ACCC recommends great scrutiny of loyalty schemes

01 Oct 2019

Nine out of 10 Australians are members of loyalty schemes, and most of us belong to at least half a dozen such programs. In addition to being an important way of rewarding customers, loyalty schemes are themselves significant businesses.

Some Australian schemes have more than 10 million members and generate hundreds of millions in earnings each year, according to the ACCC.

But at a time when there is increasing scrutiny of the collection and use of data, the regulator is keeping a close watching eye and suggesting Australian Consumer Law be strengthened to protect against unfair data practices. In September the ACCC released its draft report into for consultation into Consumer Loyalty Scheme with stakeholders encouraged to make submissions on the draft report by 3 October 2019.

It aims to release its final report towards the end of the year.

The ACCC’s review of the major customer loyalty schemes in Australia focused on the following key issues:

Consumer issues: whether consumers are properly informed and receive the benefits advertised by loyalty schemes.

Data practices: the collection, use, and disclosure of consumer data by loyalty schemes and their partners.

Competition issues: the potential impact of loyalty schemes on competing firms, in particular on new entrants.

In essence, the ACCC says the objective of its review is for it to gain a better understanding of how customer loyalty schemes operate, including; the collection, use, and disclosure of consumer data; and the terms and conditions of these schemes.

ACCC Chair Rod Sims raised a number of concerns about the schemes when releasing the draft report for consultation.

“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,” he said.

He noted that the data that loyalty schemes collect can be used to profile consumers and produce insights about their purchasing behaviour and that the insights gleaned about consumers might then be shared with or sold to third parties.

Within the marketing industry this will not come as a revelation, however, consumers might not be quite so knowledgeable about the practice.

According to Sims, “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.”

To that end the ACCC has made four initial draft recommendations.

The first is that organisation improve how loyalty schemes communicate with customers. The report says, “Loyalty scheme operators need to review their approach to presenting terms and conditions of loyalty schemes and ensure changes are fair and adequately notified.” Furthermore, the ACCC suggests operators “should review their approach to presenting the terms and conditions of loyalty schemes to ensure consumers have a genuine opportunity to review and understand their policy and operation”. 

The recommendation also reinforces the need to comply with Australian consumer law, “including by avoiding statements that are incorrect or likely to create a false impression and avoiding unfair.”

The second draft recommendation is a prohibition against unfair contract terms and certain unfair trading practices, and on this point the regulator also links back to another area of focus on keen interest to many marketers; the Digital Platforms Inquiry.

“The ACCC’s findings in this draft report reinforce the Digital Platforms Inquiry Final Report’s recommendations for the need for a prohibition against unfair contract terms and certain unfair trading practices.”

According to the draft report, “Consistent with the Digital Platform Inquiry Final Report’s recommendations, the ACCC recommends that the Australian Consumer Law be amended to prohibit unfair contract terms and to include a prohibition against certain unfair trading practices.

“The scope of a prohibition on certain unfair trading practices should be carefully developed such that it is sufficiently defined and targeted, with appropriate legal safeguards and guidance. The ACCC notes the current work on this issue being undertaken as part of the Consumer Affairs Australia and New Zealand (CAANZ),” the draft report says.

There are also recommendations about the data practices of loyalty schemes, as well as a call to strengthen protections in the Privacy Act and broader reform of Australian privacy law.

Executives stressed the need for marketers to be responsive to consumer converts.

Tessa Court is the CEO of Intelligence Bank (and herself a former CMO) whose platform is used by the likes of Hertz, NAB, Jetstar, ANZ, and Medibank to help their marketing teams manage the creative process

She says, "The ACCC’s report is a strong message to marketers that they can no longer hide behind legal jargon. As with all advertising and promotions - in this case T&Cs - brands and their marketing teams need to make the communications clear, concise and accurate and ensure the right stakeholders are part of the creative process and are aware of their obligations.”

She argues that creative approvals that 'bake in' the requirements from regulators via tools such as a digital workflow and approval system can help these things from slipping through the cracks, prevent loss of brand trust, and ultimately foster better product understanding among their consumers.

For more information on the draft report into consumer loyalty schemes visit the ACCC web site

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