Loyalty schemes cop a caning

Is your coffee shop loyalty card the most valuable one in your wallet?

Possibly so, according to a report from the Australian Competition and Consumer Commission (ACCC).

Customer loyalty schemes, including frequent flyer, supermarket and creditcard operators, are making millions annually by onselling insights about scheme members, according to an ACCC draft report that listed a series 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
  • the sharing of consumer data with unknown third parties.

At least your coffee shop loyalty card gets you a free coffee after five or so coffees – no need to read the terms and conditions.

The ACCC draft report shows that almost nine in 10 adults belong to at least one loyalty scheme and that the average Australian has between four and six loyalty cards. Some of the most popular Australian loyalty schemes have more than 10 million members.

The report raises concerns about ‘opaque’terms and conditions that could lead to consumers making ill-informed choices about their privacy. It also says consumers have limited control over how their personal information and other data could be used.

“The 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,” said ACCC chair Rod Sims.

“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.

“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.”

The ACCC says that loyalty schemes can contribute to a significant proportion of a company’s profits and that some schemes generate $110 million to $370 million in earnings each year.

“Most people think they are being rewarded for their loyalty with discounts or points,” said Mr Sims, “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 that it had received numerous reports from consumers that they hadn’t earned, kept or been able to redeem their points in the way they expected. For example 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 at whichcustomers could earn points, or the value of points previously accumulated
  • 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 casesthe 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.” Mr 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.

“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.

“The ACCC’s findings in this draft report also reinforce the recommendations of our Digital Platforms Inquiry Final Report for consumer and privacy law reform. In particular, the ACCC 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.”

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

You can add to the conversation by contacting the ACCC via this link by 3 October.

Have you been able to use loyalty cards to your advantage? Or do you find turning points into rewards confusing and not worth the effort?

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

Related articles:
Food prices set to soar
Mortgage debt ruining retirements
Is this the path to cheaper energy?

Written by Janelle Ward


Australia’s food bowl is drying up and food prices are set to soar

‘This is their food bowl and obviously they scream when prices go up.'

Mortgage debt ruining retirement plans

Record numbers of older Australians are battling to pay off their mortgages before retirement.

Government unveils latest plan to bring down energy prices

The ACCC is working on an efficient way to share data with energy service providers.