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Bill 47, Protecting Rewards Points Act— ASSESSMENT & POSITION

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Bill 47, Protecting Rewards Points Act— ASSESSMENT & POSITION Bill 47, Protecting Rewards Points Act— ASSESSMENT & POSITION REPORT – Bill 47, Protecting Rewards Points Act (Consumer Protection Amendment) 2016 Ontario, Canada WHITE PAPER INTRODUCTION The Ontario Government’s Bill 47, Protecting Rewards Points Act (Consumer Protection Amendment) 2016 is aimed at providing consumers who participate in loyalty programs with protection over rewards points earned from loyalty programs. As one of the foremost thought leaders in the brand loyalty industry, Bond Brand Loyalty has developed this report in order to help loyalty owners, operators and their partners better understand the implications of the amendment to the Act. In our opinion, there are several challenges with the way the amendment to the Act was written, which will create new and unwanted consequences for both businesses and consumers if left unchanged. This report will describe the key issues that we have unearthed, and we advocate that businesses closely examine the amendment to the Act with their legal, financial and strategy teams to draw their own conclusions. In our view, it is incumbent upon businesses to immediately engage in consultation with the Ontario Government to ensure that these issues and any others are adequately addressed. BACKGROUND Points expiry in the Canadian marketplace has existed ever since loyalty programs began issuing points to Members as a currency. Points are generally expired by loyalty program owners/ operators under several circumstances including Members who are inactive for a defined period, the passage of time alone, and/or in the event that a program owner decides to close down their loyalty program. Such points expiry polices are contained in the terms and conditions of loyalty programs. Members are party to these terms and conditions either upon enrolment in a program or by activating their account, which is deemed as acceptance of the terms and conditions. In 2007, Aeroplan announced that it would expire Aeroplan Miles by “date stamping” miles issued with a future expiry date. However, in 2013, Aeroplan decided to cancel their plan to retire miles. In 2011, the Air Miles Reward Program, owned and operated by LoyaltyOne, announced that it would begin date stamping Air Miles, thus requiring Air Miles Collectors to redeem their Air Miles within five years of the date of issuance, otherwise those Air Miles would expire. As the five-year expiry was about to come into effect in 2017, many Air Miles Collectors began to redeem their Air Miles in order to avoid forfeiture of their earned Air Miles. Simultaneously, there was a significant public outcry by Air Miles Collectors over this expiry policy and over Collectors’ inability to redeem their Air Miles for certain rewards. This situation drew substantial media attention, which inevitably received the attention of the Ontario Provincial Government. As a result, Arthur Potts, Ontario Liberal MPP, tabled a Private Members’ Bill proposing that the expiry of points in loyalty programs be prohibited in the Province of Ontario. Today, Bill 47, Protecting Rewards Points Act, is an amendment to the Consumer Protection Act in Ontario. The Government of Ontario has been consulting with businesses who own and/or operate consumer loyalty programs as well as business associations to ensure that there is a smooth implementation of this Bill for consumers and businesses. Protecting Rewards Points Act—ASSESSMENT & POSITION REPORT WHITE PAPER | 2 SUMMARY OF THE AMENDMENT According to the Ontario Government’s website, The Protecting Rewards Points Act eliminates expiry dates on reward points programs based on time alone in Ontario. This means that consumers do not have to worry if they were told that they have points that are about to expire. The legislation is retroactive, so any points (earned at any time) that expired on or after October 1, 2016 will go back into the consumer’s account. The new law was approved by the legislature on December 5, 2016 and will come into effect in 2017 after the Ontario Government consults with consumers and businesses about how best to implement the change. After this assessment, the law will come into effect and consumers’ points that expired on or after October 1, 2016 will be reinstated. In the meantime, the government recommends that consumers keep statements that show their points balance. The only time reward points can still expire because of their age is if there is also a secondary reason. For example, if a loyalty program points agreement states that a consumer must use their account (earn or redeem points) within two years and the consumer does not do so, then the points could expire because of the combination of time passing and inactivity as depicted on the Ontario Governments website at: https://www.ontario.ca/page/reward-points. The full details of Bill 47 are available at the following location: http://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&BillID=4254&isCurrent=false&BillStagePrintId=7387&btnSubmit=go. BOND BRAND LOYALTY’S PErspECTIVE ON POINTS EXPIRY Bond Brand Loyalty is not in favour of Bill 47 as it currently exists. We fervently believe that there are several key clarifications and modifications that are necessary in order to make this Bill clearer and more practical for businesses, and to mitigate the probability of confusion and complexity for consumers. To better understand the impact and implications of points expiry, it is important to examine the relationship expectations between program Members and businesses as well as the financial implications for businesses. Protecting Rewards Points Act—ASSESSMENT & POSITION REPORT WHITE PAPER | 3 VALUE EXchange BetWeen LoyaLty Program Members and BusInesses Businesses that offer loyalty programs do so to influence consumers to resist competitive brands and remain loyal to their brand(s). While loyalty programs in Canada manifest in many different forms, they all have a common ingredient, that being a “value exchange” between the business and its program Members. This is better known in the loyalty industry as the “do this, get that” equation. A business makes an offer to provide future rewards to a consumer if the consumer lives up to the conditions stipulated by the business, most commonly, making a defined sum of purchases from the business. The means by which a business keeps track and monitors whether its Members are living up to these conditions is by issuing points, miles, stars, etc. as an equity counter of sorts. This equity counter allows the business to keep track of all transactional and non-transactional activity of Members by issuing the equity when a Member meets the required conditions. This equity is used to determine if a Member is in a position to redeem a reward based on pre-qualified thresholds. Consumers often voice the opinion that if a business commits to furnishing its program Members with a reward based on a (value exchange) promise, shouldn’t the business be obligated to live up to their commitment regardless of the passage of time? Bill 47 makes the Ontario Government’s position on this matter very clear. Businesses cannot abandon their commitment to reward their program Members due to the passage of time alone. In other words, points, miles, stars or any equity counter cannot expire due to the passage of time alone. The only way the commitment can be eliminated is if the Member is deemed inactive for a defined period of time, based on the program’s terms and conditions. "DO THIS" "GET THAT" REWARD-ELIGIBLE LOYALTY VALUE BEHAVIOURS PROPOSITION i. Purchase Activity ($) i. Monetary Benefits ($) ii. Non-Purchase ii. Non-Monetary Engagement Signals Benefits THE Importance OF POInts RedemptION Qualitative and quantitative studies combined with transactional analyses conducted by Bond strongly indicate that points redemption is a key driver of Member satisfaction, and keeps Members more engaged and more loyal to the brand. According to The Loyalty Report 2016 by Bond, Members who have recently redeemed for rewards are 2.5X more likely to be highly satisfied when compared to Members who have never redeemed. Redemption of rewards is a good thing for a brand and its program Members. We also learn from this study that more than one-fifth of Members of loyalty programs have never made a redemption, and non-redeemers are 2.3X more likely to defect from a brand than those who have redeemed in the past 12 months. While this makes a strong case for businesses to encourage points redemption, it can be expensive and can build a liability on the books that can increase financial risks. Having said that, removing a Member’s ability to redeem points due to the expiration of points through the passage of time will restrict many Member cohorts’ ability to derive maximum benefit from their loyalty programs. This will lead to diminished Member satisfaction with the business, a lower likelihood of continuing to engage with the business, and fewer referrals of new consumers to the business. On the flip side, the Bill in its current embodiment will restrict businesses’ ability to leverage expiry as a “call to action” lever, often used to stimulate Member activity. Protecting Rewards Points Act—ASSESSMENT & POSITION REPORT WHITE PAPER | 4 FInancIAL ImpLIcatIons of POInts EXPIry and LIabILIty Management Operating a loyalty program is a significant financial undertaking for most businesses, but when designed and executed intelligently, the loyalty program can have substantial strategic and financial gains for businesses. Since loyalty program rewards costs are generally incurred as soon as the currency is issued to a Member, a reserve liability must immediately be set up on the business's balance sheet to remunerate the Member when they redeem their currency for rewards. So essentially, what happens is that there is an accounting entry that impacts the expense of the loyalty program.
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