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American Airlines is telling the U.S. Department of Transportation your pet dog cannot apply for a credit card. Nor can you apply for a credit card using other fraudulent means.

Lawyers for the airline made that clear this week in a 53-page document alleging some loyalty program members recently took part in an “elaborate scheme involving misrepresentations to create bogus accounts” so they could earn bonus miles. These people, American said, repeatedly applied for American’s Citibank credit card, reaping a hefty sign-up bonus each time. The airline called it a clear violation of program rules.

American’s filing is a response to one individual, who made a complaint with the Department of Transportation alleging the airline unfairly terminated her frequent flyer accounts for fraud. According to American, the woman, along with her daughter and her son-in-law, opened at least 45 Citi credit cards in a four-year period, earning more than 1.4 million miles in new account mileage bonuses. American believes the trio also created at least 21 frequent flyer program accounts, some “intentionally opened under patently false first names, including Bubbles.'”

While the complaint is a response to the woman, Maria Borges, this case is far from the only recent case of fraud related to Citibank credit cards, American told the Department of Transportation. American’s admission comes after some frequent flyers began complaining on loyalty enthusiast websites that the airline had been shutting down accounts and taking miles, likely because of credit card bonus churning.

In its filing, American confirmed that’s exactly what it had been doing, saying it had been taking action against a small yet mighty group of swindlers. The schemers apparently were capitalizing on the U.S. airline industry’s aggressive push to get consumers to sign up for co-branded credit cards, a highly profitable business for American, because Citi pays the carrier for every mile it gives away.

To push consumers to sign-up, airlines and card issuers have been offering big bonuses, often between 50,000 and 100,000 miles for each successful applicant — enough for a few domestic roundtrip tickets.

American’s usually has tight rules about who is eligible for bonuses, so customers can’t claim them multiple times. But in this case, some of American’s customers flouted the rules, and the technology mistakenly let them do it, the airline told the government.

On the internet, the game was a bit of an open secret, American admitted. On a website popular among frequent flyers, some consumers even joked about signing up their pets to participate in the scheme, according to an exhibit in the airline’s filing.

“If Fido gets shut down, we’re suing,” one message board poster wrote in December.

How They Did It

Usually, members can earn a sign-up bonus only once in a four-year period. But in this case, the airline said, some members figured out how to get around the restriction.

Here’s how it scheme worked. American and Citi would send offers to customers it wanted to apply for the card, creating unique identifier codes for prospective applicants. According to American, however, some people were able to find “invitations not intended for them,” by creating multiple (and bogus) frequent flyer accounts, or “getting their hands on mailers or emails” addressed to someone else.

That approach probably should not have worked, but American admitted it did. During the application process, applicants could use the code, but then change the personal information, so the miles would go into accounts (real and bogus) that they controlled.

“These unscrupulous individuals repeatedly bragged, in online forums such as FlyerTalk and Reddit, of their schemes,” the airline told the government. “Several individuals posting to these online communities would share strategies on how to “game” the Citi application process. Some of their postings explicitly acknowledged that the schemes were in violation of the AAdvantage Terms and contained ‘tips’ on methods to evade detection by American and Citi.”

How They Were Caught

Airlines have more data on their customers than most other types of companies. But they often struggle to know how to use it, failing, for example, to personalize germane offers to individual customers.

But that data is extremely helpful to corporate security departments when airlines seek to go after fraudsters, this situation shows. In its filing, the company showed it had data on just about any interaction Borges’ and her relatives had with the airline.

“Lest there be any doubt, American Airlines now makes it clear that the company has the ability to track accounts using details like address, phone number, email and more,” Seth Miller, an airline industry analyst, wrote on his website.

In this case, American also used voice recordings of phone calls to show how the family perpetuated its scheme.

“If you’re gaming the program it seems the biggest lesson is that the airlines are (or can be when properly motivated) far better equipped to track fraud than many give them credit for,” Miller said. “And they really do record the calls and use those recordings when it is useful for responding to challenging situations.”

Photo Credit: American Airlines said fraudsters bilked it and Citibank out of frequent flyer program miles. Pictured is one of the airline's Boeing 777s. Associated Press