For those not content to limit themselves to the Canadian credit card market, the tempting sign-up bonuses in the United States can prove too strong to resist. In this post I would just like to raise a few questions that anyone looking to expand their points and miles horizons southward should perhaps give at least a passing thought or three.
The Growing Popularity of American Credit Cards
If you’re a loyalty program aficionado who tries to keep on top of the various reward credit card options, you’re probably aware of a phenomenon that’s been gaining traction among the most aggressive pursuers of points. On forums and blogs you’ll find tips and advice on how to apply for a U.S. credit card as a Canadian (U.S. bank account, ITIN etc). However, there is seldom much discussion around the legality of this beyond labelling it a “grey area” and the suggestion to proceed according to your comfort level.
The US Residency Requirement
A common requirement when applying for an American credit card is a residential address in the United States. For many, this means finding a mail forwarding service that accepts credit cards and using that address on the application.
I confess I was a lawyer in a former life, but here I’m simply exploring a few obvious questions out of interest as a Canadian points enthusiast. This is not a legal analysis and no conclusions nor opinions will be offered. (Please consult a lawyer with relevant experience if you want legal advice on the topic.)
- (a) Are Canadian applicants in breach of the welcome offer terms or cardholder agreement when they put a mail forwarding address on a U.S. credit card application? and (b) Are Canadian loyalty program members in breach of the membership rules for obtaining rewards in this way?
- Is it a crime to use a mail forwarding address on a credit card application?
1(a) Is the use of a mail forwarding address a breach of the welcome offer terms or cardholder agreement?
Take a look at some sample welcome offer terms to which one agrees when submitting a credit card application.
Hilton Honors American Express Aspire
The Offer & Benefit Terms state under “Terms and Conditions”:
By submitting this application, you are requesting us to open an Account in your name and to issue Card(s) as you direct. Only qualified individuals 18 or over may apply for an Account. This offer is available to US Residents. (bolding added)
Chase Sapphire Preferred
The Pricing & Terms include the following:
Replying to this offer:If you omit any information on the form, we may deny your request for an account. Chase cardmembers who currently have or have had a Chase credit card in any Rewards Program associated with this offer, may not be eligible for a second Chase credit card in the same Rewards Program. Chase cardmembers currently receiving promotional pricing, or Chase cardmembers with a history of only using their current or prior Chase card for promotional pricing offers, are not eligible for a second Chase credit card with promotional pricing. You must have a valid permanent home address within the 50 United States, the District of Columbia, Guam, Puerto Rico, or the US Virgin Islands, or have a United States military address. The information about the costs of the card described in this form is accurate as of 3/19/2020. This information may have changed after that date. To find out what may have changed, write to us at Cardmember Service, P.O. Box 15043, Wilmington, DE 19850-5043. (bolding added)
Citi Premier Card
In Pricing & Information under “Citi Premier Card Terms & Conditions” it states:
This offer is valid for new accounts only. You must be at least 18 years of age. If you’re married, you may apply for a separate account. The Card offer referenced in this communication is only available to individuals who reside in the United States and its territories. Your eligibility for a particular product and service is subject to a final determination by Citibank. This communication is not and should not be construed as, an offer to individuals outside of the United States. Citibank, N.A., Sioux Falls, SD, (“Citi,” “we” or “us”) is the issuer of your account. Please allow 4 weeks from date of submission to process your Card Account application. (bolding added)
The Residency Question
So what’s the meaning of U.S. resident? Does it merely denote a procedural requirement where the applicant must supply a residential address in the United States in order to submit the application, or is it a substantive requirement where the applicant must actually own or rent a dwelling in the United States? In other words, must one actually live in the U.S. for at least some part of the year to be eligible for the card?
The cardholder agreements for each of the cards above give the financial institution broad discretion to suspend or close a cardholder’s account. The Amex Cardmember Agreement states that your account may be considered in default if, among other reasons, “you give us false information”. The Citi Premier Card Cardmember Agreement allows the bank to close or suspend your account “for any reason, or for no reason”.
In Canada there have been multiple reports of Amex cardholders having their accounts closed and points lost for conduct deemed unacceptable by Amex. Activities like churning cards or manufactured spending now carry the risk of account shutdown. Is it possible that using a mail forwarding address could result in similar action by Amex in the United States?
The address of a mail forwarder that has been flagged as a Commercial Mail Receiving Agency is not accepted in credit card applications. What if the mail forwarding address you use is later identified as a CMRA?
1(b) Is the use of a mail forwarding address a breach of the membership agreement of the loyalty program affiliated with a co-branded credit card?
Because there is a real world example of a frequent flyer program closing member accounts for credit card applications deemed in contravention of the membership agreement, it might be useful to look at the terms and conditions of the American Airlines AAdvantage program:
Fraud, misrepresentation, abuse or violation of applicable rules (including, but not limited to, American or American Eagle® conditions of carriage, tariffs and AAdvantage® program rules) is subject to administrative and/or legal action by appropriate governmental authorities and American Airlines. Such action may include, without limitation, the forfeiture of all award tickets and any accrued mileage in a member’s account, as well as termination of the account and the member’s future participation in the AAdvantage® program. If your account is terminated due to inappropriate conduct or while under investigation, you may not open a new AAdvantage® account or participate in the AAdvantage® Program in any capacity without obtaining the express written permission of American Airlines. In addition, American Airlines reserves the right to take appropriate legal action to recover damages, including its attorneys’ fees incurred in prosecuting any lawsuit.
Like many loyalty programs, the terms and conditions confer broad discretion to close a member’s account.
A number of individuals in the U.S. used promo codes from mailers addressed to new AAdvantage members inviting them to apply for Citibank AA credit cards. The promo codes were in practice transferrable and allowed current cardholders to get around welcome bonus restrictions.
Note that it was American Airlines, not the financial institution, that took action and permanently closed members’ frequent flyer accounts. American Airlines filed a response to a complaint from an affected individual filed with the US Department of Transportation. More info and a link to the DoT filing can be found here. It’s a fascinating read. Notice the attached excerpts from online forums where the workaround was discussed.
So then, is loyalty account closure a possibility when a bonus was obtained by a non-resident using a mail forwarding address? What about the impact of a member’s accumulation of a large number of points via referrals from a credit card deemed to have been acquired in an improper manner?
2. Is it a crime to use a mail forwarding address on a U.S. credit card application?
Moving on from contract law to criminal law, Section 1014 of Title 18 of the United States Code is a federal statute that makes it a crime to submit a false statement to a federally insured financial institution with the intent to influence its decision to extend credit.
Does putting an address on the application where you do not live (and is actually a place of business, not a residence) constitute a false statement? How would one argue that it’s not false and not intended to influence the decision to extend credit?
One might also ask how many of these violations are actually pursued? Would the facts have to be particularly egregious to warrant the exercise of prosecutorial discretion to charge? Would a blatant and concerted effort to skirt the residency requirement be sufficient, or would a charge under this section be more likely as an add-on to other arguably more serious but less easily provable criminal allegations?
(If interested, check out this journal article I found about the false statements law and its notable lack of a materiality requirement.)
What about the mail forwarder?
Is it conceivable that 18 USC 371 (conspiracy to commit mail fraud) could be in play as well? What if the mail forwarder was aware their services were being used to circumvent a financial institution’s terms and knowingly assisted applicants in this purpose?
(While the facts are obviously completely different, I suspect folks like Felicity Huffman understood the immorality of their actions but were not aware that charges of conspiracy to commit mail fraud and honest services mail fraud were within the realm of possibility when they engaged in college admission cheating.)
Could any future plans to possibly live and work in the United States be jeopardized by using this method to acquire U.S. credit cards? Might an unusual credit history be a factor immigration authorities would consider?
Another potential consequence involves the credit card’s included insurance benefits. If an insurer questions the legitimacy of the cardholder’s entitlement to benefits due to application ineligibility, could a cardholder’s claim be denied on that basis?
It seems the people seeking American credit cards range from those willing to submit a photoshopped utility bill or fabricated lease as proof of residency to individuals under the impression that using a mail forwarder is a backdoor yet benign method for responsible credit users to access a larger pool of cards and sign-up bonuses.
Anyway, the U.S. credit card game, as it’s referred to, is not for me. And while it would be great if the Canadian points and miles landscape included a few more co-branded cards, in my opinion there are enough homegrown options to suit most travellers’ needs.