Credit card churning is both moral and ethical

Over at Get Rich Slowly, Holly Johnson from Club Thrifty recently had an article about her foray into the world of credit card churning. Relative to the fun we have with credit cards, her adventures are fairly tame. We were struck by one passage, though:

Obviously there are some people who would say that we are gaming the system. Their argument may be that the credit card bonuses are meant to secure long-term customers, not to provide some extra cash to take my family to Applebee’s. Some may feel that we are just using the banks for our own gain.

This is not an uncommon reaction. The techniques and tactics we advocate here at PFD are not particularly popular with the general population, and one factor is a general level of discomfort with them due to the fact that it may just not feel right for some unarticulated reason. We here at PFD think any views that card churning (defined as, for example, applying for three cards at once to reap the bonuses, then repeating) are immoral are mistaken, and we would like to explain why.

There is a tendency to anthropomorphize companies in deciding how to do business with them–that is, we treat them as though they are people. This practice has varying degrees of validity. If you’re buying something from a mom and pop operation, then by all means treat the business exactly as you would a person, because the business effectively is a person.

Chase (we’re going to pick on Chase here, but feel free to substitute the name of any other big bank), on the other hand, is a different story. I think that the underlying sentiment the quoted passage is getting at is the principle of reciprocity–the feeling that if somebody does something for you, you should repay the favor. Since Chase is extending you credit and giving you a nice prize, the sentiment goes, you shouldn’t abuse their generous rewards.

It’s an honorable sentiment, but it is misapplied here. Chase isn’t doing something nice for you, or for anybody else. Chase is giving you these rewards in the hope that what you give them in interchange, interest, and fees will outweigh the rewards. Chase is a corporation, an abstract entity given quasi-person status by law, and it is in the business of lending money to consumers and getting it back with interest.

Chase itself does not abide by the standard of reciprocity. It cannot afford to and it would not be able to even it could afford it, because banks are required by both law and business conditions to run their business in a certain way.

Not only that, but Chase can be quite cold-blooded in pursuing its interests. Have you ever read the terms and conditions on their rewards? They essentially say that Chase can take back your rewards whenever they want to for whatever reason they see fit. And Chase did just that recently.

In 2010, Chase offered 5% unlimited cashback for the first six months on its AARP card. A lot of people signed up, and then–you’re not going to believe this–a lot of people sought unlimited cashback in very creative ways. To give just one example of the creativity, we’ll remind you that at this point in time you could still order dollar coins from the U.S. Mint with free shipping at a thousand dollars a pop.

Now, Chase’s marketing division offered unlimited cashback as a hook to get people to sign up for their credit card. They eventually found that this was an unwise offer on their part and then changed their minds about it after the fact. They didn’t just, say, refuse to pay out on certain quasi-cash transactions, which would have been defensible, but they refused to pay out rewards completely for a significant number of people (if you’re willing to spend some time digging through 4,000 posts, you can read about the whole sordid affair on Fatwallet).

Chase eventually changed their mind on this and gave back the rewards. Not because of a change of heart, but because enough people raised enough of a stink with regulators and other powers-that-be that Chase felt it was in their interest to actually fulfill the terms of their marketing pitch to avoid a legal or PR fallout.

Why did this whole fiasco happen? We’re almost positive that some decision-maker at Chase was looking to make a name for himself and get promoted. Solution: offer a great sign-up deal! Goose the numbers by showing great card acquisition numbers, then you either get promoted or hired away by another company and let the next guy clean up the mess. We’ve seen it before in our former life as a banker and we’re sure you’ve seen it in your career too. But these are not the actions of a person due reciprocity. They are the actions of a poorly managed, sociopathic company.

Let us be clear: the fact that Chase is not due the same level of consideration as the corner hardware store does not give you license to lie, cheat, and steal. You still have legal obligations and responsibilities, obviously.

So firing off a bunch of apps, then repeating every few months–is that gaming the system? You bet it is. How about processing customer transactions from smallest to biggest in order to maximize late fee revenue–is that gaming the system? How about signing up unsophisticated customers for mortgages they can’t afford, then selling those mortgages on the secondary market to pension funds and other unsuspecting investors–is that gaming the system? It is all that and more, and banks have an unfair advantage over the general population because they have in their employ hordes of lawyers and MBAs whose job it is to make things more complicated and/or tilt the playing field in the banks’ favor. Disagree? Give those terms and conditions they include with every credit card a thorough reading and get back to us.

When you game the system, you’re leveling the playing field. It is senseless to handicap yourself in dealing with the big guys out of a misguided sense of honor. Take control and make the banks work for you, and we’ll eventually teach them how to behave.