Who Really Owns YOUR Credit Card Miles & Points?

As we mentioned in one of our previous columns, one of the great perks about using credit cards is the ability to earn miles and points whenever they are used for purchases. This earning potential is so significant that there are actually many forums, blogs, groups and even a ‘university’ dedicated to helping consumers understand the myriad of benefits and rewards programs available to them by the credit card companies and how to maximize on these opportunities. Many consumers have taken advantage of these options and turned their spending habits into significant side income earning ventures. An additional way to earn value is through frequent flyer programs that reward travelers by giving them miles and points based either upon the length of miles traveled or the price of the ticket purchased.

But the ability to earn miles and points comes with a significant catch, namely, the fact that the miles and points one accrues from purchases and traveling doesn’t reallybelong to the individual and in fact really, never belongs to them in the first place. And if this dynamic sounds strange, unfair, and perhaps even illegal to you, well, you are not alone.

In a widely publicized case that occurred in 2013, a rabbi sued Southwest airlines claiming the airline dealt unfairly with him when they forfeited his frequent flyer status and hundreds of thousands of miles he accrued. The case was fought in court at various levels, and finally heard by the Supreme Court which rendered a decision against the rabbi.

To provide some background to the case, in 1978 the Airline Deregulation Act was passed which limits the types of lawsuits flyers may file against airlines as well as the laws states may pass relating to airlines’ operations. The rabbi argued that the airline did not act in good faith in the way its frequent flyer programs were structured and thus was subject to state contract laws governing good faith business practices.

In its defense, the airline stated the rabbi complained 24 times in a 7-month period, and that before forfeited his account and kicked him out of the program, it awarded him $1,925 in travel credit vouchers, 78,500 bonus miles, a voucher for his son and $491 in cash reimbursements

With a unanimous vote, the Supreme Court ruled the Rabbi could not pursue his claims against the airline because the federal Airline Deregulation Act barred his lawsuit. In its decision the court didn’t address the rabbi’s claim that the restrictions placed on his mileage account violated good faith business practices, but rather ruled that Southwest’s frequent flyer program was included in the price, route or service the airlines provide which the regulation laws were intended to protect and thus his lawsuit could not go forward.

Although the Supreme Court ultimately ruled the lawsuit could not go forward, it seems that the prior decision by the 9th U.S. Circuit Court of Appeals allowing the ‘good faith’ portion of the suit to go forward, opens the door to a lawsuit against credit card companies whose practices aren’t related by and have no impact on the airline regulation law.

If you think about it, restricting the rights to miles and points’ one earns through purchasing and credit card usage doesn’t seem to be a good faith business practice. If one was to open a bank account which offered an interest rate, the interest money earned doesn’t belong to the bank, it belongs to account holder. And with credit cards that offer cash-back rewards, once the cash is earned, the credit card company cannot restrict the way you use the cash and claim it belongs to them.

The Federal Government has chosen to keep out of the credit card reward industry. The only regulated portion of the rewards industry pertains to the status of the miles and points one earns in relation to filing taxes. In 2002, the IRS announced that it would not pursue the question of whether frequent flyer miles, and rewards and other promotional discounts awarded by credit card companies to cardholders are considered taxable income. More recently, the IRS clarified its position and stated that if individuals received their credit card rewards after a purchase, the rewards are considered rebates on whatever was spent to earn those rewards and do not represent a gain on income or wealth and are thus not taxable. However, if no transaction is required to earn the rewards, then the IRS considers these rewards as income and individuals would be required to disclose them on their tax returns.

The bottom line is as follows; until the Federal Government regulates the rewards industry and until the courts determine whether the restrictions placed on rewards violate good faith business practices, (which in fact may be the conduit where the Federal Government to take a closer look at the rewards industry and regulates the market), the miles and points you earn can be restricted. The airlines and credit card companies can determine when, how and if you can use them, what their value is, and restrict them indefinitely because, when-all-is-said-and-done, they never belonged to you in the first place!

6 thoughts on “Who Really Owns YOUR Credit Card Miles & Points?

  1. For years, British Airways honored their Rewards Program by redeeming my earned bonus miles (Avios) by providing airline tickets (British Airways/Chase Bank) to many places in the world.
    Today, my remaining 479,353 Avios (Bonus Miles) are no longer honored because there is never a seat available at the time I want to fly, in business or first class, even if I give them as much as 355 days advance notice.
    How can this be considered a legitimate business practice?

  2. I have had a Chase credit card with Marriott for many years. There is an annual fee of $85 and I use this card for a small business I own. It turns out that the card is tied to a time share my ex and I had with Marriott. After 3 years of unsuccessful attempts to sell the time share we tried to deed it back to Marriott who continually refused for 2 years because we were not delinquent with annual fees. Only when I stopped paying the fees did they concede to talk with us, after 2 more years we negotiated a deed in lieu of foreclosure on the time shares. All of the paperwork was completed and recorded by November 2015 but Marriott has refused to unlock the usage of my approximately 400,000 rewards points. There is some small print that states if you have a credit card and a time share, they can hold your card rewards hostage.
    It is virtually impossible to talk with anyone at Marriott, I have spent innumerable hours on hold, and often deal with people who are nasty and rude. I am furious and disgusted with Marriott and will not be renewing my Marriott/Chase credit card next year.
    In my research I have learned that even though I believed that paying a card fee and the agreement was that I owned this rewards privilege, that is really not the case. While I’m not in favor of more government regulations, I would appreciate seeing more honest revelations of what value rewards points have, if any.

  3. Hopefully this applies to you, but I’m happy to find out just today that Chase has settled a class action regarding their practice of keeping your rewards points if they abruptly close your credit card account. Looks like I’ll be getting at least some of the ~$100 they owed me. You can google it and you’ll easily locate the claim site that the lawfirm involved has set up to handle the process.

  4. I am currently in litigation with the past president/CFO of my company. The CFO had worked at the company for eights years before he was hired to take the president position. Since 2003 my company had two cards it used for bills and materials. The cards earned us about 20,000 points a month which we used for flights for my family. When the CFO became president I backed way off of running the company. After a few months I realized he had started using his personal card for company charges. I told him to stop the points belonged to me. When he left the company I discovered he not only was using his card he had given one of his cards to all the managers in the company. Through his tenure as president he had earned around 350,000 points. Now we are embroiled in a case the points are a factor in. From what I understand some companies do allow their employees to use points. Is this a common practice? Is there anywhere I can go to understand the cash value of points?

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