Australia: Gift vouchers and loyalty schemes – popular programs but does yours comply with the Corporations Act?

Gift vouchers and loyalty schemes are popular ways for franchise networks to entice new customers and encourage brand loyalty. However, before implementing such a venture, it is important to consider any relevant legal requirements . Usually, such ventures will be considered in the context of the Competition and Consumer Act 2010 (Cth). However, it is also important to consider whether such they will fall within the scope of the financial services regime in the Corporations Act 2001 (Cth) (Corporations Act).

The Corporations Act

Under section 763A of the Corporations Act, a financial product is defined to include "a facility through which, or through the acquisition of which, a person...makes non-cash payments" (being payments otherwise than by the physical delivery of Australian or foreign currency in the form of notes and/or coins).

Based on this definition, products such as gift vouchers may constitute financial products, meaning they will be subject to the financial services regulatory regime set out in the Corporations Act unless an exemption applies. Likewise, some loyalty schemes may also technically fall within the scope of this regime.

If an arrangement falls within the scope of the regime, we recommend trying to ensure that the arrangement is set up in such manner so as to fall within an exemption. Otherwise, a franchisor might be required to obtain a financial services licence and comply with the significant obligations imposed by the financial services regulatory regime – a potentially expensive and timely exercise.

The Legislative Instrument – the key exemption for gift vouchers and loyalty schemes

The financial services regulatory regime outlined in the Corporations Act is quite broad. In acknowledgment of this, the Australian Securities and Investments Commission (ASIC) released a number of class orders relating to non-cash payment facilities (including loyalty schemes and gift facilities). These orders generally exempted the relevant non-cash payment facilities from the application of some or all of the financial services regulatory regime.

In 2015 the ASIC Corporations (Non-cash Payment Facilities Relief) Instrument 2016/211 (Legislative Instrument1 was issued to "remake" a number of existing class orders. The Legislative Instrument was made in respect of "non-cash payment facilities" such as gift vouchers and loyalty schemes and, generally, provides relief from complying with certain parts of the Corporations Act in relation to those facilities covered by the Legislative Instrument.

Gift vouchers

Most gift vouchers are likely to come within the ambit of the Legislative Instrument as they would likely fall within the definition of a "gift facility". "Gift facility" is defined as a non-cash payment facility in relation to which all of a number of requirements apply. Such requirements include that:

  1. the amount available on the facility is set when the facility is issued, cannot be increased and cannot be withdrawn as cash;
  2. the facility can be used on multiple occasions, is promoted as a gift product and is not a component of another financial product; and
  3. where the facility has an expiry date, it is clearly shown.

If a gift voucher (including the terms and conditions of that gift voucher) satisfies each of the conditions set out in the section 5 definition, then it will be considered a "gift facility" for the purposes of the Legislative Instrument and will be eligible for the relief offered by section 10 of the Legislative Instrument. Specifically, section 10 provides relief from complying with certain sections of the Corporations Act, including Part 7.9 which relates to financial product disclosure and includes other provisions relating to the issue, sale and purchase of financial products.

Given the above, when drafting terms and conditions for a gift voucher program, it is important to consider the Legislative Instrument. In particular, it is worth considering whether the program can (or should be) set up in such a manner so as to fall within the scope of the definition of a "gift facility" so that it will have the benefit of the relief offered by the Legislative Instrument. Gift vouchers that do not fall within the definition of "gift facility" will not qualify for the relief offered by the Legislative Instrument. For example, relief might not apply where:

  1. the facility can only be used once;
  2. the gift product can be re-loaded;
  3. the expiry date is not prominently and clearly disclosed; or
  4. the facility is promoted as an award.

Loyalty Schemes

Loyalty Schemes are also covered by the Legislative Instrument. "Loyalty scheme" is defined as a non-cash payment facility in relation to which a number of requirements are all met.2 Those requirements include that:

  1. the facility is issued as part of a scheme, the dominant purpose of which is to promote the purchase of goods or services from the promoter;
  2. the person who holds/uses the facility is granted credits for purchases;
  3. the credits can be used to make a payment for goods/services or obtain another benefit; and
  4. the facility is not a component of another financial product.

Based on the above definition many standard loyalty schemes used in franchise networks would be loyalty schemes for the purposes of the Legislative Instrument.

Pursuant to the LegislativeInstrument, a loyalty scheme (that falls within the scope of the definition above) is not a financial product for the purposes of Chapter 7 of the Corporations Act (which governs financial services and markets) and does not have to comply with subsection 601ED(5) (relating to registration) of the Corporations Act.3

It is paramount when reviewing the terms of a loyalty scheme that franchisors consider the Legislative Instrument to determine if their loyalty scheme will fall within the scope of the Legislative Instrument.

Other exemptions

The Legislative Instrument does not just cover gift facilities and loyalty schemes. It also addresses a number of other non-cash payment facilities such as non-cash payment facilities used for third party payments and prepaid mobile facilities.4

Depending on the type of franchise network, some of these exemptions may be relevant – for instance, the exemption relating to prepaid mobile facilities may be relevant to franchisors in the telecommunications industry. If you do have any programs in place that in way use non-cash payments, it is important that you consider how the Corporations Act may apply to those programs and whether you may be able to rely on any exemptions to obtain relief from complying with the Corporations Act.

Summary

The Legislative Instrument "remakes" a number of existing class orders and is of particular relevance to any franchise network that in any way deals with non-cash payment facilities. If you have a loyalty scheme, gift voucher program or any other arrangements or programs in place that deal with non-cash payments it is crucial to be aware of the Legislative Instrument and the protections it offers. In this regard, we recommend considering the Legislative Instrument before preparing terms and conditions for any such programs.

For further details on the Legislative Instrument, or to discuss whether your non-cash payment arrangements will fall within the scope of the Legislative Instrument, please contact any member of our National Franchise Team.

Footnotes

1 Australian Securities and Investments Commission, ASIC Corporations (Non-cash Payment Facilities) Instrument, 2016/211, 18 March 2016.

2 Australian Securities and Investments Commission, ASIC Corporations (Non-cash Payment Facilities) Instrument, 2016/211, 18 March 2016, section 5.

3 Ibid, section 6.

4 Ibid, sections 7-9.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.