How Frequent Fliers Exploit A Government Program To Get Free Trips

Jul 12, 2011
Originally published on July 13, 2011 5:19 pm

We recently reported on the the government's failed effort to persuade Americans to use dollar coins.

But the coins have found at least one group of fans: Travel enthusiasts who buy thousands of dollar coins with credit cards that award frequent-flier miles for purchases.

Once in possession of the coins — shipped to them by the government for free — they can deposit them into their bank accounts and pay off the credit card bills. The result: a free ticket to anywhere.

"We've used them to go on trips around the world," says Jane Liaw, a 35-year-old public health researcher and science writer in San Francisco. Liaw says she and her husband, who use a variety of tricks for earning miles, are planning trips to Greece and Turkey, "all on miles and points."

Liaw says she spends some of the coins at the local farmer's market and stores.

The problem is that even if so-called "travel hackers" like Liaw put some of the coins in circulation, their purchases from the Mint contribute to a huge and growing buildup of one-dollar coins in Federal Reserve vaults.

The mountain of coins is the unintended result of a 2005 act of Congress. The law requires that more and more coins be minted, despite a lack of demand by the public. (For more, see our story "$1 Billion That Nobody Wants.")

The Mint's direct-ship program is aimed at getting the coins into everyday circulation.

Officials there first noticed something amiss in summer 2008, when they saw that a small number of customers were repeatedly ordering large numbers of one dollar coins. The top 20 customers bought between $219,000 and $696,000 worth, says Mint spokesman Tom Jurkowsky.

Another clue the hackers left was that dollar coins were arriving in banks still clad in their U.S. Mint packaging.

"Do we feel a little bit violated? Yes, and that's why we aggressively sought measures to eliminate what we called an abuse," says Jurkowsky.

Jurkowsky said the Mint sent letters to the top abusers and imposed a limit of 1,000 coins every ten days.

"It's not illegal," he said, "But it's an abuse of the system. That's not what the system was set up to do. The system was set up to promote the use of dollar coins and we are simply trying to do the right thing here."

Around this time, people buying dollar coins to get frequent-flier miles drew national attention in outlets such as the Los Angeles Times and the Wall Street Journal.

After the Mint acted, orders for Native American dollar coins, which are only available directly from the Mint, dropped – from 88.7 million in 2009, to 52 million last year and 19 million so far this year.

In total, the mint has mailed out 284 million one-dollar coins, including presidential and Native American coins, through the direct-ship program.

Native American coins bear the likeness of Lewis and Clark guide Sacagewea. By law, Sacagewea must appear on one in every five dollar coins manufactured, the legacy of political dealings on Capitol Hill.

While the Mint says the Native American coins are now popular enough to be back-ordered, a recent Federal Reserve study provided to NPR says nearly 60 percent of them come back to Federal Reserve vaults.

Both the Mint and Federal Reserve now support eliminating the Sacagewea quota.

The Fed, in its latest report to Congress, is also asking for additional changes that would allow it order only the number of dollar coins the economy needs.

As long as the dollar coin scheme is viable – without a crackdown by credit card issuers, for example – there will be enthusiasts like Ben Schlappig, who writes the travel hacker blog One Mile At A Time.

"I'm not as heavy a hitter as other people, I guess," Schlappig says. "I've ordered probably, maybe 30 or 40,000 worth."

Schlappig, who says he has "a few million miles" and top-tier status with several airlines, orders at the Mint's limit.

"Just last week I came back from a trip from Australia and Singapore and Malaysia all in first class, just on miles," he says, "partly thanks to the dollar coin program."

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STEVE INSKEEP, host:

And we have a follow up story now based on our recent report about how a billion $1 coins are sitting unused in government vaults. There appeared to be a bright spot in that story. The mint was managing to unload some of the dollar coins through a program that ships them to people through the mail.

Turns out many of those coins are not getting to into the world either. Some people have been ordering the coins in a clever scheme to rack up frequent flyer miles. They use their credit cards to buy the coins and then deposit the coins unused at a bank. Robert Benincasa with our investigative team and David Kestenbaum with Planet Money have the story.

DAVID KESTENBAUM: The U.S. Mint first figured out something funny was going on and tried to fix things back in 2008.�

ROBERT BENINCASA: The Mints mail order program was intended to help get the coins out to collectors and small businesses. The mint even offered free shipping in neat little boxes.�

KESTENBAUM: But Tom Jurkowsky, a spokesman for the Mint, said the mint started getting these strange reports from banks.

Mr. TOM JURKOWSKY (Spokesman, U.S. Mint): Dollar coins were being returned for deposit unopened. And still in their United States mint boxes.

BENINCASA: A handful of people were mail ordering an enormous number of coins. Why? It was a way of getting free frequent flyer miles.

KESTENBAUM: People would order the coins on a credit card that awarded frequent flyer miles for every dollar spent. When the coins arrived in the mail, they could just take the coins to the bank, deposit them and use that money to pay off the credit card.

BENINCASA: Bingo, lots of free frequent flyer miles and free champagne in first class.

Mr. JURKOWSKY: There were some that were ordering, you know, 600,000, 700,000 coins.

KESTENBAUM: Wow, thats a lot to carry to the bank.

(Soundbite of laughter)

Mr. JURKOWSKY: That is a lot of coins. Do we feel a little bit violated? Yes, and thats why we aggressively sought measures to eliminate what we called an abuse. Its an abuse of the system. Its not right.

KESTENBAUM: The Mint sent letters to the top abusers who were also it turns out its top customers. And the Mint put limits on how many coins individuals could order. No more than 1,000 coins per order. And no more than one order every 10 days.

BENINCASA: The number of coins ordered from the Mint has declined. But our reporting suggests many people are still ordering the coins to get frequent flyer miles.

Meet Tim Brooks, an aerospace engineer in California.

Mr. TIM BROOKS (Aerospace Engineer): I have ordered two orders; one for $500 and one for $750.

KESTENBAUM: And Jane Liaw, a health researcher at Berkeley.

Ms. JANE LIAW (Health Researcher, UC Berkeley): My husband and I are travel hackers.

KESTENBAUM: When was the last time you did this?

Ms. LIAW: Oh just a few weeks ago. So thats why we still have a bunch of coins sitting in our living room.

BENINCASA: And Ben Shlappig, who writes a travel blog called One Mile at a Time.

Mr. BEN SHLAPPIG (Blogger, One Mile at a Time): Im not as heavy of a hitter as other people. I guess Ive ordered probably maybe 30 or $40,000 worth.

KESTENBAUM: 30 or $40,000 worth of dollar coins

Mr. SHLAPPIG: Yes.

KESTENBAUM: Ben Shlappig says he orders as many as he can. A thousand coins, pretty much every 10 days.

Mr. SCHLAPPIG: Just last week I came back from Australia and Singapore and Malaysia, all in first class just on miles. Partly thanks to the, you know, dollar coin program.

BENINCASA: All these people told us they try to spend the coins, to put them into circulation. But if they cant, they deposit the rest at a bank.

KESTENBAUM: And even if they do spend them all, if the people they give the coins to dont want the coins, the coins are likely to end up at a bank and eventually in a government vault.

BENINCASA: The Mint says it has sent 284 million $1 coins through the mail order program. Its hard to know how many are going to travel hackers. But it could be a sizable fraction.

KESTENBAUM: A survey done by the Federal Reserve, and provided to NPR, looked at the types of dollar coins piling up in its vaults. The survey found that for Native American/Sacagawea dollar coins, which are only available through mail order, 60 percent of those end up in vaults - 60 percent.

BENINCASA: And one travel website, Flyer Talk, has over 15,000 posts on ordering coins from the Mint.

KESTENBAUM: The Fed just released its annual report to Congress on dollar coins. The report says there are now 1.2 billion dollar coins sitting in government vaults.

BENINCASA: Both the Fed and the Mint are calling on Congress to change the law, so they wont be required to mint more coins than the economy needs.

KESTENBAUM: So far, no one in Congress has taken up the issue.

Im David Kestenbaum

BENINCASA: And Im Robert Benincasa, NPR News.

INSKEEP: It's MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.