ACCC recommends protections for consumers using customer loyalty schemes

6 minute read  08.12.2019 Susan Kantor, Anna Lane
On 3 December 2019, the ACCC released its Final Report in relation to Customer Loyalty Schemes, and called for a range of privacy and consumer reforms.

Key takeouts


The ACCC has issued its Customer Loyalty Schemes Final Report with a focus on consumer and competition issues, and data practices.
The Report's recommendations seek to address concerns as to whether consumers are properly informed and receive the benefits advertised by loyalty schemes. They reinforce the importance of transparency in the use of customer data with a particular focus on loyalty schemes.
The Report reiterates many of the recommendations around reforms to privacy and consumer law made in the Digital Platforms Inquiry Final Report.

Almost 90 per cent of Australian consumers are estimated to be part of a customer loyalty scheme, with the average Australian holding four to six loyalty cards. 

Competition and consumer issues arising from these widespread customer loyalty schemes have been one of the ACCC's enforcement and compliance priorities for 2019. This is perhaps unsurprising, given that the ACCC received over 2,000 consumer complaints relating to customer loyalty schemes in the five year period to December 2018. On 3 December 2019, the ACCC released its Final Report in relation to Customer Loyalty Schemes (CLS Report)

The CLS Report calls for a range of changes to consumer and privacy laws. It also calls for changes to loyalty scheme practices to better protect consumers and empower them to make informed choices with respect to their data. The recommendations regarding privacy and data practices, unfair contract terms and unfair trading practices are applicable to any organisation seeking to leverage or monetise their customers' data (not just in the context of loyalty schemes). These recommendations echo the themes identified and actions taken by the ACCC, in other contexts, including in the ACCC's Digital Platforms Inquiry Final Report, and through recent action taken by the ACCC against Google and Health Engine in relation to privacy and consumer law issues.

Three key areas were explored by the ACCC in the CLS Report:

  1. Consumer issues: whether consumers are properly informed and receive the benefits advertised by loyalty schemes;
  2. Data practices: the collection, use and disclosure of consumer data by loyalty schemes and their partners; and
  3. Competition issues: the potential impact of loyalty schemes on competing firms, in particular on new entrants. 

While the ACCC found that loyalty schemes may harm competition by locking up customers or reducing the ability of smaller companies or new entrants to compete, it did not make any recommendations specifically relating to competition issues. A summary of the CLS Report's recommendations with respect to consumer issues and data practices is set out below.

Consumer and privacy recommendations

Recommendation 1: Improve how loyalty schemes communicate with customers

The ACCC recommended that loyalty scheme operators review the way in which they communicate with customers to ensure that customers are adequately notified, and able to make informed decisions in relation to terms and conditions, changes associated with the loyalty program, expiry dates and reductions in the rate at which the customer earns points. In this context, ACCC Chair Rod Sims highlighted that: 'Even simple changes, such as more prominently alerting customers that their points are about to expire, for example, in the subject line of an email, could help prevent a consumer from losing points earned over several years'.

Recommendation 2: Prohibition against unfair contract terms and certain unfair trading practices

The ACCC recommended that unfair contract terms be subject to pecuniary penalties and that a prohibition on certain unfair trading practices be introduced. This recommendation is consistent with recommendations in the ACCC's Digital Platforms Inquiry Final Report. With respect to the nature and scope of a potential unfair trading practices prohibition, the ACCC affirmed its view that such prohibitions should be directed towards unfair conduct that has caused, or is likely to cause, substantial detriment to consumers. The specific unfair terms and practices that the ACCC identified in the context of loyalty schemes included:

  1. Loyalty scheme operators unilaterally changing the terms on which the goods or services are provided without reasonable notice;
  2. All or nothing' clickwrap agreements, to which the consumer must consent prior to entering the loyalty scheme; and
  3. Loyalty scheme operators collecting and disclosing consumer data without express informed consent. 

Recommendation 3: End the practice of automatically linking members’ payment cards to their loyalty scheme profile

The ACCC's third recommendation relates to practices by Coles, Flybuys and the Woolworths Group, whereby those loyalty programs automatically link customers' payment cards to their loyalty scheme profile to track their purchasing behaviour and transaction activities, even when a customer does not scan their loyalty card. This tracking is disclosed in the relevant privacy policies. However, the ACCC found that consumers no longer wishing to participate in a loyalty program would be unlikely to cancel their membership and would instead simply stop scanning the loyalty card at point of sale. The ACCC considered that, irrespective of the privacy policies, consumers would be unlikely to know that their data was being collected by retailers in this way when they have not scanned their loyalty card.

Recommendation 4: Improve the data practices of loyalty schemes

The collection of consumer data is a key function of loyalty schemes. The CLS Report highlights how loyalty scheme operators may link the rich data obtained through the loyalty scheme with external data, such as publicly available data from the Australian Bureau of Statistics, to infer information about a consumer's household income, education level or cultural background. This, and other inferred information, is used by loyalty scheme operators to target advertising to consumers, and can result in different consumers being offered the same products or services for different prices.

The ACCC recommended that operators of loyalty schemes change their practices to ensure that their data handling information is clearly presented to consumers in a way which enables consumers to control the collection, use and disclosure of their data. The ACCC draws parallels between this recommendation and the ACCC's Digital Platforms Inquiry Final Report which also made recommendations directed towards increasing transparency and choice with respect to consumers' data.

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

This recommendation mirrors the ACCC's recommendations in its Digital Platforms Inquiry Final Report with respect to privacy law reform. The ACCC reinforced its recommendations to update the definition of 'personal information' to capture evolving technologies, strengthen notice and consent requirements, introduce a right to erasure, and introduce direct rights for individuals to bring actions for interference with privacy rights under the Privacy Act 1988 (Cth).

Reinforcing the recommendations in the Digital Platforms Inquiry Final Report

The themes in the CLS Report are consistent with those raised in the ACCC's Digital Platforms Inquiry Final Report, and reinforce the ACCC's calls for economy wide reforms to privacy and consumer law. You can read more about the ACCC's recommendations for privacy reform in our previous article on the Digital Platforms Inquiry Final Report

The CLS Report is also a further demonstration of the ACCC's role in regulating consumer privacy compliance through enforcement action taken against HealthEngine and Google earlier this year. More information on this action can be found in our article 'Is the ACCC becoming a second privacy regulator?'.

Businesses should consider if the reforms proposed in the CLS Report may impact on their operations. If you would like assistance in understanding potential privacy, competition and consumer law risks, or if you would like assistance with updating your privacy policies, please contact our team.

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