A credit card company offers 5% cashback in rotating categories every quarter. For example, from April to June, you get 5 dollars back for every 100 dollars you spend in a particular category, say home improvement stores. On the other hand, I have also noticed that for returned products in this category, you only lose 1% of the cashback.
Image a person buys a product that worths $1000 from a store (and therefore earns $50 cashback) and immediately returns the unopened product (and therefore loses $10 cashback). Then he can basically get $40 for free. Of course, the credit company sets a limit on the cash back every quarter and thus no one can get unlimited money this way.
My question is, is the practice described in the paragraph legal, or is it considered fraud?