The dreaded rewards claw-back

Image courtesy of Greg, the Frequent Miler

Image courtesy of Greg, the Frequent Miler

Your excitement at receiving a card’s sign-up bonus may quickly evaporate if the issuer decides you don’t deserve it after all – and takes it back.

This is known a “claw-back.” Here’s what triggers this dreaded action – and what recourse you have.

What is a claw-back?

Simply put, “a claw-back is when the card issuer initially gives the consumer a sign-up bonus, but later takes it away,” says Greg Davis-Kean, owner and primary author at rewards site Frequent Miler.

For example, say you’re supposed to earn 50,000 points after spending $4,000 on the card in the first few months. You spend the $4k, get the points, and the issuer later removes them from your account.

If you’ve already transferred your rewards to one of the bank’s partners (a partner frequent-flier program, for example), those points will generally be safe, Davis-Kean says.

What triggers a claw-back?

Claw-backs happen for various reasons, but they all boil down to this: The bank thinks the sign-up bonus wasn’t properly earned.

“Banks spend a lot of money on customer acquisition,” says Shawn Coomer, managing editor at rewards site MilesToMemories. “And I see claw-backs as a way to make sure they aren’t spending the money unwisely.”

While banks have always had terms and conditions for their sign-up bonuses, they haven’t always been enforced, Coomer says. But now that everything from targeted application links to sign-up bonus hacks can be prolifically shared online, that’s changing.

“Banks feel they are losing money by paying out bonuses that weren’t earned,” Coomer says.

Reasons your bonus gets yanked may include:

1. The issuer made a mistake: If the issuer accidentally gave more points than it should have, it can claw them back at a later time.

2. You violated the terms of the sign-up bonus: Banks generally list purchases that don’t count toward the sign-up bonus spending requirement in the offer’s fine print. American Express, for example, often lists “purchases or reloading of prepaid cards” and “purchases of other cash equivalents,” Davis-Kean notes.

That means gift cards shouldn’t count toward your sign-up bonus, although if you’ve spent any time on rewards discussion forums, you’ll see gift cards touted as an easy way to make your minimum spend.

“Amex doesn’t usually enforce this rule, but there have been a few cases recently where they’ve used this clause as a reason to claw back sign-up bonuses,” Davis-Kean says.

Case in point, in Sept. 2016, rewards-chasers hit forums and rewards blogs with stories about the fruits of their American Express Platinum sign-up bonuses getting clawed back. One common thread? They’d bought gift cards.

3. You returned an item: If you made your minimum spending requirement by purchasing something you later returned, you could get hit with a claw-back.

“A common example is when a person buys an expensive fully refundable flight and cancels the ticket after earning their sign-up bonus,” Davis-Kean says.

4. You apply via a link that wasn’t meant for you: Some issuers reserve their highest sign-up bonuses for customers they particularly want. But, the Internet being what it is, these targeted application links are easily shared.

Because a valid link is a valid link, issuers can’t exactly claw back points due to an application stemming from a targeted link. But they may be “especially vigilant” about applicants violating any of the terms mentioned above, Davis-Kean says.

For example, Coomer’s wife’s points with American Express are currently frozen because she applied for an offer via a targeted link that went public. This indicates the bank is investigating and clawing back points not properly earned.

“My wife did nothing wrong and has complied with all the terms, so eventually the points should be left alone,” Coomer says. “But it is still a frustrating experience.”

Banks that claw back the most

Any bank can claw back your rewards if you violate its terms, but Coomer and Davis-Kean cite American Express as being the most wary lately. That said, other issuers are known to be even more aggressive in penalizing what they deem rewards abuse, Davis-Kean says.

“Citibank periodically identifies people that they no longer want as customers and they’ll close down all of that person’s Citibank accounts and take away all of their Citi ThankYou points,” Davis-Kean says.

Do you have any recourse if your rewards are clawed back?

Your options may be limited if you truly violated the issuer’s stated terms, Coomer says.

However, if you feel the claw-back wasn’t proper or was an error on the bank’s part, Coomer and Davis-Kean recommend doing the following:

  • Contact the bank: “The first thing to do is to escalate to a supervisor and ask for an investigation to be done,” Coomer says. “Generally you will be forwarded to a special department.”
  • Complain via official channels and leave a paper trail: American Express, for example, allows you to file a claim here, Davis-Kean notes.
  • Reach out to the Consumer Financial Protection Bureau: Both Coomer and Davis-Kean recommend this step if the bank won’t budge.
  • Consider mediation or arbitration: “You may want to get a lawyer involved,” if it comes to this, Davis-Kean says. If your rewards account has a high monetary value, it may be worth it. This consumer, for example, used legal help to get a settlement from Citi after the bank shut down her accounts and confiscated her rewards points.

If that all sounds complicated, try to avoid claw-backs altogether when pursuing sign-up bonuses.

“The best thing to do is to read the terms of any offer you receive and make sure to comply fully,” Coomer says.

 
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