It all started with the Presidential One Dollar Coin Act of 2005, an effort that was meant to save taxpayer money, by encouraging Americans to use dollar coins instead of paper bills. The theory was that coins have a longer circulation life, and hence, they would be the superior alternative.
Of course, that theory was flawed. Like most government programs, they forgot to address the basic question “Do people actually want a clunky pocketful of coins?” But instead of asking that, they thought it would be best to just shove ’em down our throats and hope for the best.
Not surprisingly, this has resulted in an ever-growing stockpile of the unwanted dollar coins – presently around $1.2 billion of them, according to NPR.
Easy credit card miles?
However there is a segment of the population that happens to love these coins and that all started when the U.S. Mint launched a “direct ship” program in June 2008, to sell the coins to the public. With free shipping and credit card payments accepted, you can guess where this story is heading. A whole cottage industry emerged, concocting schemes to buy (and quickly return to banks) the massive shipments of dollar coins, while keeping the cash back and miles earned through their credit cards.
“My partner and I will be departing on a luxury first class vacation in the French Riviera using this frequent flyer miles strategy!” exclaimed a poster on CreditCardForum discussing the dollar coins.
Another poster replies with this clever piece of advice:
“…the Coinage Act of 1965, which states that any DEBT can be paid with any legal tender US currency. (i.e. Wal-Mart doesn’t have to accept them for a real-time purchase, but the county tax collector or or the lender of your car note DOES have to accept them).”
In a nutshell, he’s pointing out that by law, folks are allowed to pay debts such as their car payments using crates of coins, if they wish to do so. One forum poster even directed the shipment of coins straight to the bank whom his mortgage was with, so he didn’t have to “hassle with hauling them over myself, because I have a bad back.”
However the most outrageous story CreditCardForum has heard was from a man who reportedly ordered over $2,400,000 worth of dollar coins in total, since the inception of the program. Because the U.S. Mint quickly placed restrictions on how many and how often a given person could buy, this man claimed to have a vast network of friends, family members, and personal mail boxes to accept his constant flow of deliveries.
To further mask his identity, the man allegedly had a portfolio of different credit cards to use for his orders. He preferred airline programs which offered additional cards (under different names) at no cost, such as what the United Airlines credit card offers. When he fancied cash back, he initially used the Chase Freedom but quickly switched to the Fidelity card programs since they offered much higher rebates. When all was said and done, his total rewards bounty had a value which was tens of thousands of dollars.
How were people getting away with this?
Not specific to any one incident but rather the practice in general, a spokesman for the U.S. Mint was quoted as saying “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.”
In defence of the U.S. Mint, they did try and crack down on these practices by mailing out letters and doing their best to stop shipments to the biggest abusers. However without a law on the books to stop such schemes, it wouldn’t be fair to blame the U.S. Mint for the problem. Remember, they are just carrying out the marching orders of the politicians which enacted this silly dollar coin initiative.
But now the jig is up
On July 22, 2011 the U.S. Mint posted this on their website:
“The Mint has determined that this policy change is prudent due to ongoing activity by individuals purchasing $1 coins with credit cards, accumulating frequent flyer miles, and then returning coins to local banks.”
On one hand, I agree with the Mint’s decision but on the other, I believe the program should have been continued despite the abuse. Why? Because the costs of manufacturing and storing these coins is astronomical. Ironically, it may be cheaper for them to keep paying those credit card processing fees and shipping costs, just to get rid of these darn coins that no one wants.
Disclosure: CreditCardForum has an affiliate advertising relationship with most major credit card issuers, including Chase. The Chase Freedom and United Airlines credit cards were mentioned in this article.
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