ACCC raises concerns about loyalty programs selling consumer data

ACCC raises a raft of concerns about loyalty programs in its draft report

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As many big players ramp up their loyalty program efforts, the ACCC has released a draft report highlighting a number of concerns about the programs, in particular the sharing of consumer data without consumer knowledge.

In its draft report, the ACCC said customer loyalty schemes, including frequent flyer, supermarket and credit card operators, must ensure they are not misleading consumers.

The Customer Loyalty Schemes draft report highlights a number of concerns, including whether consumers receive the benefits advertised by loyalty schemes; unilateral changes by loyalty schemes to their terms and conditions, and poor communication about how their schemes work; poor disclosure about how consumer data is used and shared, including selling insights from consumer data to other parties without consumer knowledge; and the sharing of consumer data with unknown third parties.

Loyalty schemes can contribute to a significant proportion of a company’s profits. Some loyalty schemes generate $110 million – $370 million in earnings each year.

Qantas recently overhauled its loyalty program, offering more than 1 million extra rewards seats, a new lifetime qualification and tiered Points Club for non-flying spenders as part of a $25 million investment into its Frequent Flyer loyalty program. Similarly, Virgin recently overhauled its loyalty program, partnering with Freedom.

Amazon Prime has some 100 million members, and even Telstra has launched a loyalty program.

According to the Clarus Commerce 2019 Premium Loyalty Study, locking down customer loyalty is more difficult than ever as consumers are bombarded with offers from traditional retailers as well as those in the ever growing direct-to-consumer industry, giving them virtually unlimited choice. In response, brands are turning to loyalty programs in a bid to make an emotional connection with their best consumers.

The ACCC report shows almost nine in 10 adults are members of a loyalty scheme, with the average Australian carrying between four to six loyalty cards. Some of the most popular Australian loyalty schemes report having more than 10 million members.

However, it raises concerns about the 'opaque' terms and conditions of loyalty schemes preventing consumers from making informed choices that align with their privacy preferences. Consumers also have limited control over how their personal information and other data could be used by loyalty schemes and with whom it could be shared.

The ACCC received reports from consumers they haven’t earned, kept or been able to redeem their points in the way they expected. Some operators of loyalty schemes failed to adequately advise them about critical components of their loyalty schemes, including the need to remain ‘active’ by earning or redeeming points to avoid point expiry or restricted availability of redemption opportunities; made unilateral changes that unfairly restricted the benefits available such as reducing the rate customers could earn points, or the value of points previously accumulated; and imposed high ‘carrier charges’ when points were redeemed for flights.

“Many people think they can redeem their points for a free flight, but in some cases, the cost of purchasing an airfare without using points may be similar to the cost of a flight using points once the airline adds on taxes and charges,” ACCC chair, Rod Sims, said. “Loyalty scheme operators must ensure they comply with the Australian Consumer Law, including by avoiding statements that are incorrect or likely to create a false impression, and avoiding unfair contract terms.

“Loyalty schemes also need to review the way they explain to customers how their schemes work, and how they notify their consumers of any reductions to the benefits offered."

A big one for the ACCC is that privacy policies of these schemes are frequently very vague and don’t tell consumers who their data is being shared with or how it is being used, shared or monetised. 

“The data that loyalty schemes collect can be used to profile consumers and produce insights about their purchasing behaviour. These insights about consumers may then be shared with or sold to third parties," Sims continued. 

“Consumers may also be shocked to find that some schemes collect their data even when they don’t scan their loyalty cards, or that they combine it with data from other sources that they might not even be aware of.

 “Most people think they are being rewarded for their loyalty with discounts or points, but in reality some schemes are building up detailed profiles about consumers and selling those insights to other businesses. Selling insights and access to loyalty scheme members are becoming increasing sources of revenue."

The ACCC said its draft findings also reinforce the recommendations of its Digital Platforms Inquiry Final Report for consumer and privacy law reform. In particular, the consumer watchdog recommends strengthening the Privacy Act 1988 and broader reform of the Australian privacy regime to maintain effective protection of consumers’ personal information in the longer term.

“Having put loyalty operators on notice, we call on consumers to contact the ACCC to report concerns. The ACCC will consider these concerns in deciding whether enforcement action will be required to effect broader change,” Sims said.

The ACCC also recommends a prohibition against unfair contract terms be introduced and that a new prohibition against certain unfair trading practices provision be considered.

The ACCC and the various state and territory Australian Consumer Law (ACL) regulators received approximately 2000 reports about loyalty schemes in the five years to December 2018.

The ACCC’s draft report was informed by analysis of information voluntarily provided by loyalty program providers, information provided by consumers to the ACCC and state and territory ACL regulators, commissioned research, desk-top research including a review of key program terms and conditions and findings presented in the Digital Platforms Inquiry Preliminary and Final Report.    

The ACCC is seeking comments on the draft report by 3 October 2019 and expects to release a final report in late 2019.

Follow CMO on Twitter: @CMOAustralia, take part in the CMO conversation on LinkedIn: CMO ANZ, follow our regular updates via CMO Australia's Linkedin company page, or join us on Facebook: https://www.facebook.com/CMOAustralia. 

 

 

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Tags QantasTelstraacccAustralian Competition and Consumer Commission (ACCC)Virgincustomer loyalty programsAmazon Prime

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