With almost nine in ten adults becoming members of a loyalty scheme, a new draft report on Customer Loyalty Schemes has brought to light a number of concerns with the programs, particularly in relation to consumer data.

The ACCC said businesses running these schemes, including frequent flyer, supermarket and credit card operators, must ensure they are not misleading consumers as the draft report is released for comment from the public.

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.

According to the report, the average Australian carrys between four to six loyalty cards. Some of the most popular Australian loyalty schemes report having more than 10 million members and can contribute to a significant proportion of a company’s profits. Some loyalty schemes generate $110 million – $370 million in earnings each year.

Competition and consumer issues arising from customer loyalty schemes are a priority area for the ACCC in 2019.

The draft report 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 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,” ACCC Chair Rod Sims said.

“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.”

“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,” Mr Sims said.

What can businesses do to ensure their loyalty schemes are compliant with the law?

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,” said Mr Sims.

“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,” Mr Sims said.

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.

The main concerns of the ACCC’s Customer Loyalty Schemes draft report:

• 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.

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

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