Customer Loyalty Programs: Are Rules Needed?

Author

Jonathan Bishop

Organization

Public Interest Advocacy Centre (PIAC)

Published

2013

Summary

Loyalty programs exist as a tactic of retailers to attract new customers, retaining existing ones, and prompt existing customers to increase their spending. The collection of consumer’s purchasing data is the ultimate prize for customer loyalty program providers, and it is the catalyst from which all other elements related to loyalty brand marketing flow. The effective collection and analysis of consumers purchasing data has a direct correlation to increased profits for Canadian retailers, as well as greater consumer satisfaction. The amount of information gathered about consumers enrolled in loyalty programs is constantly growing, and one industry observer indicated the amount of customer information collected doubles every 18 months.

However, despite the presence of loyalty programs in Canada, there is no specific consumer protection regulation of these programs. There are a series of laws or legal principles that can potentially apply to loyalty programs, such as contract law and consumer protection legislation, but there is uncertainty around the applicability of these laws to loyalty programs. While loyalty programs must comply with privacy laws, such as the federal Personal Information Protection and Electronic Documents Act (PIPEDA), the federal Privacy Commissioner has limited ability to bring corporate practices into compliance. While there are currently no laws in Canada that directly regulate loyalty programs as a financial service or a financial product, some discussions suggest loyalty program rewards could be recognized as having monetary-like value. After reviewing the evidence, we hold the view that the federal government should consider defining loyalty currency as a form of non-cash payment, with the intention of having “loyalty currency” enjoy protections similar to other forms of payment under the payments system in Canada.

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OCA Funded Research
This research received funding support through the Office of Consumer Affairs' Contributions Program.


Contact information

Address
Public Interest Advocacy Centre (PIAC)
285 McLeod Street, Suite 200
Ottawa, ON   K2P 1A1
Telephone
(613) 562-4002
Fax
(613) 562-0007

Source: Consumer Policy Research Database

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