Customer Loyalty Schemes under the Regulator Microscope for 2020

By Lynne Lewis, Megan Edwards


Following on from our article regarding the draft report, on 3 December 2019, the Australian Competition and Consumer Commission (ACCC) released its Final Report into Customer Loyalty Schemes (Loyalty Schemes), which highlights areas of concern that the ACCC has in some Loyalty Schemes used by retailers in Australia. In Australia, Loyalty Schemes are a prevalent marketing tool. Almost 90 per cent of Australian consumers are estimated to be a member of a Loyalty Scheme, with the average consumer having four to six loyalty cards[1].  Popular Loyalty Schemes include frequent flyer programs, credit card rewards programs and shopping programs.  Australia's largest Loyalty Scheme, the Qantas Frequent Flyer program, has around 12.9 million members, followed by the Woolworths Rewards with 11.7 million members, Velocity Frequent Flyer with 9.8 million members and Flybuys with 8.6 million members.[2]

Flagged as a priority area for the ACCC in 2019, retailers should carefully consider their own Loyalty Schemes in light of this Final Report.  The ACCC has shown its cards, as the Final Report encourages consumers to contact the ACCC should they have any concerns with a Loyalty Scheme, and flags that the ACCC will consider enforcement action if it is needed to effect change in the industry.

What were the ACCC findings?

The ACCC has made a range of broad recommendations to retailers who use Loyalty Schemes.  They include:

  1. Improve how loyalty schemes communicate with customers

    The ACCC recommends that greater transparency is needed by Loyalty Schemes in relation to their terms and conditions to ensure that customers are fairly and adequately notified.   Particular examples provided by the ACCC include Loyalty Schemes where points can expire, the value of the points can be varied, or where there are restrictions on usage of points (e.g. frequent flyer points which cannot be used on certain routes or particular times).   The ACCC has identified the risk that unilateral terms which allow amendments of this type may be unfair, and Loyalty Scheme operators also run the risk of engaging in misleading or deceptive conduct.

    The ACCC makes further recommendations as to how Loyalty Scheme operators should approach changes in terms that result in the reduction of the earn rate or redemptive value of points, which includes:

    • providing prominent advance notice and a genuine opportunity for current members to redeem their points at the current rates;
    • compensation for any reduction, potentially in the form of an increase in the number of points.


  2. Prohibitions against unfair contract terms and certain unfair trading practices

    The ACCC recommends legislative change to the Australian Consumer Law to make unfair contract terms prohibited, and not just voidable as is currently the case.  Further, the ACCC recommends legislative changes to target unfair conduct that has, or has the potential to cause, substantial detriment to consumers.  The scope of these proposed changes is yet to be determined. This is certainly a space to watch in the coming year.


  3. End the practice of automatically linking members' payment cards to their loyalty scheme profile

    The Final Report raises general concerns about the use of consumer data obtained through the Loyalty Schemes.  It identifies potential harm in the practice of automatically linking customers' payment cards to their loyalty scheme profile which continues the compilation of purchase data even when the Loyalty Scheme card is not used.  The final report does not specifically identify a breach of law in this regard, rather flags concern that the practice can cause consumer harm due to decreased privacy and risks of profiling, discrimination and exclusion.


  4. Improve the data practices of loyalty schemes

    The Final Report recommends Loyalty Scheme operators review their approach to consumer data, particularly in relation to how data use is communicated to consumers and how consumers can have control over their data.  The ACCC recommends that Loyalty Scheme operators take the following practical steps to address this overarching concern:

    • Review their agreements with consumers for unfair contract terms, particularly unilateral rights of variation;
    • Improve the accessibility of privacy policies by making them clearer, easier to access and read;
    • Prominently present relevant aspects of the terms at relevant times during consumer interactions;
    • Clearly communicate what consumer data is being shared, where and how;
    • Disclose to consumers the sources of third party advertising, including what consumer data is used to inform that advertising and the ways in which the consumer may receive that advertising;
    • Provide consumers with a meaningful ability to control the collection, use and disclosure of their data, and clearly disclose any limitations on those controls.


  5. Strengthen protections in the Privacy Act and broader reform of Australian privacy law

Another 'watch this space' issue, as the ACCC proposes changes to the Privacy Act to address concerns regarding the definition of  'personal information', notification and consent requirements, deletion of information and the ability for consumers to seek compensation for breaches by way of a class action.   These recommendations parallel those that were made in the ACCC's Digital Platforms Inquiry.  Again, with no Bill before parliament to implement such changes, this is certainly a space to watch in the coming year.

The ACCC has also flagged that it will continue to consider any competition law issues that arise from Loyalty Schemes.  There are obvious pro-competitive effects of Loyalty Schemes, as they promote competition in customer loyalty offerings and lower prices for consumers.  However, the ACCC has also noted that  the barriers to competition in concentrated industries with large Loyalty Schemes are high.  Further, Loyalty Schemes have the potential to result in customer lock-in effects that may impact on the barriers to entry and expansion for competitors in the same market.   The Final Report says that the ACCC will consider the competitive effects of each Loyalty Scheme on a case-by-case basis in enforcement or merger and authorization decisions.

The ACCC had reason to consider the competition effects of a loyalty scheme arrangement when BP, Qantas Airways and Qantas Frequent Flyer sought authorisation to collectively participate in the BP Rewards, Qantas Frequent Flyer and Qantas Business Rewards programs.  On 22 November 2019 the ACCC announced that it proposes to grant authorisation for five years for the parties to participate in the Loyalty Scheme as proposed, and the ACCC also proposes to grant authorisation to BP to require BP fuel resellers to participate in the Qantas loyalty programs as a condition of their reseller arrangements. In the draft authorisation, the ACCC noted that the proposed conduct is unlikely to result in significant public detriment, given other airline loyalty schemes have other loyalty partners available to collaborate with, the proposed loyalty scheme is unlikely to result in harm in the fuel industry and fuel retailers are unlikely to be critical to the success of airline Loyalty Schemes. 

What should retailers do?

It is recommended that Retailers give their Loyalty Schemes a health check in line with the ACCC recommendations, and, should the need arise, take positive action to make changes.  The ACCC is  clearly looking for a test case to run through the courts to make changes in the Loyalty Schemes industry, and these issues, as well as retailers acting in a way which misleads or deceives consumers, is likely to be an attractive case.  

[1] Australian Competition and Consumer Commission, "Customer Loyalty Schemes – Final Report",  December 2019, p6

[2]  Australian Competition and Consumer Commission, "Customer Loyalty Schemes – Final Report",  December 2019, p6