Manufactured Spending

“Is Manufactured Spending Legal?”

When I explain manufactured spending to people, one of the most common responses I get is “isn’t that money laundering?” or “that sounds illegal.” It took me aback the first few times I heard it, but it’s understandable that people who are unfamiliar with manufactured spending would think that. It sounds shady and invokes images of a middle-aged high school teacher pondering ways to legitimize his meth fortune. So is manufactured spending illegal? Absolutely not. Do criminals use these methods to launder money? Yes, some do. But it’s not the method that is illegal – it’s the purpose behind it as well as the way the funds are obtained that make it so.

Cash register manufactured spending

There is a huge distinction to be made between manufactured spending and money laundering. The IRS defines money laundering as follows:

“…activities and financial transactions that are undertaken specifically to hide the true source of the money. In most cases, the money involved is earned from an illegal enterprise and the goal is to give that money the appearance of coming from a legitimate source.

Basically, it refers to making illegally obtained funds appear legitimate. And it doesn’t just extend to gift card churning. Remember how in Breaking Bad Walter White bought a car wash to make his income seem legitimate? Owning a car wash isn’t illegal. Using it to make “dirty” money appear “clean,” is.

I told you all about my run-in with a Walmart Asset Protection Associate last year. The associate had been watching me and restricted my money order purchases at a different store. It became clear to me, based on past incidents, that he suspected me of doing something illegal. So I explaine to him how I obtained my cards and why. It ultimately worked out because he was familiar with this hobby and believed my explanation. He pointed out that while it was ok for us to earn miles this way, he had to keep an eye out for criminals who utilized the same methods to cash out funds from stolen credit cards. In the end, I was allowed to continue buying money orders with Visa gift cards at this location because they understood I wasn’t using stolen funds to pay for them.

That’s really what it comes down to: Whether the funds utilized in the transaction are “clean” or not. In our case, we’re using Visa gift cards purchased with our own credit cards and then paying those cards off. Nothing about that is illegal, nor is buying money orders with a Visa gift card. My local Walmart store is fully aware and ok with it. I’m not violating their store policy and the funds I use to buy the money orders are legally obtained (i.e. via credit cards I pay off every month). 

So the next time a family member or friend looks at your funny and utters the “m-word” make the distinction for them: It’s not the method but rather the way funds are obtained that determines whether manufactured spending is illegal or not.

Do you often encounter people who think what you’re doing with gift card churning is illegal? How do you explain it to them?

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  1. I tell people that if I do get arrested for this that I have more than enough points to get out of jail.

  2. Can you have one of the people at the WM that you take donuts to, take pictures of their handbook or get something in writing that says it’s not breaking their rules? I have two WM and they straight up told me it was against their policy and it’s in the handbook. They turn me away every time. I’ve tried to talk to Asset Protection and they are never present when I go. I’ve even left my number for them and a manager to call me and they never do.

  3. There’s no reason for me to brag about how I accumulate points. I don’t explain it to anyone. The last thing I want is for people to know I’m often carrying around high value VGCs and MOs.

    • It’s not bragging, it’s educating someone who can impact your ability to keep accumulating points. In my case, it allowed me to increase my earnings significantly because there was no longer a barrier of suspicion when I walked into the store.

  4. Do I need to keep all the used gift cards (that I have used to purchase MO) in case I might be audited by the IRS?

  5. Obv there is no law prohibiting these transactions. You do aggressively violate the terms and conditions of your credit card agreements. As your card issuers allow you to continue, it is a safe bet that it believes your blog and hyping the products make it worthwhile. Who knows? But anyone using their cards in this manner does risk account closure along with family accounts. Companies choose who is worth the risk. So far, your banks are into it. There is not a morality component since card issuers make these decisions on a case by case basis. All that matters is the underwriting department believes your rewards program abuse is worthwhile bc it raises the profile of its products, etc.
    running around to 50 Walmart s a day every day is a hefty and wasteful price to pay for a free first class seat. I would rather pay for the seat but it is all relative.

  6. Why are you concerned with people telling you it is illegal or immoral? It is not. What is perhaps borderline immoral is that you pretend you are positively educating folks. You are educating them on how to risk account closure. Unless they are all bloggers with your readership, then your methods will not improve their lives. It is not your responsibility to take care of these people. If they are dumb enough to think they will enjoy the freedoms you do without financial risk and you are cool with that, then so be it. I would not feel right funding my lifestyle by giving out advice that harms the average person. The more people harmed, the more you uniquely benefit. Then again, all day in Walmarts and dollar stores and fighting with managers and driving from place to place sounds so unpleasant….

    • I don’t understand your argument: On one hand, I’m encouraging people to be irresponsible and on the other hand I’m it’s not my responsibility to take care of these “dumb” people? And I’d like to know in what way I’ve encouraged them to risk account closure. By encouraging them to ms responsibly? To spread spending across different credit cards? To not cycle their credit limits or use Walmart bill pay? I don’t “fund my lifestyle” giving ms advice, whatever that entails. I don’t know what blog you’re reading, but it doesn’t seem to be this one because your assumptions are way off.

  7. What’s unclear? You are doing both. You encourage folks to violate the terms and conditions of their cardholder agreement. If they choose to take your advice without factoring in that they could face account closure, credit ramifications etc that is not your responsibility. To the extent that you feel badly that some poor family may be so uneducated with credit that your advice causes real ramifications, perhaps you should provide some additional content. Reading about the 90th time you cashed a money order at Walmart is boring anyway. Maybe an interview with the Walmart guys who approached you or a story about someone who experienced the downside of using their credit cards this way.

  8. Ariana you know what’s not legal? Giving legal advice as a non-licensed attorney.

  9. Arians, awesome tips and info. Thanks so much!!

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