I recently applied for the Amex Gold Delta Skymiles card, with the intention of getting the sign up bonus (60,000 miles after $2k spend in first 3 months) and canceling the card before the first annual fee kicks in (as it is waived for the first year). I also did the same thing already with the Chase United Mileageplus explorer card, but it didn't have the same nasty terms I see in the Amex Gold card... the Amex Gold cards has some language that threatens to remove/take away/not honor the bonus if I cancel within the first year. My question is, what can they do if I have already used the miles? All of the threat seems revolved around taking the bonus away, but what if it's already been spent?
Note: I am not a lawyer; this is not legal advice.
TL;DR: As Hart CO says in their answer, there is probably nothing they can do once you've used the points, other than close your card and, potentially, any other accounts you have with them.
The Offer & Benefit Terms for American Express's Gold Delta SkyMiles® Credit Card can be found at this link. Under the heading "30,000 Bonus Miles" it first states when they can take action (emphasis mine):
If we in our sole discretion determine that you have engaged in abuse, misuse, or gaming in connection with the welcome offer in any way or that you intend to do so (for example, if you applied for one or more cards to obtain a welcome offer(s) that we did not intend for you; if you cancel or downgrade your account within 12 months after acquiring it; or if you cancel or return purchases you made to meet the Threshold Amount),
and then lists what they can do with regard to the bonus miles:
we may not credit the welcome offer to, we may freeze the welcome offer credited to, or we may take away the welcome offer from your account.
All of these will prevent you using the bonus miles if they suspect "foul play". There is no mention of any recourse that they reserve should you have already spent the miles before they decide that you are in violation of their terms1. However, it does continue (emphasis mine):
We may also cancel this Card account and other Card accounts you may have with us.
Obviously, the first part won't bother you if you're the one who closed the account, but if you have any other accounts with American Express, they reserve the right to close those as well (how likely they are to actually do this, I have no idea).
And, while the terms and conditions do not explicitly talk of "blacklisting" people who abuse the offer, the opening paragraph is:
Welcome offer not available to applicants who have or have had this Card. We may also consider the number of American Express Cards you have opened and closed as well as other factors in making a decision on your welcome offer eligibility.
Assuming this, or something like it, is present in any future T&Cs, it allows them to take how you behaved with this card into account when considering any future cards you may apply for.
1 As others have said, they do not run the SkyMiles® scheme, so (at least without a lot of extra legal-wrangling over their arrangement with Delta) could not take other miles from your balance or make you "overdrawn" in miles.
They could, perhaps, have written in a "you must reimburse us $xxx" clause, although I suspect the costs of enforcing this would outweigh anything they recovered.
If you churn enough cards with AMEX they will blacklist you from ever getting another bonus with them again. I learned this the hard way. If I had realized this I would have kept my AMEX cards longer. I actively churn cards (free travel for 6+ years), but I am currently unable to get anymore AMEX bonuses. They are willing to give me their credit card, just no more bonuses.
Remember there is a financial arrangement between the card and the airline mileage program. If you violate the terms and conditions with one there is an impact with the other. When you earn miles either by regular purchases, or through a bonus award, the credit card company purchases miles from the airline mileage program. When you use the card to purchase tickets on the airline, then the card awards you additional miles. The deal works in both directions.
When you violate the terms and conditions of the credit card company they can, if the agreement they have with the program allows it, request that the airline mileage program deduct your improperly awarded miles. While i did qualify the above statement, you should assume they can deduct the miles as part of their agreement. They do this all the time when you return a purchase or cancel a ticket. Depending on the mature of violation they can have your airline mile program membership terminated.
We have seen this occur when a person is caught buying or selling points from outside the program. The termination of the program membership will also cancel any legitimate miles in the program. It will also impact any other AMEX cards you have. The airline can also prevent you from opening a new miles account. The miles membership is also frequently linked to rental car member programs and hotel member programs. Your ability to earn points from those programs could also be impacted.
So if you earned the miles within the three months and then waited the 8-12 weeks for the bonus miles to be awarded, then you made a reservation using the miles in the program, then took the flight, then a cancelled the card just before the annual fee kicked in, and you had no other points remaining in the airline program; Then the only thing you could do is cancel your Amex cards and cancel your mileage membership.
If you are willing to risk that then go ahead and churn the account.
I did check the Chase/United program. It also had similar language.
My question is, what can they do if I have already used the miles? All of the threat seems revolved around taking the bonus away, but what if it's already been spent?
If you have used your reward points, then the reward clawback will leave you with a negative point balance. I don't believe they can charge you for a negative reward point balance, I see people suggesting this possibility but don't see any examples or language in their terms and conditions that supports that notion. In most cases a negative point balance just means no new rewards until you've spent enough to earn rewards to bring the point balance positive, but if closing the account I see no evidence of a financial consequence to the cardholder.
I believe the worst they'd likely do is blacklist you, but plenty of people churn Amex cards or have rewards clawed back without being blacklisted, it's most likely reserved for people that have had accounts charged off rather than people who leave with negative point balances.
In your case, you can avoid any negative outcome by waiting until the 13th month to cancel. For Amex the annual fee is refunded if you cancel within 30 days of the statement date on which the annual fee is charged. Read your terms and conditions to confirm that provision is still in place (has been for years but I haven't opened an Amex recently).
I'd simply put this as a comment but don't have the rep...
Just for the sake of completeness, I'd like to suggest an alternative:
Simply ask AMEX if they will permanently waive the fee.
I know this isn't an answer to your question, but often times they will do this... In fact, I have the Gold card myself with no annual fee. I had intended to cancel, but they waived the annual fee for me permanently to keep me as a customer, and because of that I still use the card. I'm not sure how commonly it's done, but it doesn't hurt to ask.
What you are doing is called "churning" and is reasonably common. To answer your question, American Express can charge you the amount you already redeemed to recover the sign-up bonus that you no longer qualify for. If you want to churn cards like this you have to carefully read the terms and conditions and then keep the card open long enough to not be subject to any sign-up bonus clawback. Using the sign-up bonus does not let you escape these terms.