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August 29th, 2016
New Case Sheds Light on Reward Program Pitfalls
Doing a reward program? Be very clear about the rules. And don't change them unless you provide plenty of notice. To do otherwise is to risk antagonizing customers --- and exciting plaintiffs'
lawyers --- as a major marketer just learned. Here's what you need to know about a rewards program class action lawsuit recently filed in California.
According to the complaint, the retailer, a seller of automotive parts and accessories, promoted a reward program allowing customers to earn a $20 reward when they made five purchases of $20 or more from the retailer. Plaintiffs allege that when the retailer initially marketed the program, there was no time limit for completing the five purchases and there was no expiration date for redemption of the $20 reward. Later, plaintiffs allege, the retailer changed the program, without notice, and began imposing deadlines for both. Plaintiffs say that they discovered the change in the program terms when they attempted to redeem credits that they had earned for past purchases and learned that those credits were missing from their accounts. When they asked an employee about their missing credits, the plaintiffs were allegedly told those credits had expired because the purchases attached to those credits had occurred more than 12 months earlier. They also allege that they learned that any $20 reward credits that they had earned or would now earn would expire after 90 days. The complaint charges that the retailer not only failed to adequately notify its members, but that the changes effectively eliminated the chance to earn the $20 reward (since few customers would make the requisite number of qualifying purchases within a 12 month period). The complaint charges the retailer with breach of contract, false advertising and fraud. The retailer has not yet responded to the complaint.
Although the case is at the complaint stage, it does shine light on several of the major issues companies should keep in mind when structuring and implementing a reward program, especially if that reward program requires purchases by customers. First, the program terms must adequately disclose the material terms and conditions of the program, which will typically include (i) how someone earns rewards, (ii) what the rewards are, (iii) whether there is a deadline to complete the requisite actions to earn a reward, and (iv) if and when the rewards expire. To be prudent, companies should also include a provision in their reward program terms allowing them to modify the terms during the course of the program. In addition to ensuring that the program terms are clear, companies should also review their advertising materials that tout the program to ensure that they clearly describe the program requirements and are not misleading. A company should also be confident that its reward program allows most consumers to actually obtain the rewards offered and to redeem them within the expiration window, if any. In addition, if a company wants to make material changes to an existing program, it should develop a plan for notifying customers of the changes and consider whether those changes should only be made prospectively to avoid potential consumer complaints. Finally, though not an issue addressed in the new complaint, any company considering a reward program should ensure there are mechanisms in place on the back-end to guard against fraud.
If you have any questions about this rewards program class action, or about other advertising and marketing law issues, please contact Terri Seligman at (212) 826 5580 or email@example.com, Kelly O'Donnell at (212) 826 5544 or firstname.lastname@example.org, or any other member of the Frankfurt Kurnit Advertising, Marketing and Public Relations Group.
Other Advertising Law Alerts
FTC Research Indicates Disclosures Help Consumers Recognize Ads
The FTC has long stated that consumers should be able to recognize an ad as an ad. And if disclosures are necessary to ensure that consumers will recognize that an ad is an ad, then those disclosures must be made in a way that ensures that consumers can understand them.
January 5 2018
New Low-Budget Waiver is Now Available for Digital Commercial Productions
Advertisers and agencies that are signatories to the SAG-AFTRA Commercials Contract can now take advantage of a new waiver issued by SAG-AFTRA and the Joint Policy Committee on Broadcast Talent Union Relations when producing low-budget digital commercials.
November 10 2017
FTC Updates Endorsement Guide FAQs and Settles First-Ever Action Against Individual “Influencers”
Recent developments demonstrate the FTC's continued interest in social media endorsements.
September 11 2017