30 September 2009

The new price of loyalty

Many people are card-carrying members of at least one customer loyalty programme. Generally, these programmes operate on a very basic premise: the more the consumer spends with a particular supplier, the more loyalty credits or other rewards are accumulated. While spending is often an uncomplicated exercise, loyalty credit or reward redemption can be complicated for consumers.

The Act deals with customer loyalty programmes and this is the first attempt by the legislature to regulate such programmes.

The Act defines "loyalty credits or awards" in respect of any particular loyalty programme to include: any benefit accruing to a consumer (being a loyalty programme member), any right to any goods or services, or any points, credits, tokens or other devices that may entitle the consumer to claim goods, services or other benefits in terms of that loyalty programme.

The Act establishes loyalty credits or awards as a legal medium of exchange when offered as consideration for any goods or services in terms of the relevant loyalty programme to which those loyalty credits or awards relate. A loyalty programme therefore effectively creates a currency. The Act in turn, creates specific obligations for sponsors of, or suppliers who participate in, loyalty programmes, related to the use of this currency in any exchange. These obligations may countermand or qualify the currency rules as provided for by that loyalty programme.

Firstly, sponsors or suppliers must ensure a sufficient supply of goods or services available at any time "to accommodate all reasonably anticipated demands for those goods or services in exchange for loyalty credits or awards".

Sponsors or suppliers can also not restrict or limit the supply of goods or services to be acquired using loyalty credits or awards on any basis that would not be applicable to an ordinary paying (cash) customer. The Act further provides that sponsors or suppliers may not offer goods or services to consumers using loyalty credits or awards of an inferior quality to those which would be available to an ordinary paying customer. In addition, where a consumer is required to pay a periodic fee in relation to that consumer's membership of the loyalty programme, that consumer cannot be required to pay any monetary charge for administration, processing or handling in redeeming any loyalty credit or award. Finally, the supplier cannot require that the consumer purchase any other goods or services as a condition of redeeming a loyalty credit or award.

The Act does allow for suppliers to impose closed periods in respect of goods or services available for exchange using loyalty credits or rewards, but consumers must be adequately notified (in writing, at least 20 business days prior to the closed period). Closed periods cannot exceed a total of 90 days within any calendar year.

It is apparent that customer loyalty programmes, particularly those that are more sophisticated in their methods of reward and redemption, will require more planning and forethought than those who offer these loyalty programmes may currently contemplate. The fact that a consumer is utilising a loyalty credit or reward as consideration for a good or service as opposed to, for example, cash, must not in any way prejudice that consumer such that she receives an inferior good or service, or is subject to limitations or restrictions in acquiring the good or service that his loyalty credit or award entitles him to.

Aneeka Savahl,
Associate, Corporate and Commercial

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