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LoyaltyOne’s miscalculation a lesson for reward programs

The consumer backlash over LoyaltyOne’s plan to void Air Miles that are five years or older is a lesson for companies considering changes to their reward programs, says Toronto business lawyer Joel Berkovitz.

People are fiercely resistant to giving up any benefits they’ve accrued in loyalty programs and companies should expect customers to respond very negatively to any attempts to claw them back, he tells AdvocateDaily.com.

In December, a private member's bill to prevent expiry of loyalty points passed on third reading in the Ontario legislature with a vote of 77-0, and became law under the Consumer Protection Act, reports the Globe and Mail. Shortly before Bill 47 became law, LoyaltyOne announced it was backing down and would allow members to keep any Air Miles they hadn’t already used, explains Berkovitz, a lawyer with Shibley Righton LLP.

“Typically private member's bills have a steep uphill battle to become law and very few ever do, but this bill was heartily embraced by everyone. The political calculus suggests this was an easy win for the government. It’s a pro-consumer change to the law,” he notes.

It also shows there’s an appetite in government for consumer-friendly legislation, Berkovitz points out.

“People like the idea the government is looking out for the little guy against big corporations. And if the government isn’t willing to put forward the legislation, this is an area where private member's bills could gain traction,” he says.

LoyaltyOne likely anticipated some level of pushback from members when it announced in 2011 it would cancel aging Air Miles as of Dec. 31, 2016, but the recent negative optics as consumers rushed to spend their points before the deadline proved too costly for the company to move forward, Berkovitz points out. But, he says, Bill 47 has left the door open to allow points to expire other than for the passage of time, such as when the company can no longer contact the account holder.

“Consumers felt it wasn’t fair — they had earned these points that had value, and they were going to expire due to a policy shift by a private company. The key lesson for companies is to be clear with customers in what situations they might lose their points. If there’s clarity from loyalty and reward companies, it's less likely to cause a big uproar and pushback,” he says.

The misstep is no doubt a costly one for Air Miles, given that reversing its expiry policy, and allowing the expiring miles to survive, will cost the company when those miles are redeemed in the future, Berkovitz adds.

“It’s a complicated calculation, but the company must have decided that the negative optics and backlash was more costly than whatever the financial hit would be from the miles surviving. In the end, they opted to take the one-time hit and allow the points to continue indefinitely rather than make customers angry,” he says.

Given that Ontario is the largest financial jurisdiction in Canada, it will be interesting to see if other companies that offer reward programs across Canada proactively adopt a nation-wide policy compliant with Ontario’s legislation, Berkovitz says.

“Companies offering reward points might decide it’s easier to voluntarily adopt this as the de facto approach across the country, rather than have different expiry provisions in some provinces” he says.

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