What's Going on with Loyalty Programs? Techniques, Technologies, and Legal Traps

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Melissa Steinman, partner at Venable LLP; Erick Rabin, general counsel at Bilt Rewards; Jane Pollack, associate general counsel, enterprise commercial at Uber Technologies, Inc.; and Marisa Gomez, associate general counsel at Capital One Services discussed the laws that regulate loyalty programs and recent litigation and enforcement involving these promotional programs.

Key Takeaways

According to Fortune Business Insights, the global loyalty market is predicted to reach up to $216 billion by 2022. Loyalty programs generally offer points or credits that may be redeemed for merchandise, discounts, coupons, gift cards, travel, cash, subscription offers, access to special privileges, sweepstakes, auctions, or charitable programs. Loyalty programs may implicate multiple areas of the law, including contracts, privacy, labor and employment law, partnerships and third-party agreements, and more.

Drafting Terms and Conditions

It's important to have comprehensive terms and conditions in place, as the terms are a contract between the member and the company sponsoring the program. Since the pandemic, certain terms have become more important, such as the right to postpone, modify, substitute, or pull rewards. Additional considerations for drafting terms and conditions include:

  • Variance in terms with contracting parties and partners
  • The right to modify and/or terminate the terms and conditions

Arbitration clauses

Loyalty program terms and conditions increasingly incorporate arbitration clauses which have been upheld by courts, including:

  • Jordan v. Petco Health & Wellness Co., Inc.: Court held that under Pennsylvania and Third Circuit precedent, an arbitration clause and class action waiver in loyalty programs is generally enforceable and not unconscionable.

Courts have regularly afforded leeway to sponsors of programs with respect to modifying contracts if they provide proper notification regarding their right to modify contracts.

Notice of Changes

Program terms should have a notice provision that defines how the notice of changes will be provided, how much notice will be provided, and how members can accept changes. The mandate for providing notice is dependent on the industry. For example, a new law in New York applicable to credit card loyalty programs requires them to provide 45 days' notice of modification, cancellation, closing, or terminations and 90 days to use points. Notice has become a key issue in recent litigation, including in Hughes v. AutoZone Parts Inc., when the brand expired the plaintiff's credits without providing proper notice.

Consumer Protection Laws

Consumer protection laws prohibit brands from engaging in unfair and deceptive trade practices. These practices include:

  • Promoting loyalty programs in a false and/or misleading manner
  • Failing to disclose material terms clearly and conspicuously
  • Failing to provide rewards as promised

Privacy and Data Collection

Loyalty programs are often used to collect personal information from participants. Federal and state laws regulate how businesses collect, store, use, and/or disclose consumer information. Marketers need to make sure they're:

  • Aggregating and sharing sales and marketing data
  • Providing proper disclosures in privacy terms
  • Following GDPR and CCPA requirements related to consent and opt-outs
  • Including terms in third-party agreements requiring protection of customer information

Disclosures for Points and Gift Cards

Required disclosures for points and gift card programs are as follows:

  • The front of the card must state that the card is a promotional, rewards, or loyalty card.
  • The expiration date must be included on the front of the card in no less than 10-point font.
  • Include additional requirements if fees are charged.

Employee Loyalty Programs

Employee loyalty programs and points may be considered part of compensation. When the employee leaves, certain types of employee rewards need to be cashed out under labor and employment laws.


Q&A with Melissa Steinman, partner at Venable LLP; Erick Rabin, general counsel at Bilt Rewards; Jane Pollack, associate general counsel, enterprise commercial at Uber Technologies, Inc.; and Marisa Gomez, associate general counsel at Capital One Services


Q. What are the pros and cons of having terms and conditions for loyalty programs being a part of your websites terms and conditions versus living on their own?

Melissa Steinman: The emphasis is on clear and conspicuous disclosure, particularly for something like arbitration clauses or really important clauses. If you're really set on it, you can use tactics like jump linking, but it can get very dense very quickly. So, it's not my favorite thing, but I don't know if it's something set in stone or legally addressed.

Marisa Gomez: You have to think about where the right place is to put consumers on notice. You can do that in a couple of ways, including jump linking. I'm a big fan of having a table of contents at the top of a terms and conditions form that has clear labels that are almost disclosures in themselves that consumers can click to learn more.

Also having a very clearly labeled signature consent button. Make sure you're doing that and in that signature you call out some really important terms or provide a small bulleted list. Be careful not to include too many things to agree to as some courts have ruled that that isn't effective consent. So, you need to walk a fine line between giving enough notice and not providing so much information that it's no longer useful.

Jane Pollack: I'd also think about how you started that customer relationship. If the customer started the relationship and the rewards program is imbedded in that, I'd feel more comfortable leveraging jump links. But you might have customers coming to sign up for a rewards program, which to me is a good reason to have them separate.

Q. Do you advocate for automatic signups for loyalty programs?

Gomez: I lean against it. Regulators don't seem to be supporting those trends as they want consumers to be aware of the possible harmful outcomes of things like how their information is being used in ways they don't know. I'd prefer letting the consumer make the choice.

Pollack: The part that gives me the most concern is the data piece. I can see a situation where you can do an automatic signup, but you need to identify the different data being collected and how it's being used.

CLE Materials

Source

"What's Going on with Loyalty Programs? Techniques, Technologies, and Legal Traps." Melissa Steinman, partner at Venable LLP; Erick Rabin, general counsel at Bilt Rewards; Jane Pollack, associate general counsel, enterprise commercial at Uber Technologies, Inc.; Marisa Gomez, associate general counsel at Capital One Services. 2022 ANA Masters of Advertising Law Conference, 11/8/22.

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