Loyalty schemes are strategically used by hotel operators and booking platforms (as well as airlines, supermarket chains, car hirers etc) to generate additional revenue, and serve as a marketing tool to attract new customers and encourage existing customers to spend more. 

It is estimated that approximately 90% of Australians are now members of at least one loyalty scheme – with 1 in every 5 Australians being members of a hotel rewards program.

The ACCC has turned their attention to such loyalty schemes after Australian consumer law regulators received approximately 2000 complaints about such schemes in the five calendar years preceding December 2018.  

The ACCC is aiming to address concerns about earning points, redeeming points, the expiry of points, existing business practices, and compliance with the Australian Consumer Law. The key issues addressed in this review are:

• Consumer issues: whether consumers are properly informed and receive the benefits advertised by loyalty schemes;
• Data practices: the collection, use and disclosure of customer data by loyalty schemes and their partners (that is, their data practices, particularly as it is the loyalty function of a business that is usually responsible for collecting and storing customer data); and
• Competition issues: the potential impact of consumer loyalty on competing firms, in particular on new entrants.

The ACCC has called on loyalty scheme operators to improve how they communicate with their members, review how they approach presenting terms and conditions, and ensure changes are fair and adequately notified.

It has also recommended that the Australian Consumer Law be amended so that unfair contract terms are prohibited (not just voidable), and to include a prohibition against certain unfair trading practices. The ACCC has further proposed strengthening consumer protections under the Privacy Act, and called for broader reform of Australian privacy law generally.

As a consequence, loyalty scheme operators will be forced to review their processes to ensure the terms (and operation) of their schemes, communication systems and data practices are compliant with the Australian Consumer Law so as to not invite the scrutiny of the ACCC moving forward.

In light of this impending crackdown, hoteliers and other rewards program operators within the industry are urged to:

• Review the terms and conditions of any relevant schemes to ensure they do not contain any unfair contract terms potentially voidable under the Australian Consumer Law;
• Ensure adequate processes are put in place regarding communication with members on matters such as data collection and use, redemption of benefits and unilateral changes to member schemes; and
• Take steps to promote and maintain consumer control over their data.

A final report is expected in late 2019 - so operators should prioritise reviewing their schemes in advance of the peak ‘earn and burn’ points period across the summer holidays.

Article provided by Cameron Burke, Special Counsel, Corporate Advisory, AJ&Co