To the point
American Express is monitoring cardholders - via consumption habits - trying to detect specifically... prepaid gift cards.
Prepaid Gift Card Restrictions
In the absence of the possibility to use American Express cards directly in stores (such as Costco, which only accepts Mastercard), many American Express cardholders had fallen back on prepaid gift cards.
These gift cards can be purchased directly in grocery stores or convenience stores… or even reloaded regularly, and are immediately usable.
After limiting monthly purchases in the 5 points-per-dollar categories to $2,500 for the American Express Cobalt® Card, American Express has decided to go one step further and tackle prepaid gift cards directly.
Here’s the note that’s starting to appear in cardholder statements about the Membership Rewards program:
Effective July 5, 2019, the following changes will apply to the Membership Rewards program terms and conditions: You will not earn points: We’ve clarified that certain transactions (known as ” cash equivalent transactions ” ) do not earn points. We also have the right to deduct points from your points account if we determine that they should not have been awarded. In addition, if we believe that you are intentionally taking steps to obtain points to which you are not entitled, we may consider this to bean abuse of the program.
As such, these new rules have been in force since July 5, 2019, and warn cardholders who would “abuse the program” with the aim of intentionally obtaining points to which they would not be entitled.
American Express now reserves the right to deduct points from the account after the fact.
A new definition has been added for cash equivalent transactions, as follows: the use of your card account to obtain or send cash or something that converts easily to cash. Examples include: purchases of foreign currency, gift cards (purchasing and reloading), traveller’s cheques, money orders, bank drafts, casino gaming chips, wire transfers and all similar transactions. It also includes balance transfers, cash advances, person-to-person payments and the use of credit card cheques and other similar means or offers, offered by us or through a third party.
Prepaid gift cards of the Vanilla type are clearly targeted: American Express refers to these means of payment as “easily convertible to cash”.
The store-linked gift cards (SAQ, Amazon, GAP…) are not targeted by this measure: these cards can ONLY be used in specific stores, unlike prepaid gift cards, some of whose balances can even be emptied from a cash dispenser, making them “easily convertible into cash”.
These rules apply to Membership Rewards cards:
Warnings, financial review and Amexile
In 2020, American Express closed suspicious accounts in several waves after issuing the aforementioned warnings. Indeed, customers who appeared to be abusing the points system in the eyes of American Express suddenly had all their credit card accounts blocked, and all non-transferred points were immediately lost (Privilege Points, Aeroplan Points, Marriott Bonvoy Points). These events are known as Amexile.
What’s more, the spouses of the people who were amexiled were also expelled from the American Express customer base.
In 2023, there was a lot of feedback from people who had undergone financial reviews. Others instead received warning letters from American Express about their spending habits.
Bottom Line
American Express is tightening the screws to prevent abuse of its Membership Rewards program. As far as we know, in Canada, institutions don ‘t have the technical means to know what you buy when you go grocery shopping or to the corner store (whereas in the U.S., issuers have access to level 3 transactions – whereas in Canada it’s level 2).
However, it is clear that abnormal behavior (a $500+ purchase at Couche-Tard is not usual behaviour) can be detected automatically… prompting American Express to take punitive measures on the accounts identified.
It’s a safe bet that American Express has been lobbied by merchants selling prepaid gift cards about the influx of customers buying… only prepaid gift cards. The interchange fees paid (between 3 and 4%) are not profitable for a retailer if no other products are purchased in the store.
But it’s unfortunate to see here a way to close the door on being able to use an American Express card… anywhere: let’s hope that failing to close the door on itself, American Express will take the lead in convincing new merchants to accept its cards!
This is already the case thanks to the Shop Small initiative, which has gained momentum with many small retailers now accepting American Express.
You can continue to shop and buy store gift cards at IGA /Métro / Super C… and earn lots of points in these categories at 5 points / $ from the American Express Cobalt® Card ! However, moderation is the mantra you should adopt, and prepaid gift cards should be avoided..
There are plenty of ways to optimize your purchases at merchants who don’t accept American Express, such as unlocking a generous welcome bonus. As American Express is a very generous issuer, you don’t want it to turn its back on you if you want to play travel hacking long-term.
Come to discuss that topic in our Facebook Group!
