Returning a Gift? The Buyer Loses the Rewards Points

Dear Cashing In,

I received a gift and returned the item to the store without the receipt. The clerk returned the amount of the purchase to my credit card (a card that was not used to make the original purchase). Now, I have lost reward points based on the amount of my return. Is this right? In my opinion, I shouldn't lose points. In effect, I'm just paying off my account with the return. Thanks.

- Jim

Dear Jim,

When it comes to credit cards, issuers have devised all kinds of policies and procedures designed to combat fraud but too often those rules wind up ensnaring honest folks. Think about all the time you spend creating and changing passwords with just the right number of uppercase letters and numbers, or trying to guess how you answered a security question a few years ago. Those measures are necessary only because people try to hack into accounts.

Jim, this is a similar case. On its face, the situation you describe seems to make little sense. It hardly seems fair to lose miles simply for the sin of returning an unwanted gift.

But let's approach this scenario as if we were unscrupulous people. If you could only gain reward points by buying items on your card, then people would buy items, rack up points, then return their purchases to the store and have no fear of losing the points. Your case is an extension of this: If you could buy $1,000 worth of jewelry, earn 1,000 reward points, give me the jewelry and have me return it for a full refund without penalty, I could just pay you back the $1,000 and at the end of the day, neither of us is out any money, the store has its jewelry back and you have 1,000 extra reward points.

Does that sound a little shady to you? It does to me. If we kept up our scheme, I think the store would eventually become suspicious that I was returning so much merchandise and start to ask some hard questions or impose limits on me, but by then, you might have accumulated enough points for a dream vacation. (You could at least extend the courtesy of including me in the trip, since I'm essential to the success of your quasi-criminal enterprise.)

This scenario brings to mind the old dollar coin scheme, in which people bought thousands of dollar coins from the U.S. Mint using reward credit cards, then deposited them in the bank, paid off the cards and continued buying. The Mint eventually caught on and stopped selling the coins via credit card.

If you read the fine print of the terms and conditions of most reward credit cards, the card companies cover themselves by saying they will report the amount of "net purchases" to the rewards program every month. So if you spend $600 but have $200 charged back in returns, the card company will report a net purchase of $400. If you spend $200 and have $600 in returns, it will report a net purchase of negative $400.

Some of these terms are more explicit than others, but most operate the same way. Barclaycard, for instance, spells it out in the terms for its cards connected to US Airways' Dividend Miles program: "If credits for returned Purchases exceed new Purchases during a billing cycle, we will report negative Net Purchases and ask US Airways to reduce the Primary Cardmember's accrued Mileage Credit accordingly."

Maybe the lesson here is not to put a return on a rewards card you care about. Opt for a debit card instead, or a non-rewards card.

Jim, you could try calling the card company and rewards program to explain the situation and see if they show you any mercy. But their terms and conditions probably cover them, so you're most likely out of luck.