Thursday, 05 September 2019 11:32

Customer loyalty schemes under scrutiny from ACCC for ‘poor disclosure’, sharing consumer data Featured

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Australia’s competition regulator the ACCC has raised concerns over customer loyalty schemes including poor disclosure about how consumer data is used and shared, and the selling of insights from the data to other parties without consumer knowledge.

In a new draft report focussing on credit card operators, frequent flyer schemes and supermarket operators, the Australian Competition and Consumer Commission also questions whether consumers receive the benefits advertised by loyalty schemes and unilateral changes by loyalty schemes to their terms and conditions, including poor communication about how their schemes work.

The report also raises concerns about the “opaque terms and conditions of loyalty schemes” preventing consumers from making informed choices that align with their privacy preferences – and that consumers also have limited control over how their personal information and other data could be used by loyalty schemes and who it could be shared with.

“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,” ACCC Chair Rod Sims said.

“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.”

The ACCC’s report notes that loyalty schemes can contribute to a significant proportion of a company’s profits, with some loyalty schemes generating $110 million to $370 million in earnings each year.

“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. Selling insights and access to loyalty scheme members are becoming increasing sources of revenue,” Sims said.

The ACCC says it has received reports from consumers that they haven’t earned, kept or been able to redeem their points in the way they expected and, for example some operators of loyalty schemes:

  • failed to adequately advise them about critical components of their loyalty schemes, including the need to remain ‘active’ by earning or redeeming points to avoid point expiry or restricted availability of redemption opportunities
  • made unilateral changes that unfairly restricted the benefits available such as reducing the rate customers could earn points, or the value of points previously accumulated
  • imposed high ‘carrier charges’ when points were redeemed for flights.

“Many people think they can redeem their points for a free flight, but in some cases, the cost of purchasing an airfare without using points may be similar to the cost of a flight using points once the airline adds on taxes and charges.” Sims said.

“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.

“Having put loyalty operators on notice, we call on consumers to contact the ACCC to report concerns. The ACCC will consider these concerns in deciding whether enforcement action will be required to effect broader change.

“The ACCC’s findings in this draft report also reinforce the recommendations of our 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 in the longer term,” Sims concluded.

The ACCC has also recommended that a prohibition against unfair contract terms be introduced and that a new prohibition against certain unfair trading practices provision be considered.

The Commission is seeking comments on its draft report by 3 October and expects to release a final report later this year.

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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