The ACCC is cracking down on customer loyalty schemes with its latest draft report, stating that these programs, including frequent flyer, supermarket and credit card operators, must ensure they are not misleading consumers.
ACCC’s draft report shows almost nine in 10 adults are members of a loyalty scheme, with the average Australian carrying between four to six loyalty cards.
The draft report raised several concerns with loyalty schemes, 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; and
- The sharing of consumer data with unknown third parties.
“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 Rod Sims, ACCC Chair.
“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.”
According to Sims, loyalty schemes can contribute to a significant proportion of a company’s profits – with some generating $110 million to $370 million in earnings each year – and selling insights and access to these schemes’ members are becoming increasing sources of revenue.
“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,” Sims continued.
“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.”
The draft findings reinforce the recommendations of ACCC’s 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.
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.
