The Australian Competition and Consumer Commission has called on the operators of customer loyalty schemes to review their operations and make sure they conform with the Australian Consumer Law.
The ACCC is concerned about a range of business practices in the loyalty scheme sector, which it says have the potential to cause widespread consumer detriment.
Some schemes present their terms, conditions and privacy policies in a way that consumers cannot readily understand.
In other cases, there have been unilateral changes to terms and conditions in a way that may be unfair to consumers.
And in other cases, data is collected and used in ways that do not align with consumers' preferences. This includes loyalty schemes not providing sufficient transparency and meaningful consumer control over the collection, use and disclosure of consumer data.
The ACCC has issued a report "Customer loyalty schemes" for consultation. It says it has received complaints from customers of loyalty schemes claiming they had not earned, maintained or redeemed their points in the manner they anticipated.
The report says close to 90 per cent of Australian consumers are members of loyalty schemes, with the average consumer holding between four and six loyalty cards.
The big schemes are Qantas Frequent Flyer, which has 12.3 million members, Woolworths Rewards (10.9 million members), Velocity Frequent Flyer (9.1 million members) and Flybuys (8.3 million members).
The ACCC estimates that between 2014/15 and 2017/18 the major frequent flyer schemes generated A$7.2 billion in revenue for their operators. The revenue is generated from the sale of points to airlines, credit card companies, retailers and other partners.
"Breakage" - points that are never redeemed - accounts for as much as 10 per cent of revenue.
Complainants said scheme operators failed to advise them about critical components of the schemes, such as the need to remain "active" to avoid points expiry, or the restricted availability of redemption opportunities.
Complaints also focused on changes to scheme terms that reduce the rate at which points can be earned, or the value of points already accumulated.
A number of complaints were made about instances where airlines increased the number of points consumers need to upgrade flights. Similar complaints were made about hotels.
A common complaint concerned the imposition of unexpected or allegedly unreasonable taxes and charges when points are being redeemed.
Among recommendations in the report, the ACCC says scheme operators should review their approach to presenting terms and conditions and ensure changes are fair and properly notified.
The ACCC is concerned that the terms and conditions of scheme privacy policies often prevent consumers making informed choices about the use of their data that align with their privacy and data collection preferences.
It says the concerns it identified have direct parallels with those identified in its digital platform inquiry report.
It has recommended that schemes disclose who they share data with and for what purpose, and it wants schemes to give consumers "more meaningful controls" over the collection, use and disclosure of their data.
It wants scheme operators to strengthen consent requirements, so that consents are freely given, specific, unambiguous and informed. Any settings for additional data collection must be preselected to "off".
Another concern is that loyalty schemes have the potential to raise competition concerns. "This can occur depending on the extent to which loyalty schemes 'lock up' customers and introduce switching costs that increase barriers to entry and expansion for rival firms. If barriers are enduring and induce exit or deter entry, consumers are likely to be worse off."