Yesterday I heard from reader and traveler Pat that Chase had decided to terminate their Banking relationship, without recourse, based upon her activity relating to Manufactured Spending to earn airline points and miles. This was particularly focused on the large number and value of Cash Deposits that occurred at her account. Today we spoke about the experience and wanted to share some of the points that were raised from this so that you, as a reader can keep an eye on your own activity and also be aware of some potential risks that come with this hobby in order to make informed decisions.
Primary Bank Problems
Firstly, Chase was the primary bank account for Pat, so that meant when it was shut down she needs to take the following steps to avoid serious issues to her credit and finances:
1. Migrate all monthly Auto Pay orders for other credit cards and bills. Missing a single one of these will cause a credit score hit as a delinquent payment, something that is very important not only to protect your score for future applications, but also many people take considerable pride in paying in full, and on time. I have found that many institutions will actually forgive the first mistake, and if you do let one slip you should call up the provider, apologize and explain that you changed banks and hopefully they will keep that strike from hitting your credit report.
2. Consider inbound payments. Obvious inbound payments would be things such as your salary, but less obvious ones would include annual payments such as what account you opt to receive your annual income tax refund to – again, if you forget to change you will not lose that refund, but it will be delayed and cause more hassles down the road.
3. Lack of immediate access to Statements. You will need to download your bank statements from the account for record keeping, I am doing this myself now for my business bank accounts and not having an online record on demand means you need to have your accounts downloaded in PDF or Hard Copy in order to be able to reference things in the future.
Recommended Course Of Action from Primary Bank Problems
With hindsight we can see that using your primary bank to facilitate manufactured spending causes a lot more hassle than using an unattached account. However, if you do set up a bank account for the sole purpose of manufactured spending then it has less of a ‘buffer’ of real transactions to keep it under the radar, so the chances increase that it will be flagged sooner. If you opt for a secondary bank to avoid the problems associated with your primary account I would do so in the knowledge that when your account is flagged it is possible that you could have the funds in the bank frozen until the situation is sorted out. Though this may not happen, don’t play this game unless you can afford to survive with frozen funds.
Manufactured Spend Details and Timelines
This is just one example, so we clearly do not have a benchmark for the most common question, “how much is too much?” but lets include the numbers here for your reference. When we broke them down on the call we were both a little surprised at the amounts. These numbers reflect the amount of Cash Deposits that were made through loading points onto cards and then withdrawing from ATMs or getting Cash Back.
- May 2012 started with 9 American Express Prepaid cards (3 per family member) maxed out at $2,500 per month = $22,500 Cash Deposited
- Later added 3 Visa Buxx Cards (1 per family member) maxed out at $2,000 per month = $6,000 Cash Deposited
- Nov 2012 3 Target American Express Cards (1 per family member) maxed out at $5,000 per month = $15,000
- Total average monthly cash Deposits $43,500
- Additionally there was a period where there was $2,500 per day on My Vanilla cards x 20 days per month for a further $50,000
These are serious numbers, and I think they do put Pat in the top tier of manufactured spenders, but operating below this level does not mean that you will avoid account inspection and cancellation, indeed I would imagine it happens at a much lower number.
Flags to be aware of
The activity started in earnest in May 2012, and in August of 2013 Pat received a call from Chase exploring her account activity. She answered the questions, avoiding talk of manufactured spending and due to genuine business account movements between Chase and other accounts was able to explain away most of the questions. Her activity continued, she slowed down her activity at this stage, but still received several further calls. The letter informing her of the account cancellation was dated September 11th.
After the first call it would be prudent to ensure you have a back up account established should you need to shift your banking over there, since slowing things down did not resolve the problem.
Answers from the Branch Manager
Pat spoke with the manager of the local branch, and had already explained to her that the activity on her account was for earning points and miles and everything seemed well. However there was a period of time when this manager left and the branch was run by an Assistant, which may,or may not have been when the account was flagged.
The following points were told to Pat which are very useful:
- Cash transactions are being more aggressively flagged than checks. Money Orders (another way to release funds from prepaid cards) are processed as a Check by Chase, and perhaps by other banks. As such it is the opinion of the Branch Manager that if similar numbers were made by Money Order Deposit it might have been less risky.
- The Branch Manager has a son who is Branch Manager at Bank of America. He has told her that they recently have been told to be more vigilant when it comes to suspected Money Laundering, especially with cash transactions, which means that whilst this happened at Chase, it could happen anywhere.
- The Branch Manager informed her that transactions were tracked by SSN. Therefore if you deposit cash in several different banks they will add up these transactions at a central facility and it will still trigger the alert.
You are being shut down by Risk and Compliance
If you account is flagged as suspicious it is the decision of the banks compliance department to shut you down. If they allow you to continue to operate they themselves will be the target of Federal investigations, so if they think you are a risk they will close you down. I had not heard of the central reporting via SSN prior to today, but it is an easy thing to track and makes a lot of sense to me. As such if true, you should be aware that any and all of your accounts throughout separate banks could have been alerted to your activity, and they may all make the decision if you are too high risk for potential investigation or not.
Two Triggers to be aware of
SARs Suspicious Activity Reports can be produced by any institution at any time. There is no minimum transaction require to create a SAR. In doing so the Bank Teller can decide that your habits are suspicious and it will alert Compliance that your account should be flagged.
Additionally to which, certain size of transaction, regardless of suspicion will trigger alerts. Transactions of $10,000 trigger this. Furthermore it is not unique to banks, as this is the amount you need to declare when moving money through border checkpoints, and also other areas where money moves, such as Casinos will also trigger the reporting at this level (and can also issue SARs based on discretion).
If it happens to you
See above for the steps to protect your primary account and credit scores, furthermore it would be prudent to move any other points from your Chase Ultimate Rewards Credit Card balances to third parties, such as United. Pat was informed that this would not affect her Credit Card relationships, but it is better to be safe than sorry and lock in those points to prevent the chance that they could be confiscated.
Chase provided 30 days notice via letter, so open all of your mail. I frequently trash mail without a glance, and doing so in this case would result in the first I hear of this being when my cards start being rejected on Autopay. Furthermore, if this happens when you are traveling sorting out the mess from overseas will be a real pain. At the very least make sure you have a second bank account somewhere set up in advance that you could migrate your auto-pays to should you be out of the Country.