Looks like someone is trying to make a business out of helping people churn credit cards to make money off of the commissions. Is this a first sign of things peaking with credit card bonuses?

I got the same (and I had read about it before). Look at this thread, though: the OTR blogger isn't alone in his attempt. Lots of former travel blogs have become credit card hawking outlets. If the referral fees of $100-$200 are in the right ballpark, I can see why. Write a post about the magic Sapphire card, get two people to sign up... $$$ flow in. Rinse repeat. Wonder why Internet Brands acquired the Frugal Traveler blog? And now the enhanced version is to tell people that if you sign up for these 5-6 cards, they'll be able to take the trip of their lifetime. $$$$. To quote the email above: "Just fill out the form and we'll have you on that plane in no time." If only it was that easy. Talk about misleading advertisement.

I think bloggers should post how much they get from each ad right next to it. Not just tell you they get a referral credit, but how much that credit is. It would be hard to confirm, but if several different bloggers have wildly different numbers, someone would have to 'fess up.

I truly hope that this sort of solicitation will finally "saturate" this market and then the craze will die, as it should. I do not know if it is just me but I can see great potential for abuse and mayhem such as identity thefts, etc...

The thing is that it is perfectly legal...

The spam text that the OP quoted was plain wrong/inaccurate/misleading too. To state that you shouldn't apply for a credit card if you're going to be applying for a mortgage in "18-24 months" is just stupid. I applied for a mortgage (and was approved) at a rate of <3.65% in September, while I had applied and was approved for 3 different credit cards earlier in 2011. All the bank asked for as an explanation. That's it. Nothing else. As long as the credit score is high enough and the income and down payment can support the purchase, credit card inquiries will not kill a mortgage app.

Although I am not currently an affiliate for any of the CC companies, I am pretty sure that they state in their terms and conditions that you are not allowed to disclose your referral fee or they can terminate the agreement. I agree that it would be nice to know though.

Someone's always one step ahead of me.

Add on the recent brouhaha of the IRS starting to tax the sign-up bonuses, and who knows how quickly this whole thing comes crashing down.

Correct me if I am wrong, but I believe that the IRS has said that miles and points for sign up bonuses are not taxable at this time. Citi was the only one to send out INT-1099 forms and the IRS basically said that they won't come after you if you don't claim that on your taxes. In addition, Citi only sent those out for sign up bonuses on checking and savings accounts, not credit cards.

According to the LA Times (I know), the IRS has taken a stand on the miles:

http://www.latimes.com/business/la-fi-lazarus-20120131,0,1866043,full.column

The bottom line is that sign up bonus' for checking accounts are taxable. Here is a quote from the article: "When frequent-flier miles are provided as a premium for opening a financial account, it can be a taxable situation subject to reporting under current law," said Michelle Eldridge, an IRS spokeswoman."

The same IRS person stated miles earned from purchases are not taxable because they are more like a rebate on the purchase price.

Uhh... got something in writing for that? I am not a CPA or IRS employee, but I tend to believe that not reporting something on a 1099 is a bad idea. If you believe it's incorrect, get the issuer of the 1099 to provide a corrected one, but don't just ignore it. The 1099 goes to you and the IRS and a discrepancy between what Citi sent you and what you then reported is presumably very easy to detect for the IRS computers.

Clearly bank and brokerage accounts are financial accounts, but are credit cards? What about mortgages?

I always thought of my credit card accounts as checking accounts with a perpetually negative balance. What's really the difference?

I think the difference comes down to a deposit account (checking/savings) vs. a credit account (credit card/mortgage).

And technically, in case of CC bonuses, you don't get those unless you do some sort of spending, so they still fall into the "rebate" category.

A disaster waiting to happen.
It makes it sound as though CC churning/miles redemption are easy as pie.
I'm guessing many who would go for this are probably the same type of people who would go for 'get-rich quick' schemes and not fully understand the ramifications of opening up cards.
Most people who understand how churning works and how tricky redemptions can get don't need such a service.
My $.02

My guess is that you don't earn interest on a credit/charge account. You do earn interest on a checking/savings/brokerage account. That interest would be reported on a 1099, but the IRS is saying that if you get miles or points in lieu of interest, then you have to pay taxes on the value of those miles instead.

That would be news to me and my bank

But yes, your point is a good one.

So didn't Bank Direct give miles instead of interest on their checking account? Did they send out 1099s? And are we in the wrong thread with this discussion?

I have not gotten a 1099 for bank direct, and they never have as far as I can tell? Definitely the wrong thread thought.

Oops, guess I was a little too general with that. Must not have been thinking quite clearly. Obviously, you don't want to just ignore a 1099, but instead protest it through the proper channels. Thanks for calling attention to my lack of smart from this morning.

Sorry, I somehow missed that updated article. I was going from what I had read previously. Excellent example of why a person should stay quiet unless they know all the facts

I gave up my 0.5% interest rate at Wells Fargo when they started charging an $18 monthly fee. While it's not hard to find checking accounts with interest, rates are negligible. Heck, people are accepting negative interest rates from Germany to hold on to their money and give it back a year from now.

At least half of what I say is half true half the time. I can't promise more than that.

I don't know about Bank Direct, but it's a good example of who "should" send out 1099s (since they explicitly say they're giving you miles instead of cash for interest, whereas we can debate whether a 1099 is appropriate for a one-time bonus).

There are no wrong threads on MP. This ain't TOBB where half of them get moved or locked in 20 minutes!

Actually, I think what is "jumping the shark" is the affiliate program system. If CC companies pull the plug or greatly limit them, "businesses" like that won't have much of a reason to exist.

I had an account with Bank Direct and never received a 1099.

The referral bonus bloggers collect is around $20-$50 per successful application. It used to be $100-$200 for Amex cards before the recession. It's still pretty high, compare to other affiliate pay they collect. Like Expedia will give them 2-4% back, Delta $3 per transaction, etc.