Do you allow your customers to collect points based on purchases and then redeem points for merchandise? A The new year is a great time to launch or review your customer loyalty and rewards programs. As brands promote these programs on social media, they may introduce new legal wrinkles into the programs.
Myriad laws impact loyalty and rewards programs. In this blog post, we will not examine all of them. (For example, we will not consider patent issues, tax implifications, or CAN-SPAM compliance.) Instead, we will just consider some of the advertising and marketing considerations for vetting these programs.
Various federal and state laws, including section 5 of the FTC Act and state “little FTC” acts, prohibit unfair or deceptive advertising and trade practices in commerce. A loyalty rewards program concept may not be problematic under these statutes, but the execution of the program could raise issues if it is not properly advertised or implemented.
In 2013, the Missouri Attorney General investigated Walgreens, alleging a pattern of deceptive pricing that resulted in customers being overcharged. As an example, the complaint alleged that merchandise on the shelves bore sale prices, when the applicable sale or promotion had expired. In addition, Missouri regulators alleged that Walgreens used a rewards program that offered additional price reductions and savings to members, but the program’s members did not always receive the membership savings advertised. In addition, the in-store sales tags were allegedly confusing as to whether the offers were for loyalty members or general customers. The complaint also alleged that the sales tags were deceptive because the fine print required membership to receive the sale price. In its settlement, Walgreens agreed to pay for an audit of at least twenty-five percent of its stores in Missouri each quarter for three years.
While the Walgreens case is no doubt fact specific, it emphasizes the importance of clear, unambiguous, and accurate promotions and advertising for your loyalty and rewards programs. Below are some issues for you to consider in spot checking the legal health of your loyalty rewards program.
- Rules. Review the rules for the loyalty program with legal counsel to make sure they provide adequate protection for the brand. First, while copying another company’s rules is never a good idea, it’s a particularly risky proposition to copy airlines’ rules. The FAA rules and exemptions may not apply to your brand. In addition, a recent California case called into question whether a website was unsconsionable because it provided unilateral rights for the website owner to change terms retroactively. The case is still pending, with causes of action under California’s Consumer Legal Remedies Act and false advertising laws as well as claims under contract law for breach of the covenant of good faith and fair dealing. Many rewards programs include the right to alter the program’s structure with no warning to participants. While this structure may be perfectly legal on a prospective basis, if you wish to make changes to your program retroactively, you should follow the California case’s outcome and do your own legal research and risk assessment. In addition, you should consider what kind of notice you have provided to consumers in the past of changes and whether you have established any precedents in your advertising or social media engagement that contradict the rules.
- Value of points. Do your points have monetary value? Do the points have virtual value within a gamified universe? Or do the points that consumers collect have no value? In all circumstances, the concept requires significant legal vetting under gift card and trading stamp laws. These statutes may require disclosures, expiration dates, registration. In addition, depending on how your brand values the points, they could be subject to collection under various states’ unclaimed property laws. In short, the point system of your loyalty program should have careful legal review before launching. If you have already launched, it is not too late to undertake this review and make necessary changes to avoid risk under these various types of statutes. In addition, you will want to ensure that your social media team understands the limits of your program and markets the point system in a way that is entirely consistent with the legally approved structure.
- Free offers. When advertising in social media or traditional advertising, be aware of the FTC’s rule that all limitations on the word free be disclosed in at least ½ the type size of the largest use of the word “free.” Clearly, in space constrained social media advertising, these disclosures may be difficult to make (see #3 below). Your team needs to consider how it uses the word “free” or similar terms and decide what level of risk it wants to take in its social media campaigns.
- Disclosures. Try to conform your disclosures throughout all your social media. Use the same language, format, and location so that your program participants become habituated to the type of disclosures your brand is making. Remember the “unavoidable” interpretation of the “clear and conspicuous” standard that the FTC enunciated in the FTC DotCom Disclosure Guides. Your disclosures must be unavoidable and clear to the average consumer participating in your program.
- Mystery offers. Just because you as a brand know what’s behind the mystery doesn’t mean these offers are not sweepstakes, contests, or even worse, illegal lotteries. Be sure to vet these offers with legal counsel before they appear on social media to ensure that their terms and the words used in promoting them do not subject the brand to legal liability under the lottery or gambling laws.
- Social sign-in. Your apps’ social sign-in functions, providing access to a user’s address book or invite-a-friend functions, could bring you in the cross-hairs for a legal challenge under the Telephone Consumer Protection Act (TCPA). The TCPA’s requirements changed in 2013 to require prior express written consent on paper or electronically before you market to a consumer via text or auto-dialer. (Some states have even more stringent requirements, e.g. California for physical mail.) Because each individual contact with the consumer constitutes a violation worth between $ 500 and $ 1500 in statutory damages, and the damages are uncapped under the statute, violators of the TCPA face potentially millions of dollars in damages. As you launch your text messaging marketing programs, particularly through apps, create your own to-do lists so that you steer clear of the active TCPA class action bar. In addition, social sign-in needs analysis with your company’s privacy policies. Once you collect personal information about your customers, you are obligated to keep it secure.
- Testimonials. Does your loyalty program allow consumers to post endorsements or testimonials in exchange for points? If so, you need to evaluate the program under the FTC’s Endorsement & Testimonial Guides that require disclosure of a material connection between the brand and the poster. Loyalty points certainly could constitute a material connection worthy of disclosure. There are ways to diminish legal risk, but each reward program will require a fact-specific legal inquiry. If you are contemplating this kind of twist to your rewards program, make sure to consult legal counsel.
If your social media team decides to implement a campaign to accompany your customer rewards program, it must be careful to conform the campaigns with the pre-approved legal structure of the program. The danger for a brand comes when its social media team acts independently without legal vetting. So, as you review your customer rewards program for overall legality, make sure you also implement procedures to vet all advertising and marketing for the program.
© Kyle-Beth Hilfer, P.C. 2015
DISCLOSURE: This article does not constitute legal advice. If you have specific legal questions about planning your loyalty or rewards programs, please contact this post’s author or another attorney.