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Navigating Loyalty Program Regulation & Compliance

Consumer data is the bridge that connects brands to members in modern loyalty programs. It guides personalization for offers and benefits, helps customize marketing and communications, and facilitates stronger, more satisfactory memberships. Data is increasingly vital for brands to drive long-lasting consumer relationships — but data privacy in loyalty programs is also paramount.

As global loyalty program regulations evolve year-over-year, data privacy laws have grown progressively more stringent. Brands that maintain regulatory compliance preserve consumer trust and promote ongoing data sharing. On the other hand, brands that fail to abide by loyalty program regulations can risk fines, penalties, and, worst of all, permanent reputational damage. 

Learn how to abide by evolving regulations in today’s loyalty program compliance guide. 

Role of Data Privacy Laws in Loyalty Programs

 It’s no secret that loyalty programs are now an essential retention strategy for brands to boost consumer engagement and encourage repeat purchases. However, they also provide a treasure trove of consumer insights in the form of zero-, first-, and second-party data. Consumer activity in loyalty programs can inform everything from pricing and promotions to content personalization.

“We’re used to first-party and second-party data, but now what we’re seeing the trend move toward is zero-party data. That data is directly provided by our members, knowing we’re going to use it to provide a more holistic and more targeted experience for them,” explains arrivia Chief Marketing Officer Jeff Zotara. “Research shows that most of our travelers want a more customized experience overall, and they’re willing to provide us with that data provided we use it in a really good quality way.”

By “good quality way,” Jeff is referring to data privacy in loyalty programs. With the increasing scrutiny on consumer rights and data privacy, businesses must be aware of the legal requirements of loyalty programs to ensure consumer trust and compliance. These loyalty program regulations establish guidelines for data collection practices, consumer consent, and data storage. 

Major Loyalty Program Regulations and Compliance Requirements

What are the key regulations governing loyalty programs? That answer depends on where you and your customers are located. Global loyalty program regulations vary significantly across different regions and countries. Based on your location, your business must take a proactive approach to adapt your initiatives to the following regional loyalty program compliance standards: 

American Loyalty Program Regulations

Loyalty programs in the U.S. must abide by the California Consumer Privacy Act (CCPA), which mandates that businesses obtain explicit consent before collecting data, explain the purpose of the data collection, and provide clear opt-out options.

All 50 states, including the District of Columbia, Puerto Rico, and the Virgin Islands, have enacted legislation requiring notification of security breaches that involve personal information, such as the Personal Information Protection Act in Illinois.

There are also Anticompetitive Practices enforced by the Federal Trade Commission, which make it illegal for businesses to act in ways that limit competition or lead to higher prices. So, U.S. loyalty programs must be mindful of exclusive discounts. 

European Loyalty Program Regulations

The General Data Protection Regulation (GDPR) influences how loyalty programs in the European Union (EU) collect and store consumer data. Businesses must collect data with fairness and transparency, explaining the reason for collection. Likewise, under GDPR, they may not store personal data longer than necessary and must take all measures to keep the data secure. 

Canadian Loyalty Program Regulations

Loyalty programs in Canada must adhere to Canada’s Anti-Spam Legislation (CASL), particularly when communicating with loyalty members. CSAL forbids businesses from the unauthorized alteration of transmission data, collecting and/or using email addresses without explicit consent, and collecting personal data by accessing an electronic device or computer system illegally. 

Penalties for Non-Compliance in Loyalty Programs

Many businesses claim to offer CCPA loyalty programs or GDPR loyalty programs, but unfortunately, that’s not always the case. So, what are the penalties for non-compliance with loyalty program regulations? In the U.S., CCPA non-compliance can incur multi-million dollar fines and federal investigations — just look at beauty retailer Sephora, which was fined $1.2 million in 2022, setting the precedent as the first company to be penalized under CCPA. 

In the EU, GDPR non-compliance can have similar hefty fines. Penalties for non-compliance in loyalty programs can range from 10 to 20 million euros or up to 4% of the business’s total global turnover of the preceding year. And can non-compliance with loyalty program regulations affect customer trust? Yes, non-compliance can significantly erode a brand’s reputation and loyalty.

A professional in a modern office reviewing his company's loyalty program to ensure compliance

Steps for Implementing Compliant Loyalty Programs

Abiding by loyalty program regulations is the key to maintaining consumer data and maximizing how it can be safely used. Consider these steps for implementing compliant loyalty programs you can rely on: 

  1. Identify applicable loyalty program regulations. Depending on where you do business (especially if it’s international), seeking advice from legal or compliance experts helps design your loyalty program with specific regulations in mind.
  2. Conduct a comprehensive legal audit. Before even considering collecting consumer data, it’s essential to deploy an internal audit to identify immediate compliance gaps (such as a lack of an opt-out option for consumer data collection) and close them. 
  3. Establish clear data protection policies. With relevant loyalty program regulations in mind, develop straightforward data protection policies that outline how you will keep consumer information safe, including how and where you will store data.
  4. Continuously train your team. Loyalty program regulations will evolve along with shifting data privacy regulations, so it’s critical to train your team on present regulatory requirements and teach them how to remain current with updates.
  5. Set up ongoing monitoring and review processes. While an initial audit helps realize gaps in your loyalty program structure and data collection processes, you should schedule ongoing audits to ensure you maintain regulatory compliance. 

Best Practices for Legal Compliance in Loyalty Programs

As mentioned, loyalty program regulations will continue to evolve along with data privacy laws. Therefore, the cardinal loyalty program best practice is to adopt a proactive approach to management. Your loyalty program should never be static — it should be able to flex to accommodate whichever data privacy and consumer protection laws are enacted.

Other best practices for legal compliance in loyalty programs include enforcing strict data protection measures and educating team members on requirements. Likewise, it’s vital to have an immediate response plan for data leaks. A data breach response plan should include your chosen detection system, plans for containment, and how you will notify the appropriate authorities. 

Maintain Loyalty Program Regulation Compliance with arrivia

Now, more than ever before, consumer data is crucial for loyalty program success. With that being said, it’s never been more critical for businesses to abide by major loyalty program regulations or risk reputational damages, costly penalties, and legal repercussions. When looking to enhance your loyalty program with innovative rewards, it’s paramount to select a reliable partner.

At arrivia, user experience — and privacy — take priority. Protecting consumer data in loyalty programs isn’t optional for us; it’s mandatory. Contact arrivia today to learn how we can ramp up your loyalty program with compliant rewards.