Doesn't American Express offer cards now that have fee-free access to that rewards program? I know I was looking at applying for their Blue card, because there was no annual fee and you earned rewards points in that Membership Rewards program and they say there is no fee to join it.

But who knows. Credit cards are full of fine print and hidden charges. It may appear to be free and that's not the case. LOL

Wendy, very sorry for the surprise and Membership Rewards is not the only one. Actually Diners Club Rewards also incorrectly adds a fee when transferring their points into airline miles. Oh, there's others of those scoundrels - most if not all the car rental companies and the telephone companies still giving out miles do the same, they just charge this "federal excise tax" up front (check your car rental receipt the next time you rent and earn miles).

They can all add whatever fees they feel are necessary to run their business and I don't think we have a problem with that, but what i hate is the blatant lie when they try and convince you that it's a government fee they are collecting Semantics aside, there is a federal excise fee of 7.5% when companies or businesses here in the U.S. buy miles from the airlines. But, this fee is not directed toward the member or the passenger ? the government has not and is not instructing Membership Rewards to collect this fee on their behalf. There are plenty of other federal taxes on things that partners of frequent flyer programs pay, but they have yet (holding a big breath ...) to pass them along in the name of the government. For instance, American Express as well pays federal corporate income tax. Do they break that out and convince us that we have to help pay for that as well.

In doing so, it just tarnishes their reputation, as many other partners such as hotel programs and even other credit card companies such as Chase and Citi have yet to add this tax into our ability to earn frequent flyer miles.

It is a bummer? Not really, heck if getting a free ticket cost you $30-50 in fees, that's still a lot better value in my book that having to pay $453 for a real ticket. We all understand the need to run a business and control costs, etc. What we don't understand is why some choose to play semantic games like "this is a federal excise tax". Wrap it all into the cost of doing business but quit playing the offset blame game.

Oh, and a few more things. Membership Rewards first introduced this transfer fee in March 2004, following by more than a year, the same action by Diners Club. Car rental companies started in the 90s. And finally, if this is really a 7.5% federal excise tax, then it gives you a real insight as to what your miles are actually worth, or at least what the cost is to Membership Rewards - in this case, roughly .0666 cents per mile, just over a half penny per mile.

And one last comment. This tax on selling miles is in place no matter what purpose you choose to use your miles for. For instance you were transferring points from Membership Rewards to OnePass for the sole purpose to bid your miles on some of the great 20th Anniversary auction items they have going right now. Yes, even if those miles were used for Yankee baseball tickets or the Samsung Home Theatre system, the tax would still be charged even though the miles were not being used for air transportation. Supposedly this money is going toward the infrastructure of airports and every one of us has to decide if we've seen any improvement. The mileage excise tax actually started in 1998 and here's some of the early numbers as to what the government collected from partners from the sale of miles:
1998 $141 mil
1999 $149 mil
2000 $159 mil
2001 $150 mil
2002 $152 mil

Pretty good move by the gov, huh? I certainly don't mind the tax, I would just like to be guaranteed it's going toward the actual purpose, and that is a better airport infrastructure.

Randy Petersen

Amex and Diners Club both charge the fees. They both used to pay the tax themselves, and they're technically not passing along the exact tax amount but rather charging a fee intended to recoup their tax expense.

Larger point transfers are better values because the fee is capped.

The fee also does not apply to hotel points -- just airlines.

Note that Qantas is NOT a points transfer partner -- points can be redeemed for travel certificates. And Cathay Pacific is not a U.S. Membership Rewards partner at all.

You can always transfer your points to a non-US program such as ANA or Air Canada and use the points to book travel on their partners, in this case United or USAirways. But you are bound by that international program's rules... eg both ANA and Air Canada in many cases require more points to redeem for an itinerary than United requires of its own members... rules (miles expiration, stopovers, etc) may differ.. and so will taxes. You might save on transfer fees, but get hit hard on international taxes that the domestic program might have covered.

The better advice, though, is to ditch Membership Rewards for the American Express co-branded card with Starwood Preferred Guest... it has more transfer partners, they don't charge the fee on points transfers at all, and there are transfer bonuses built into the program (plus the wonderful 1:2 redemption rate + bonus with LanPass, a oneworld program).