Customer loyalty schemes, including frequent flyer, supermarket and credit card operators, must ensure they are not misleading consumers, according to an ACCC draft report released on Thursday.
The ACCC's Customer Loyalty Schemes draft report highlights several concerns including whether consumers receive the benefits advertised by loyalty schemes, changes to terms and conditions, and poor communication about how schemes work.
Also of concern noted in the report - the 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 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. Some of the most popular Australian loyalty schemes report having more than 10 million members.
It raises concerns about the opaque terms and conditions of loyalty schemes preventing consumers from making informed choices that align with their privacy preferences. Consumers also have limited control over how their personal information and other data could be used by loyalty schemes and with whom it could be shared.
"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 chairman 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."
Loyalty schemes can contribute to a significant proportion of a company's profits. Some loyalty schemes generate $110 million - $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," Mr Sims said.
The ACCC has received reports from consumers that they haven't earned, kept or been able to redeem their points in the way they expected. Some operators failed to adequately advise customers 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 changes that unfairly restricted the benefits available such as reducing the rate customers could earn points, or the value of points previously accumulated, or 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." Mr 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."
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.