Good News for Members of Loyalty Programmes

Are you one of those consumers who have found it difficult to redeem the points you have accumulated on loyalty programmes for spending your hard-earned cash?

Well, there is good news for you. Where it may have been difficult to redeem those rewards, particularly where benefits accumulated don’t easily correspond to a monetary value, the Consumer Protection Act, Act No 68 of 2008 (the “CPA”), which comes into effect on 24 October 2010, will change that.

There is a provision in the Act that deals specifically with customer loyalty programmes, with the intention of bringing the benefits of a customer loyalty programme in line with what you would be able to get if you were paying cash. The intention is that benefits should not be offered under a loyalty programme if it is almost impossible to get any value from those benefits.

In other words, and by way of example, when you try to redeem loyalty credits of a frequent user programme under the current rewards structure, there are usually significant restrictions around the reward which you qualify for since you are “paying” using your loyalty credits. The Act is not trying to prescribe the number of loyalty credits that entitle you to a reward, such as a free airline ticket or day’s car hire, but it is trying to implement that where loyalty credits are used, the rewards which can be claimed must be the same as those which are available to consumers who are paying cash for the same item.

“This comes with some limitations but the principle is that the reward must be regarded in the same light as if it is a cash transaction,” comments Candice Holland, Senior Manager Corporate and Commercial, at Deloitte Legal.

“Furthermore, the loyalty programme must ensure that the supply of goods and services available at all times has to be, at any time, sufficient to accommodate reasonably anticipated demand. So, for example, a loyalty programme operator needs to assess the likely demand at a peak period such as Easter or Christmas and must ensure that they have the required number of seats, flights, cars (as the case may be) available regardless of the medium of payment. It is going to be much harder for loyalty programme operators to reject claims for redemption of rewards if the same item is available to cash paying customers,” continues Holland. The Act also provides that the loyalty programme operator is not permitted to restrict the rewards that consumers are able to redeem for more than 90 days per calendar year.

“It is also worth noting that it is not only the operator of the loyalty scheme that will have to comply with the Act but all the parties/partners who participate in it have the same obligations imposed on them,” says Holland. “This will require contractual amendments on the part of the other businesses participating in loyalty programmes to ensure that the loyalty programme operator is meeting its obligations under the Act.”