Surveillance Gap

'The Surveillance Gap: The Harms of Extreme Privacy and Data Marginalization' by Michele Gilman and Rebecca Green in (2018) 42 New York University Review of Law and Social Change 253 comments

We live in an age of unprecedented surveillance, enhanced by modern technology, prompting some to suggest that privacy is dead. Previous scholarship suggests that no subset of the population feels this phenomenon more than marginalized communities. Those who rely on public benefits, for example, must turn over personal information and submit to government surveillance far more routinely than wealthier citizens who enjoy greater opportunity to protect their privacy and the ready funds to secure it. This article illuminates the other end of the spectrum, arguing that many individuals who may value government and nonprofit services and legal protections fail to enjoy these benefits because they reside in a “surveillance gap.” These people include undocumented immigrants, day laborers, homeless persons, and people with felony conviction histories suffering collateral consequences of their convictions. Members of these groups often remain outside of the mainstream data flows and institutional attachments necessary to flourish in American society. The harms that surveillance gap residents experience can be severe, such as physical and mental health injuries and lack of economic stability, as well as data marginalization and resulting invisibility to policymakers. In short, having too much privacy can be as injurious as having too little.

The sources of the surveillance gap range from attempts to contain and control marginalized groups to data silos to economic exploitation. This article explores the boundaries of the surveillance gap, evaluates how this emerging concept fits within existing privacy paradigms and theoretical frameworks, and suggests possible solutions to enhance the autonomy and dignity of marginalized people within the surveillance gap.

The authors state

Although we live in a highly surveilled society, some people among us are functionally invisible. For example, low-wage workers — many of whom are undocumented immigrants — toil out of sight in an underground economy. A lack of a conventional paper trail or pay stub system linking workers to employers exposes these workers to potential wage theft and dangerous working conditions. While these workers are perilously out of reach of government and nonprofit organizations that could otherwise provide assistance, they are also subject to heightened forms of surveillance, typically under the increasingly watchful eye of agencies like Immigration and Customs Enforcement. Likewise, homeless persons’ lives are defined by extremes: although they tend to live their lives in public, they are simultaneously governed by laws that criminalize their behavior, steadily pushing them out of view. Tellingly, when former Governor of Virginia Terry McAuliffe sought to restore the ability to vote to constituents who had committed felony crimes, his office was unable to find thousands of people — people who at one point spent time in the prison and parole systems where their
whereabouts were always known to authorities. These examples illustrate that marginalized people experience privacy differently than most Americans. Specifically, they experience privacy extremes—being seen or tracked too much or too little. 

Existing privacy scholarship has largely focused on the harms derived from too little privacy, and, in this vein, several scholars have highlighted the particularly intense surveillance of low-income people. This article examines the other end of the spectrum—the surveillance gap. Life in the surveillance gap can be isolating, stigmatizing, dangerous, and harmful to a person’s physical and mental health. For one, legal protections available to other members of society remain out of reach to those in the surveillance gap. People also lose out on potential sources of economic and social support, because those who seek to provide services to disadvantaged members of our society often find it nearly impossible to reach them. Moreover, those who fall within the surveillance gap are not included within big data streams that ultimately shape public policy, thus leaving out their experiences and needs from the calculus that goes into creating policy. Frustratingly, the challenges facing these groups remain invisible, further. entrenching these groups’ marginalization. 

The surveillance gap has multiple causes, ranging from data silos to poor data sharing, and from benign neglect to administrative systems that purposefully exclude certain people. This article seeks to identify and understand the causes, contours, and consequences of the surveillance gap and to outline legal and policy tools for addressing it. Part II provides case studies of populations living in the surveillance gap, including undocumented immigrants, day laborers, homeless persons, and people with felony conviction histories. Part III situates the surveillance gap within several scholarly streams. First, it assesses the surveillance gap through the lens of scholarship that differentiates between privacy harms experienced by varying groups. Second, it builds on insights from feminist legal theory involving the public/private binary and the harms associated with having too much privacy, wrestling with the tensions identified by feminists between liberalism’s ideals and individuals’ lived realities. Third, it examines notions of “choice” and “consent” in consumer and criminal privacy law, testing whether such frameworks are meaningful with regard to marginalized groups. Fourth, it adds a new dimension to emerging concepts of privacy as contextual. Fifth, it reviews fundamental rights theory’s impact on the surveillance gap, positing that the gap cannot be found in legal regimes that view privacy as a fundamental human right, such as in the European Union. Part IV suggests ways to address harms that arise in the surveillance gap while also respecting desirable forms of privacy and the dignity and autonomy of marginalized persons.

Victorian workers compensation scheme

The Victorian Ombudsman's report WorkSafe 2: Follow-up investigation into the management of complex workers compensation claims offers a disquieting critique.

The report states

1. This investigation looked at the compensation and support provided to people injured at work in Victoria, particularly those with complex injuries. This follows an earlier investigation by the Ombudsman in 2016 which found the scheme had failed some particularly vulnerable people. 

2. Victoria’s workers compensation scheme, also known as ‘WorkCover’, provides a range of entitlements to people who are injured at work under the Workplace Injury Rehabilitation and Compensation Act 2013 (Vic). Entitlements include ‘weekly payments’ for loss of income if they are unable to work and payment of the reasonable costs of medical treatment and other rehabilitative services directly related to their injury.  

3. The scheme is funded by compulsory employer insurance and administered by WorkSafe. WorkSafe is responsible for ensuring appropriate compensation is paid to injured workers, while also maintaining a financially sustainable scheme. 

4. WorkSafe does not manage WorkCover claims itself, instead outsourcing this to five claims agents. The agents are commercial organisations and as a result have a vested interest in the outcome of individual claims. Notwithstanding this, agents are required to stand in the shoes of WorkSafe and make independent decisions on claims in line with the Act. The Ombudsman’s 2016 investigation 

5. In 2016, the Ombudsman investigated WorkSafe and its agents, focussing on agents’ management of ‘complex claims’. These claims involve workers who were unable to work long term and/ or required long term medical treatment. While these claims do not represent the majority, research has shown that these workers are likely to have complex health conditions and represent a substantial and disproportionately high cost to the scheme and broader society. 

6. The investigation found cases of unreasonable decision making on complex claims across all five agents, the evidence of which the Ombudsman said was ‘too strong to be explained away as a few “bad apples’’’. This included numerous examples of agents ‘cherry-picking’ evidence to support a decision, while disregarding overwhelming evidence to the contrary. In many cases, agents were found to defend unreasonable decisions when injured workers disputed them, despite knowing they would likely be overturned. 

7. The investigation acknowledged that as commercial organisations, it was reasonable for the agents to expect to profit from managing WorkCover claims. However, the evidence suggested that in the case of complex claims, financial reward and penalty measures in agents’ contracts with WorkSafe were driving a focus on terminating and rejecting claims to maximise profit, at the expense of sound decision making. 

8. The investigation also identified deficiencies in WorkSafe’s oversight of the scheme, particularly in relation to agent decision making on complex claims.  

9. The Ombudsman made 15 recommendations to WorkSafe which included: • improving WorkSafe’s oversight of complex claims and its use of information from complaints, stakeholder feedback and dispute outcomes to identify potential systemic issues • reviewing the financial reward and penalty measures to increase agents’ focus on quality decisions and sustainable return to work outcomes for injured workers • providing training and additional guidance to agent staff. 

10. The Ombudsman also made two recommendations to the Victorian Government, which WorkSafe said it did not support. These related to the process for injured workers to dispute claim decisions, which involves conciliation and then court. 

Follow-up investigation 

11. While WorkSafe and the agents have implemented many changes since the 2016 investigation, the Ombudsman continues to receive many complaints about WorkSafe and its agents, with nearly 700 complaints received in 2017-18 and about 800 in 2018-19. 

12. In May 2018, the Ombudsman decided to conduct a ‘follow-up’ investigation to examine whether the implementation of the recommendations from the 2016 investigation had improved agent practices and decision making and the effectiveness of WorkSafe’s oversight. 

13. This follow-up investigation concentrated on agent decision making on complex claims in 2017-18, which were primarily long term claims where an injured worker had not worked and had been receiving weekly payments for 130 weeks or more (two and a half years). As at 30 June 2018, these claims represented about a quarter of the 18,519 active weekly payments in the scheme, or about seven per cent of the total 63,085 active claims in the scheme (including those involving medical treatment only). 

14. The investigation involved: • reviewing 102 complex claim files in depth, some of which were randomly selected • reviewing WorkSafe’s handling of complaints received in 2017-18 about agent decisions and Independent Medical Examiners (IMEs), about half of which were randomly selected • meeting with WorkSafe during the investigation and interviewing 16 witnesses, including seven Conciliation Officers and the then Convenor of Medical Panels • reviewing othe rinformation, including a sample of agent staff email records, policies and procedures, research reports, data, written submissions from stakeholders and complaints to the Ombudsman. 

15. The investigation also asked WorkSafe to review a number of decisions on the complex claim files reviewed, which appeared unreasonable but had not been overturned through the dispute process. As a result, WorkSafe and the agents withdrew 30 decisions across 19 claims and back-paid about $70,000 collectively to two injured workers. 

Unreasonable decision making by agents 

16. Although witnesses reported to this investigation a temporary ‘marked change’ in agent behaviour after the Ombudsman’s 2016 report was released, the Ombudsman identified continuing issues with unreasonable agent decision making on complex claims.  

17. The evidence obtained suggests that the Ombudsman’s 2016 recommendations were not enough to change agent behaviour and stop unreasonable decision making on complex claims. After two investigations by the Ombudsman and a number of reviews commissioned by WorkSafe, the evidence points to this being a systemic problem. 

Unreasonable use of evidence 

18. Agents may consider a range of evidence when making claim decisions, including medical reports from IMEs or a worker’s treating doctors; information from an occupational rehabilitation provider; ‘circumstance’ investigation reports and surveillance footage of an injured worker. 

19. Agents are required to adhere to ‘principles of good administrative decision making’, which include that agents must consider all matters relevant to a decision; make decisions supported by the best available evidence; and give ‘proper, genuine and realistic consideration’ to the merits of a decision. 

20. This investigation found that since 2016, agents have continued to unreasonably use evidence to terminate or reject complex claims in some cases by: • conducting surveillance of workers without adequate evidence they were misrepresenting their injury • selectively using IMEs and ‘doctor shopping’, despite new measures introduced to prevent such behaviour • providing incomplete or inaccurate information to IMEs • posingleadingquestionstoIMEsand workers’ treating doctors • relying on an opinion from an IME from the incorrect specialty. 

Unfair return to work practices 

21. A key objective of the workers compensation scheme is to provide ‘effective occupational rehabilitation’ and ‘increase the provision of suitable employment to workers who are injured to enable their early return to work’. 

22. Injured workers have ‘return to work’ obligations, which include that they must make reasonable efforts to return to work and actively use an occupational rehabilitation service. If a worker does not reasonably comply with their obligations, an agent may issue a non-compliance notice, which can impact the worker’s entitlements. 

23. In the sample of complex claims reviewed, this investigation identified several non- compliance notices which had been unreasonably or incorrectly issued. This included cases where: • workers were required to participate in occupational rehabilitation at inappropriate stages of their recovery, such as a case where a worker was experiencing severe psychotic hallucinations  • selectivelyusingevidence,while ignoring other available information – even where the medical opinion relied on was unclear, contradictory or inconclusive • agents failed to genuinely consider workers’ individual circumstances and the reasonableness of their non- participation, including a case where a worker had just been released from hospital after attempting self-harm and had become homeless • agents incorrectly issued notices under the legislation. 

24. The investigation also received evidence that agents sometimes issued non- compliance notices with a focus on liability management. This included evidence from a WorkSafe-commissioned review that occupational rehabilitation consultants perceived in some cases that referrals to their services were ‘not in the interest of the injured worker and were being used as a tool to cut benefits’. 

Agents acting unreasonably during conciliation 

25. This investigation also looked at agents’ actions with respect to claim decisions disputed at conciliation. 

26. When a worker requests conciliation, agents are required to review the disputed decision and withdraw it before conciliation if it would not have a reasonable prospect of success at court (ie not be ‘sustainable’). However, a Conciliation Officer is only able to direct an agent to overturn their decision where there is ‘no arguable case’, which is a lower threshold. 

27. While overall the number of disputes at conciliation has reduced since the Ombudsman’s 2016 investigation, the rate at which decisions are withdrawn or changed through the dispute process remains high. In 2017-18, about half of the decisions disputed at conciliation and 70 per cent of decisions that proceeded to court were varied or overturned. 

28. Although the dispute process should provide a ‘safety net’, the investigation found that unreasonable decisions are slipping through the cracks. Agents continue to defend ‘arguable’ decisions during conciliation, even if they would not be ‘sustainable’ at court, rendering Conciliation Officers hamstrung to resolve such disputes. Conciliation Officers also reported particular difficulties resolving factual disputes. The result is that injured workers are left to contemplate the costly, stressful and time-consuming path to court if they wish to dispute a decision further. Most workers simply give up. 

Decisions contrary to binding Medical Panel opinions 

29. Where a dispute involves a medical question, a Conciliation Officer or court may refer questions to a Medical Panel. A Panel’s opinion must be adopted, applied and accepted as ‘final and conclusive’ by all parties. 

30. WorkSafe told the investigation that where an agent seeks to revisit the same issue considered by a Medical Panel, it expects the agent to demonstrate there has been a ‘material change’ in the worker’s situation since the Panel’s opinion. This may include, for example, improvement in symptoms as a result of further treatment or an increase in the worker’s skills as a result of retraining. 

31. In the complex claims reviewed by this investigation, agents generally waited at least 12 months after a Medical Panel before re-assessing a worker’s capacity. While this is positive, the investigation identified several complex claims where agents terminated workers’ entitlements without sufficient evidence of a ‘material change’ in the worker’s condition since a Medical Panel opinion. 

The effect of financial rewards and penalties on agent decisions 

32. This investigation also revisited the financial rewards and penalties WorkSafe pays agents, based on their performance against key measures. 

33. Since the Ombudsman’s 2016 investigation, WorkSafe has made a number of changes to these, which included reducing the rewards and penalties for terminating claims, and increasing the rewards for quality decisions. 

34. The investigation found limited overt evidence in the complex claim files and sample of agent staff emails reviewed of the financial rewards and penalties influencing agent decisions. However, the investigation received evidence that some agent staff have made efforts to conceal certain behaviours and practices identified by the Ombudsman’s 2016 investigation, including agents’ focus on managing liabilities.  

35. Although less documentary evidence was identified, compared with the 2016 investigation, this investigation still found evidence showing: 36. This evidence, when combined with the extent of unreasonable decision making on complex claims identified by the investigation, raises questions about the suitability of commercial organisations to manage complex claims. 

WorkSafe’s oversight 

37. Although WorkSafe delegates the management of claims to the agents, WorkSafe has a role in overseeing agents to ensure injured workers receive appropriate compensation and are not ‘wrongfully disentitled’. 

38. WorkSafe has made a number of changes to its oversight mechanisms since 2016. However, the investigation found that WorkSafe is still not optimally using them to address unreasonable agent decision making on individual complex claims and to identify and respond to systemic issues. 

39. WorkSafe’s process for auditing the quality of agent decisions has improved since 2016. However, the investigation found that WorkSafe has not always held agents accountable for unsustainable decisions identified through the audits. In its 2017-18 audits, the investigation found instances where WorkSafe: • passed questionable decisions where the agent had only one piece of supporting evidence • re-assessed failed decisions as ‘passes’ when disputed by the agent, even if they would not hold up at court • did not require the agents to overturn most of the failed decisions.   • agents’ continued focus on terminating claims and maximising profit. This included agent staff emails where staff referred to claims which achieved a financial reward as ‘wins’;  • congratulated staff for terminating claims; discussed the monetary value to the agent of terminating individual claims; and referred to targets for terminating claims the influence of the rewards and penalties on agents’ offers at conciliation, which meant that offers were not always informed by the merits of a decision. • 

40. Complaints and stakeholder feedback also offer WorkSafe opportunities to check agents’ performance and identify areas for improvement; however, the investigation found that its role in complaints about agent decisions is unclear. On the one hand, WorkSafe considers agents maintain authority on the vast majority of decisions and that the dispute process is the appropriate mechanism for an injured worker to dispute an agent decision. On the other hand, WorkSafe has the power to direct an agent to change a decision and has established a procedure for when it identifies a worker has been ‘wrongfully disentitled’. 

41. The investigation found that this has led to inconsistent approaches in the way WorkSafe handles complaints, including cases where WorkSafe: • referred workers to conciliation, even though WorkSafe identified concerns with the agent’s decision and could have resolved the complaint itself • accepted agent responses without questioning whether they were correct or reasonable. 

42. WorkSafe appears reluctant to adequately deal with unreasonable agent decision making when it is brought to their attention, which raises the troubling prospect that WorkSafe feels beholden to the agents and dependent on their participation to deliver a financially viable scheme. 

43. Given WorkSafe’s statutory responsibility to ensure appropriate compensation is paid to injured workers ‘in the most socially and economically appropriate manner, as expeditiously as possible’, it must do more. 

Recommendations 

44. Nothing short of wholesale changes to the system will address the issues identified by both the 2016 investigation and the current one. 

45. The Ombudsman therefore recommended the Victorian Government: • commission an independent review of the agent model to determine how and by whom complex claims should be managed • introduce a new dispute resolution process which allows for binding determinations on the merits of claim decisions; is inexpensive; and provides timely outcomes. 

46. The Minister for Workplace Safety, the Honourable Jill Hennessy MP said the Victorian Government accepted both recommendations, stating she was ‘committed to reform’ and ‘disturbed by the findings’ of the investigation. 

47. Given the time it will take to implement these recommendations, the Ombudsman also made 13 recommendations to WorkSafe to address the immediate issues identified by the investigation. This includes a recommendation that WorkSafe establish a dedicated business unit to independently review disputed decisions when requested by workers following unsuccessful conciliation. WorkSafe accepted all 13 recommendations.

Loyalty Schemes

The Australian Competition and Consumer Commission (ACCC) final report on Customer Loyalty Schemes notes that the ACCC

has examined consumer and competition issues that are associated with consumer-facing customer loyalty schemes (loyalty schemes) in Australia, including the way in which loyalty schemes collect, use and disclose consumer data. Consumer and competition issues arising from customer loyalty schemes are a current priority for the ACCC. The operators of loyalty schemes must ensure they comply with the Australian Consumer Law (ACL) and make sure their terms and conditions do not include any unfair contract terms. It is also paramount that the operators of loyalty schemes ensure consumers have a genuine opportunity to review and understand the policy and operation of loyalty schemes to avoid misleading and deceptive conduct. 

A significant number of Australian consumers have reported experiencing a variety of issues participating in loyalty schemes.

The ACCC’s report on the major loyalty schemes in Australia focused on the following key issues:

• Consumer issues: whether consumers are properly informed and receive the benefits advertised by loyalty schemes. 

• Data practices: the collection, use and disclosure of consumer data by loyalty schemes and their partners. 

• Competition issues: the potential impact of loyalty schemes on competing firms, in particular on new entrants.

The  report highlight the consumer and competition issues associated with loyalty schemes 'to both educate consumers and inform the industry of the ACCC’s concerns with certain practices'.

Based on the information gathered during this review, the ACCC is concerned about a range of business practices in the loyalty scheme industry which have the potential to cause widespread consumer detriment. 

They include loyalty schemes:

• that do not present their terms, conditions and privacy policies in a way that consumers can readily understand 

• that make unilateral changes to their terms and conditions in a way that may be unfair to consumers 

• collecting, using and disclosing consumer data in ways that do not align with consumers’ preferences.

This includes loyalty schemes not providing sufficient transparency and meaningful consumer control over the collection, use and disclosure of consumer data, and engaging in the following practices:

o seeking broad consents from consumers and making vague disclosures to them about the collection, use and disclosure of their data 

o providing consumers with limited insight and control over the sharing of their data with unknown third parties 

o providing a limited ability for consumers to opt out of targeted advertising delivered by third parties on behalf of loyalty schemes.

The report states

The ACCC has outlined in this report its concerns and views on certain practices, and calls on operators of loyalty schemes to review and consider these practices in the context of the ACL. In particular, loyalty schemes should consider whether consumers are being misled or subject to unfair contract terms. Further, loyalty schemes should review their approach to presenting terms and conditions to ensure consumers have a genuine opportunity to review and understand their policy and operation.

The ACCC notes that following the release of the Customer Loyalty Schemes draft report (draft report), some loyalty scheme operators have implemented or announced changes to their schemes, most with the aim of improving consumer understanding. While acknowledging these changes, the ACCC remains concerned about a range of practices which persist within particular schemes and therefore continues to recommend changes to particular industry practices and consumer and privacy laws. The ACCC considers that these recommendations will both protect consumers and ensure consumer trust in the digital economy and data based innovation.

Having placed the industry on notice, the ACCC encourages consumers to contact us and report concerns where these practices are continuing with their loyalty schemes. The ACCC will consider these reports taking into account the principles and priorities in its compliance and enforcement policy before deciding whether enforcement action will be required to effect broader change.

The objectives of customer loyalty schemes

Loyalty schemes are ubiquitous in many sectors of the Australian economy and are particularly prevalent in the airline, supermarket, credit card, hotel and car rental industries. Consumer participation in loyalty schemes is high and the average Australian carries four to six loyalty cards.

Fundamentally, loyalty schemes are a marketing device with the primary objective of attracting and retaining customers. Many firms invest in loyalty schemes with the aim of gaining a competitive advantage over rivals by influencing customer behaviour to encourage repeat purchases and introduce customer resistance to competing offers or products. In this sense, loyalty schemes have a dual strategy—an offensive strategy of acquiring new customers as well as a defensive strategy of retaining existing customers.

Increasingly, some larger loyalty schemes also earn significant revenue from their schemes, including by allowing affiliated retailers and other companies to purchase points for their customers. In addition, some loyalty schemes collect and use their customers’ data in order to develop consumer insights, which may be shared with or sold to other businesses, and to target customers with tailored advertising. Some loyalty schemes may also use this data to deliver targeted and personalised advertising to their own customers on behalf of other businesses. 

Consumer issues 

Consumers may benefit from their participation in loyalty schemes by receiving rewards such as discounts on products and services, and access to exclusive offers and service levels. They may receive these benefits on purchases they would have otherwise made.

Loyalty schemes can provide consumers with a range of options to earn rewards and, increasingly, customers of loyalty schemes are able to earn and spend points directly with a number of different merchants that participate within a loyalty scheme’s partner network.

The ACCC has received complaints from customers of loyalty schemes that alleged they had not earned, maintained or redeemed their points in the manner they anticipated, with many consumers reporting that they did not obtain any benefits from participation at all. Complaints included that some operators of loyalty schemes: • failed to adequately advise them about critical components of their loyalty schemes, including the need to remain ‘active’ by earning or redeeming points within a specified period to avoid the expiry of points, or about the restricted availability of redemption opportunities, and • made unilateral changes that unfairly restricted the benefits available under a loyalty scheme, for example, by unilaterally reducing the rate at which they could earn points, or the value of their points previously accumulated. 

In response to the draft report, several loyalty scheme operators submitted that they are in the process of investigating certain measures, or in some cases had already implemented them, to help facilitate well-informed consumer engagement. For example, the ACCC notes that submissions to the draft report from Virgin Australia, Flybuys, Woolworths and Qantas have highlighted changes these loyalty schemes have made, or are seeking to make, some directly in response to matters raised in the draft report. Despite these changes, the ACCC is concerned about a range of business practices in the industry and calls on operators of customer loyalty schemes to review and consider their practices in the context of the ACL. 

Recommendation 1: Improve how loyalty schemes communicate with customers

Loyalty scheme operators need to review their approach to presenting terms and conditions of loyalty schemes and ensure changes are fair and adequately notified.

Loyalty scheme operators should review their approach to presenting the terms and conditions of loyalty schemes to ensure consumers have a genuine opportunity to review and understand their policy and operation. 

More specifically, loyalty scheme operators should provide consumers with relevant information at the right time and in the right way to make informed decisions, for example: • Loyalty scheme operators should ensure that any notification about the approaching expiry of consumers’ point balances (or detrimental changes to the rate consumers earn points or the value of those points) is sufficiently prominent and appropriately targeted. For instance, the subject line of any email notification about the approaching expiry of point balances might include a statement similar to ‘Your points are about to expire’. • Frequent flyer schemes should consider disclosing any particular routes, or corresponding seasons, or classes of travel on a route, where ‘free’ seats are not available. If loyalty scheme operators contemplate a unilateral reduction in either the earn rate or redemptive value of points, then prior to making such a change, loyalty scheme operators should: • provide existing members with prominent and timely advance notice and a genuine opportunity to redeem their existing point balance, and • consider providing existing members with some form of compensation (potentially in the form of an increased point balance).

Loyalty scheme operators must ensure they comply with the ACL, including by avoiding statements that are incorrect or likely to create a false impression, and avoiding unfair contract terms.

The ACCC also notes that the findings in this report reinforce those of the ACCC’s Digital Platforms Inquiry. In particular, the ACCC considers that certain conduct by customer loyalty schemes has the potential to cause substantial consumer detriment, which should be considered as part of proposed reforms to the ACL. 

Recommendation 2: Prohibition against unfair contract terms and certain unfair trading practices 

The ACCC’s findings in this report reinforce the Digital Platforms Inquiry Final Report’s recommendations for the need for a prohibition against unfair contract terms and certain unfair trading practices.  Consistent with the Digital Platforms Inquiry Final Report’s recommendations, the ACCC recommends that the Australian Consumer Law be amended: • so that unfair contract terms are prohibited (and not just voidable) • to include a prohibition against certain unfair trading practices.

The scope of a prohibition on certain unfair trading practices should be carefully developed such that it is sufficiently defined and targeted, with appropriate legal safeguards and guidance. The ACCC notes, and is actively participating in, the current work on this issue being undertaken as part of the Consumer Affairs Australia and New Zealand (CAANZ) process, and will progress its support for the recommendation through that forum. The ACCC’s current view is that the prohibition should be directed at unfair conduct that has caused, or has the potential to cause, substantial detriment to consumers. The ACCC will continue to work through CAANZ in relation to this issue. 

Data practices 

Membership of a loyalty scheme is voluntary and generally provided at zero monetary cost to the consumer. In exchange for the benefits provided by loyalty schemes, many loyalty schemes derive value from consumers by collecting data, including personal information, about them. Increasingly, some loyalty schemes generate revenue from the data they collect about the habits, interests and preferences of their customers, which can be used to profile consumers to produce insights about their purchasing behaviour.

Loyalty schemes may collect consumer data both actively, for example, information voluntarily provided by the consumer when joining the loyalty scheme, as well as passively, for example, the background collection of data through a consumer’s use of a platform, apps on a device or use of third party websites.

The data collected by some loyalty schemes about a consumer can be further enriched by linking it with external data sources, including from data brokers or through data-sharing platforms. These external data sources collect masses of information on consumers, which can be combined with relevant data a loyalty scheme holds about its customers. The combining of data allows greater value to be extracted from many loyalty schemes’ databases for the purposes of generating insights about consumers to enable targeted advertising and personalised marketing. This data can also be used not only to improve the offerings of the loyalty scheme operator, but also to share insights with other partners or sell those insights to third parties.

While Australian consumers have different preferences, attitudes and levels of awareness when it comes to the data they share with loyalty schemes, a number of surveys have suggested that many are concerned about sharing their data with companies, including loyalty schemes. The surveys reviewed in this report suggested that many consumers are concerned about the sharing of their data with unknown third parties, targeted advertising, and whether their data is being used responsibly. Many consumers are also seeking more transparency and control over the data they provide to loyalty schemes as well as improved data practices, legislative protection and greater individual rights over their personal information. The terms and conditions of loyalty schemes’ privacy policies often prevent consumers from making informed choices that align with their privacy and data collection preferences. 

An imbalance of bargaining power and significant information asymmetries exist between consumers and the major loyalty schemes examined in this report. These are primarily seen in the broad consents that these loyalty schemes seek from consumers about the collection and use of their data, and the vague disclosures they make to consumers about how their data could be used and with which entities it could be shared. In one example, the ACCC is aware that Flybuys and Woolworths Rewards disclose in their privacy policies that they may continue to track the purchasing behaviour and transaction activities of their loyalty scheme members when they shop at Coles or Woolworths Group stores, respectively, even if they do not scan their loyalty card by automatically linking any payment card used by the member to their profile.

The ACCC’s view is that such practices affect the ability of consumers to make an informed choice that aligns with their privacy and data collection preferences by removing consumers’ ability to control how and when their data is collected. When consumers no longer want to participate in a loyalty scheme they are unlikely to actively cancel their memberships due to the effort and time required to do so—rather, they will simply stop scanning their loyalty card when they shop. The ACCC considers that irrespective of disclosure in terms and conditions or privacy policies of this practice, consumers are unlikely to know that their data is collected and used by supermarkets in cases where they have chosen not to scan their loyalty card.

The ACCC is of the view that Coles, Flybuys and Woolworths Group should end the practice of automatically linking members’ payment cards to their profile. Problematic data practices, in addition to impacting market efficiency, can cause consumer harm. These harms include decreased consumer welfare from decreased privacy, and risks to consumers from increased profiling and from discrimination and exclusion. More broadly, they may also lead to decreased consumer trust necessary to enable the continued economic and social benefits of personal data flows. 

Recommendation 3: End the practice of automatically linking members’ payment cards to their loyalty scheme profile 

Coles, Flybuys and Woolworths Group should end the practice of automatically linking customers’ payment cards to their loyalty scheme profile to track their purchasing behaviour and transaction activities when they do not scan their loyalty card. 

Recommendation 4: Improve the data practices of loyalty schemes

Loyalty schemes need to review their approach to presenting consumers with information about how they handle consumer data and provide consumers with meaningful control over their data.

Privacy policies of the loyalty schemes examined in this report are opaque and consumers are often unable to make informed choices about, and have limited control over, the collection, use and disclosure of their data. Loyalty schemes should continue to take steps to address a number of the ACCC’s concerns, including by:

• reviewing their clickwrap agreements for unfair contract terms, including by assessing the potential consumer detriment of unilateral variation terms 

• improving the clarity, accessibility, navigability and readability of privacy policies, including by standardising definitions to be consistent with those in the Privacy Act 1988 (Cth) (Privacy Act) 

• minimising information overload for consumers by prominently presenting relevant aspects of their terms, conditions and privacy policies to consumers during key interactions 

• outlining clearly with which entities consumer data is being shared and for what purposes, and drawing to consumers’ attention how their data is being handled (including, for example, by providing a prominent notice during relevant interactions with customers) 

• disclosing to consumers the sources of third party advertising, the sources of the consumer data used to inform that advertising, and the channels through which they may receive targeted advertising and how their consumer data may be used to generate leads (including, for example, via a regularly updated online notice) 

• providing consumers of loyalty schemes with more meaningful controls over the collection, use and disclosure of their data which respond to consumer demands to align the data practices of loyalty schemes with the data preferences of consumers (including, for example, pre-selected and meaningful opt-outs for targeted advertising) 

• where there are limitations to the controls (e.g. in relation to collection, use or disclosure settings such as opt-outs) that currently exist, these should be made clear to consumers.

Further, the ACCC’s concerns identified in this report have direct parallels with those identified in the ACCC’s Digital Platforms Inquiry Final Report. These include: • insufficient transparency and meaningful consumer control over the collection, use and disclosure of consumer data • a lack of informed and genuine choice for consumers engaging in the digital economy • a lack of consumer protection and effective deterrence under existing laws governing data collection. The ACCC is of the view that the findings from this review of loyalty schemes reinforces the ACCC’s findings from its Digital Platforms Inquiry, and further supports our recommendations for economy-wide changes in relation to privacy law. 

Recommendation 5: Strengthen protections in the Privacy Act and broader reform of Australian privacy law

The ACCC’s findings in this report reinforce the Digital Platforms Inquiry Final Report’s recommendations for privacy law reform.

Consistent with the Digital Platforms Inquiry Final Report’s recommendations, the ACCC recommends strengthening the Privacy Act by:

• updating the definition of ‘personal information’ in line with current and likely future technological developments to capture any technical data relating to an identifiable individual 

• strengthening notification requirements to ensure that the collection of consumers’ personal information directly or by a third party is accompanied by a notice of the collection that is concise, intelligible and easily accessible, written in clear and plain language, provided free of charge, and accompanied by appropriate measures to reduce the information burden on consumers 

• strengthening consent requirements to require that consents are freely given, specific, unambiguous and informed, and that any settings for additional data collection must be preselected to ‘off’ 

• ensuring that consents are required whenever personal information is collected, used or disclosed by an entity subject to the Privacy Act, unless the personal information is necessary to perform a contract to which a consumer is a party, required under law, or otherwise necessary in the public interest 

• requiring entities subject to the Privacy Act to erase the personal information of a consumer without undue delay on receiving a request for erasure from the consumer, except in certain circumstances 

• introducing direct rights for individuals to bring actions or class actions before the courts to seek compensation for an interference with their privacy under the Privacy Act.

As well as these recommendations for targeted amendments to the Privacy Act, the ACCC is also recommending broader reform of the Australian privacy regime to maintain effective protection of consumers’ personal information in the longer term. This includes consideration of the current objectives and scope of the Privacy Act, and the introduction of a statutory tort for serious invasions of privacy as recommended by the Australian Law Reform Commission. The relevant recommendations as proposed in the ACCC’s Digital Platforms Inquiry are reproduced in full in appendix F.

The ACCC notes it has undertaken enforcement action in relation to alleged misleading and deceptive conduct or misleading representations made by entities engaged in the digital economy. In particular, in relation to HealthEngine’s alleged sharing of consumer data without adequate disclosure to consumers and Google’s alleged representations around the data it collects, keeps and uses. These proceedings are being defended and are currently before the Court. The ACCC will continue to consider whether any other conduct of entities engaged in the digital economy raises concerns under the Competition and Consumer Act 2010 (Cth) and whether it is appropriate for the ACCC to take enforcement action. 

Competition issues 

Loyalty schemes have the potential to raise competition concerns. This can occur depending on the extent to which loyalty schemes ‘lock up’ customers and introduce switching costs that increase barriers to entry and expansion for rival firms. If barriers are enduring and induce exit or deter entry, consumers are likely to be worse off.

While not all consumers are active members of the loyalty schemes they belong to, for a significant number of consumers, loyalty schemes can strongly influence their buying behaviour. This can have implications for the ability of smaller companies or new entrants without a well-established loyalty scheme to compete.

These risks to competition could be particularly concerning given the prevalence of loyalty schemes in many concentrated markets in Australia.

Competition issues may arise not only in the primary market in which the loyalty scheme predominantly operates (for example, domestic air travel), but may also be extended to related markets through exclusive partnerships with firms supplying complementary products (for example, domestic airlines and car rental services). The barriers to competition arising from large national coalition loyalty schemes may be particularly high for smaller, regional businesses. Frequent flyer schemes have the potential to result in significant customer lock-in effects, as has occurred overseas. It appears that Qantas Frequent Flyer might have a significant impact on barriers to entry and expansion for the domestic business traveller segment. However, Virgin Australia has been successful to date in growing its Velocity loyalty scheme and market position and it is not clear that such customer lock-in effects and switching costs associated with frequent flyer schemes have resulted in major barriers to entry in this case.

In the case of supermarket loyalty schemes, while customer loyalty in this sector is currently limited, there is the potential for stronger exclusivity effects to occur in future as the major supermarkets seek to leverage their growing digital and analytical capabilities using extensive customer data.

Coalition loyalty schemes bring together a variety of partners under their programs, which allow members to earn and redeem points with a number of different merchants across the economy. The major coalition loyalty schemes in Australia are likely to assist in maintaining current market structures, while also producing consumer benefits.

The ACCC will consider any competitive effects of loyalty schemes on a case-by-case basis, including with respect to analysing any substantial market power a firm holds, and the height of barriers to entry in a market in competition law matters.