Customer loyalty scheme operators on notice from ACCC draft report

Loyalty scheme operators are on notice to ensure they are upfront with consumers after the Australian Competition and Consumer Commission (ACCC) delivered its draft report on loyalty schemes.

While the draft report focused on big players including Qantas, Virgin, supermarkets, and the big four banks, it is also relevant to any business operating a customer loyalty scheme.

The draft report focuses on a wide range of issues within the Australian loyalty scheme market. In particular, the ACCC highlights the following key themes.

consumer information and benefits received

The ACCC has major concerns about the (often limited) type of information about loyalty schemes, and the manner in which they are communicated to consumers. The ACCC fields many complaints from consumers that they have not earned, maintained, or redeemed their loyalty program points in the manner anticipated. The ACCC’s particular concerns include:

1. The failure of loyalty scheme operators to inform consumers about key terms, exclusions or provisos applicable to the loyalty schemes (eg. the need to continue to earn points within a specific time period to avoid the expiry of previously accrued points, or limitations on the options available to consumers to redeem loyalty points).
   The ACCC recommends loyalty scheme operators ensure the terms and conditions of their loyalty schemes (T+Cs) are presented in a way that allows consumers to easily review and understand their operation and effect before agreeing to them.
2. The decision of some loyalty scheme operators to reduce the rate at which consumers earn loyalty points, and/or the value of redeeming points previously accrued. In the ACCC’s view, this type of “unilateral reduction” may amount to an unfair term under the Australian Consumer Law.

The ACCC recommends:

• • be especially careful when making any decision to reduce the earning rate value, of loyalty points within schemes; and
  • ensure the key rights and obligations of consumers are clearly conveyed within the T+Cs of the scheme.Consumer Data Practices

The ACCC is well aware customer loyalty schemes have multiple purposes for their operators, including maintaining customer loyalty, acquiring new customers, and increasing the incentive to make additional purchases. However, the increasing use of data analytics has also provided the opportunity for operators to collect increasingly specific information on their consumers.

As also reported in the ACCC’s recently released Digital Platforms Inquiry, they consider that data practises require thorough investigation (and closer scrutiny) to ensure they comply with the requirements of the Privacy Act and the Australian Consumer Law.  In particular, the ACCC has expressed interest in two areas of data practice:

• 1. Loyalty scheme operators’ use of de-identified data, and transactions of individual members, to create consumer profiles; and
  2. The subsequent sale of these data profiles to digital marketing agencies.

where we are heading

The ACCC is taking the lead role in many of the newly introduced and upcoming law reforms.  What is very clear is practises around the use of personal information are no longer purely “privacy” matters within the realm of the Office of the Australian Information Commissioner, but will also be considered from a “competition” and “consumer” perspective under the regulation of the ACCC.

The ACCC has a watchful eye, and a very explicit enforcement mandate.

what you need to do

The draft report serves as an opportunity to review the T+Cs of any loyalty scheme your business may be offering. In particular, you should:

• review the T+Cs of your loyalty scheme for clauses that may be “unfair”;
• review your advertising for any statements or representations that may be misleading or deceptive;
• consider the manner and extent of your use of customer data, and whether that is adequately and accurately communicated to the members of your loyalty scheme.

If you require any assistance or further information, please contact our Competition and Consumer team.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.