Consumer watchdog calls for major reforms to customer loyalty programs

The data practices of loyalty programs must stop automatically linking members’ payment cards to their loyalty scheme profiles and changes are needed consumer and privacy law, according to the Australian Competition and Consumer Commission’s (ACCC) final report into customer loyalty schemes.

“We are calling on companies that offer loyalty schemes to improve both their data practices and how they communicate with consumers, to help consumers understand how these programs operate,” said ACCC chair, Rod Sims, said upon releasing the final report today.

The consumer watchdog said it’s also concerned about consumer profiling based on the data collected by some schemes, including through the sharing of consumer insights with third parties, which could result in consumers receiving increasingly targeted advertising and consumers being offered different prices for an identical product or service.

Sims said consumers have expressed concerns about receiving offers from companies they have not dealt with before and a real risk of consumer harm from being charged inflated prices based on profiling derived from their data.

“If a person’s frequent flyer data or online search history indicates they can only travel on certain dates, or otherwise based on their income, geographic location or other information collected through the loyalty scheme they may be charged extra,” he said.

In the wider context, the ACCC has major concerns about the privacy policies of loyalty programs being very vague and seeking broad consents and discretions from consumers about how they’re going to collect, use and disclose their data.

Sims said consumers would be shocked to find some supermarket schemes collect customers’ data at the checkout even when they do not present their loyalty cards by tracking customers’ credit or debit cards from previous transactions.

“When a customer chooses not to present their loyalty card, we think it is reasonable that they would not expect their data to be collected for that transaction, and we are therefore calling on the relevant schemes to stop this practice,” he stated.

The ACCC commenced its review of customer loyalty schemes in early 2019 after competition and consumer issues arising from these schemes were announced as a 2019 priority. The draft report was issued in September, to which several schemes responded. The ACCC and the various state and territory Australian Consumer Law (ACL) regulators received about 2000 reports about loyalty schemes in the five years to December 2018.

Some loyalty program operators made changes after the ACCC commenced its review and released its draft report. However, the ACCC said it remained concerned about certain practices that a number of loyalty schemes continue to engage in.

Furthermore, the ACCC said its report reinforces recommendations from its Digital Platforms Inquiry Final Report regarding privacy and consumer law, such as prohibiting unfair contract terms and introducing new laws against certain unfair trading practices.

“Our recommendations would protect consumers and help ensure consumer trust in loyalty schemes, in the digital economy and in data-based innovation, which is a benefit for the broader economy,” Sims said.

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