Customer Loyalty Schemes Final Report: ACCC continues push for improved data practices, consumer protection prohibitions

On 3 December 2019, the ACCC released the final report of its customer loyalty schemes inquiry, consistent with its 2019 compliance and enforcement priority of examining competition and consumer issues arising from customer loyalty schemes. The final report largely echoes the observations and recommendations made in the September 2019 draft report, and dovetails with a number of the key recommendations of the Digital Platforms Inquiry.

When it published the draft report, the ACCC said operators had been "put on notice" about widespread practices in the industry which raised concerns under consumer and privacy laws.  The final report reveals that a number of operators have amended their terms and conditions, or are in the process of doing so.  It's now time for loyalty scheme operators to ensure their terms and conditions and privacy policies provide sufficient information to consumers, do not contain unfair contact terms, and adequately disclose data collection practices, so as to avoid any risk of enforcement action by the ACCC.

Key changes since the release of the draft report

The recommendations made in the final report largely reflect the four recommendations made in the draft report, with two key differences:

• Greater specificity for how operators should improve their information disclosure and data collection practices.

The final report spells out in greater detail the approach the ACCC thinks loyalty scheme operators should take to provide consumers with relevant information for decisions they make.  In particular, the final report says notification of the expiry of points or detrimental changes to points balances should be prominently disclosed to customers, such as in the subject line of an email, and clear, prior notice or compensation should be provided to existing scheme members before unilateral changes are made to the way points are earned or redeemed (Recommendation 1).

An additional step has also been recommended for how operators can ensure customers have sufficient information to make informed decisions and have more control over the collection, use and disclosure of their data.  In addition to the steps outlined in the draft report, loyalty scheme operators are now encouraged to clearly identify to customers who their data is being shared with and why, and how this data is being handled.  This is particularly important in the context of consumer concerns about targeted advertising and the emerging risk of differential pricing driven by analysis of consumer data (which the ACCC considers could result in significant consumer harm). 

The ACCC also recommends that operators make clear any limitations to controls or opt outs that currently exist within their loyalty schemes (Recommendation 4).

• A new recommendation about loyalty scheme operators automatically linking payment cards to customers' loyalty scheme profiles

The final report recommends that certain loyalty scheme operators end their practice of automatically linking customers' payment cards to their loyalty scheme profile to collect data on their transactions and purchasing behaviour even when their loyalty card is not scanned (Recommendation 3).  This recommendation was not made in the draft report.

The ACCC also notes that following the release of the draft report, some loyalty scheme operators have implemented or announced changes to their schemes.

The ACCC continues to advocate for new consumer protection prohibitions

Consistent with the Digital Platforms Inquiry final report’s recommendations, the final report of the customer loyalty schemes inquiry recommends that the Australian Consumer Law be amended to prohibit unfair contract terms and certain unfair trading practices.

While the ACCC is yet to determine the scope of any unfair trading practices prohibition that it might propose, its current view is that it should capture conduct which has caused, or has potential to cause, substantial detriment to consumers its current view.  The ACCC is currently exploring this issue through the Consumer Affairs Australia and New Zealand (CAANZ) process, so we are likely to see a joint trans-Tasman push for the prohibition in the not-too-distant future.

For customer loyalty schemes, the types of conduct that the ACCC considers could be captured by this new prohibition on unfair trading practices include:

• obtaining consumer consent through long and complex contracts or "clickwrap agreements" without providing consumers with sufficient time or information to properly consider loyalty scheme terms;
• unilaterally changing terms on which goods or services are provided without reasonable notice or without giving consumers a reasonable opportunity to consider the new teams (such as unilateral changes to earn rates or redemption rates); and
• disclosure of consumer data without consumers' express or informed consent.

Similarly, a consultation period between the Government and small business regarding the imposition of a prohibition against unfair contract terms (currently only voidable) has been underway since August 2019, and the Government will soon provide its response to the Digital Platforms Inquiry recommendations, so we expect to see some movement in this area in early 2020. 

Now is the time for loyalty scheme operators to shore up their terms and conditions and privacy policies

The final report encouraged consumers to contact the ACCC to report continued concerning conduct by loyalty scheme operators, which it said will be taken into consideration in the context of assessment of enforcement action against operators.

In light of the ACCC's emphasis on possible competition and consumer law issues arising from practices identified in the final report and the Digital Platforms Inquiry, and particularly given the likelihood of additional prohibitions in the near future, it is now essential that loyalty scheme operators review and amend their terms and conditions, privacy policies, data collection processes and trading practices to ensure that they address the concerns raised by the ACCC with respect to customers' ability to make informed decisions and control the collection and use of their data.