Credit Cards

Loyal3 Stops Accepting Credit Cards for Stock Purchases

Loyal3 Credit Cards

Loyal3 has just announced that starting November 18, 2014, they will no longer be accepting credit and debit cards, due to “gaming” issues. For those with monthly investment plans, the last day for credit card payments will be December 11, 2104. For those unfamiliar with Loyal3, it’s a no-fee investment platform that allows users to purchase stocks with a credit card. There were only a limit number of stocks to choose from (mostly blue chips) along with the opportunity to buy IPOs. Purchases were limited to $50 increments, but I know many people were able to do quite well meeting their spending requirements virtually free of charge and manufacturing points and miles. 

For the past year, travel hackers have managed to keep this point earning method fairly quiet. Few major bloggers wrote about it mostly, I’d like to think, because it is risky. There’s the potential to lose a lot of money that would off-set any gains in frequent flier miles or points. I dabbled in it myself and made a small profit doing so.

The email I received from Loyal3 cites the points and miles crowd specifically as the reason they are doing away with credit card payments:

Through the success, we’ve also learned a lot about how people use LOYAL3. Credit cards have become a common method for people “gaming” LOYAL3 to gain credit card points and not for the purpose of investing. This increases our costs and subtracts from our mission of making it easy, affordable and fee-free for people to invest in the brands they love.

In light of yesterday’s news that Evolve will begin accepting credit cards for bill pay, it’s unfortunate that this bad news follows. However, it’s understandable that Loyal3 would want to, you know, run a profitable business. It was always targeted towards those looking to make long-term investments, which makes sense considering it takes around two days for Loyal3 to execute a trade. By eliminating credit and (mile-earning) debit cards as a payment method, I imagine they’ll narrow their customer base down to their preferred customer base, since the rest of us won’t have much use for the service without the incentive of being able to pay with a credit card.

It also brings up the recurring question about who is to blame. It can’t be the bloggers because they didn’t cover Loyal3 as a point-generating tool. It can’t be the newbies because they get their information largely from bloggers and since it wasn’t published, I doubt this was a case of them “clearing out the racks” so to speak. I also think newbies are far more risk averse, so I can’t imagine a person who is just getting wind of how this all of works, taking such a huge risk by investing thousands of dollars in the stock market for the credit card rewards.

Personally, I don’t really care that Loyal3 has decided to stop accepting credit cards – I was by no means a heavy user and would never recommend it to my readers as a viable manufactured spending tool, due to the risk involved. However, since Loyal3 has specifically cited the points and miles crowd as the reason for this decision, inevitably it will get certain people riled up about who is at fault. In this case, it probably wasn’t the bloggers or newbies.

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  1. I read a few investing forums and saw a few guys bragging about doing $10,000+ trades regular early on over and over before getting flagged, which I’m sure is what led to the $50/stock limit. I have to imagine 90% of their losses from credit card fees happened before they made that change. I had printed out the paperwork to transfer out into an actual brokerage, but was just holding off until this happened.

    • That probably set off a few red flags. I imagine this happened more because of a few people doing large volumes, rather than a mass of people buying a few thousand here and there.

  2. I’m not sure how you can claim that “No major bloggers wrote about it”. View from the Wing mentioned it at least 3 times, most recently with a link on Nov. 3.

  3. So I have a question for you…and maybe you could speak for the rest of the bloggers with your response.

    Why should I click on yours or any bloggers affiliate links (yes, I know you’ve dropped affiliate links recently) if y’all are just going to keep most of the MS secret to yourselves?

    I wonder how many more MS gems are out there? I try to follow bloggers for as much info as I can…and I selectively choose whose links I click on when applying for cards.

    There’s got to be a better way bloggers could share their secrets with “qualified readers” who click only their links.

    I know that there is a fine line out there with the “secrets” and I don’t want to be spoon fed all the secrets without “paying something” (i.e. clicking affiliated links) but it really sucks to be here on the outside and only hear about new MS when they’re about to end.

    Sorry to rant on your blog…but just had to vent from the thankless readers.

    • I can’t speak for others but Loyal3 was one of those delicate ms tools that I felt could get exploited in a way that not only destroyed the ms source, but hurt the company. Personally, I don’t want to manufacture spend or encourage others to ms in a way that has the potential to hurt them or the businesses involved. MS should be profitable for all of us. Evolve gets that – they know what we’re doing with gift card churning and they’ve found a way to cater to our community without hurting their bottom line.

      You can still find the information online – it was on Flyertalk and View from the Wing covered it. It just didn’t go viral like some of the other ms deals. This was largely because both the bloggers or their readers wanted to protect an ms tool that was both fragile and risky.

      • MS is only profitable for the MS’er at the expense of other consumers.

        • Something I’ve read about on and off is based on the idea of buying acg’s through a portal, using them to buy vgc’s, and then cashing out through bluebird. There’s enough smoke and mirrors that I’m not honestly sure who loses out in that scenario. If you can offer some insight I’d love to hear how consumers are hurt.

        • How so? When I buy a gift card the store makes a sale. How does that hurt other consumers?

          • Credit card transactions are not free for stores so they have to price that cost into their business model. So essentially your overpaying when buy anything with cash. I much rather cut the middle man out of the transaction (visa, amex, mc) and pay cash. So whenever I make a large purchase I’ll ask how much if I pay cash.

            My theory is that MS simply exploits two facets that have become ingrained into our society, cashless payments and rewards programs. I don’t want to take over Ariana’s blog so to put it in simpler terms and answer your question, when it comes to any sort of financial transaction their is no such thing as free. If this wasn’t the case then the “free points” that everyone was making on loyal 3 shouldn’t have affected anything. However it turns out the “free points” were costing loyal3 more than their business model would allow. Does this help? I’m not a great writer or teacher but if you still don’t believe me you should look at some macroeconomic courses on coursera for some further insight.

        • But here’s the thing. Portals pay out almost across the board when you buy ACG’s for a $3.95 fee. (They’ll take ~3% of any card use. This is why it never made sense to me that a portal would pay out higher than 2%, b/c then how is either side making money?) But somehow they are, and maybe the $3k cards are subsidized by people buying $25-100 cards. We then buy a VGC somewhere. (and I have no idea what changed that you can’t do it on gcm anymore, but clearly they were losing money with that) So I buy a $500 vgc at a $3-6 fee. I can’t imagine they’re paying face value for them, b/c the VGC will also have a fee, and typically are used for low value purchases as opposed to a single transaction with Kate…

          So where does this hurt a consumer, and where is there a loss of revenue that would justify no longer offering it.

          If anyone knows what i’m missing, please let me know…

  4. I don’t understand how this was a lucrative deal to begin with. Was there any way to use Loyal3 to manufacture spend? If there wasn’t, then I’m not too disappointed about the end of this deal compared with, e.g., the end of Vanilla Visas at Walmart. What does disappoint me is that it makes me concerned about the remaining deals. I hope that all the other current opportunities will continue to last for a long time.

    • Originally there was a way to MS with Loyal3. I met my Citi Executive min spend entirely with loyal3. At almost any point based on just picking low volatility stocks I could’ve cashed out and been ahead. It basically died the day they moved the credit card max to $50/stock.

      • Of course MS hurts the average consumers. To say otherwise you are burying your head in the sand because you are gaining at the expense of the many. Inflation of prices if the most obvious way. The other is devaluations. MS basically is work around on the supply side to get points and miles at a very small cost. What happens when to any economy points become cheaper and much.more numerous similar to the government printing money? Prices go up.

        • I’m willing to listen to this argument, but I’d love to see something more linear in thought. Consumer spending in the US measures in the trillions of dollars. How much do you think is spent with manufactured spending each year? I don’t have any hard numbers, but let’s say 100,000 of us average $50k each year, for a total of $5 Billion. If consumer spending is ~$12 Trillion (based on household consumption of 70% of GDP) that means manufactured spending makes up .04%. This isn’t exactly the hyperinflation of Zimbabwe from the last decade…

          • Here you are just arguing about scale which no one really knows. I meant to point out the principle. Sure in the grand scheme of the US economy it is not a large piece. In the world or airline and hotel points the footprint is much larger. While I don’t have data to support my theory, logic points to the increasing frequency and scope of devaluations in the past few years correlating to an increase in MS.

          • I would agree if we weren’t going after so many different programs. The major 4 airlines have revenues around $120 Billion. I wouldn’t even know how to measure or compare with Amex, Chase, or any of the variable points programs. I think the few of us doing large volumes have a minimal impact, if anything.

          • your missing the point, nothing is free. However you may receive something for “free” but someone had to pay for it. Scott gave you two perfect examples in inflation deflation of point values but all you really need to understand is that in a world of limited resources…..nothing is free.

  5. “I think the few of us doing large volumes have a minimal impact, if anything.” This is exactly correct, just like on office space when they were shaving fractions of a penny off transactions but it becomes unsustainable with lots of people doing it.

    • Michael: I must have put a decimal point in the wrong place or something. Shit, I always do that. I always mess up some mundane detail. Peter: Oh! Well, this is not a mundane detail, Michael!

      I get that my free travel is coming from someone else’s pocket. But is it the credit card, the vgc seller, bluebird…? Amazon lost a small fortune I’m guessing during the tenure of amazon payments. It would be stupid of us not to use a situation to our advantage. I’ll just consider that my retribution for being young and healthy and paying for health insurance that I don’t use.

      Scott gave generalizations based on macroeconomic theories, but certainly didn’t give two perfect examples.

  6. Jerry Mandel

    Since NO places in Dallas, Texas area will accept gift/debit cards with PINs to buy money orders, there is no point in buying them. For MS, I do prepay all utilities, etc. with new credit cards. I get it back from no monthly payments for many months.

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