If your business offers a loyalty program in conjunction with a gift card, you likely already know that Section 520-e of New York's General Business Law took effect December 10, 2023. This new law gives consumers a set grace period to use their credit card reward points when certain changes (e.g., modification, cancellation, closure, or termination) are made to a "reward, loyalty, or other incentive program."
Specifically, under the new law, "[i]f any credit card account or rewards program is modified, cancelled, closed or terminated," the issuer must provide notice to the card holder as soon as possible, but no later than 45 days of the action. Then, unless the customer has engaged in fraud or misuse of the account, starting with the date on which the notice is sent, the holder shall have 90 days to redeem, exchange, or otherwise use any accumulated credit card points, subject to the availability of rewards.
The new provision defines "modification," as one that has the effect of "eliminating points, reducing the value of points, affecting the ability of a holder to accumulate points, limiting or reducing rewards availability, limiting a holder's use of points or the credit card account, otherwise diminishing the value of the rewards program or the credit card account to the holder or changing the obligations of the holder with respect to the rewards program or credit card account."
While Section 520-e's notice requirements are already in effect, the new law suffers from ambiguities that will need to be worked out in the future through regulatory guidance, enforcement, or subsequent legislation.
One question that has come up is how broadly the law applies— in particular, whether it will reach only programs offered directly by credit card companies to their cardholders, or whether it will apply to any program in which some of the members hold affiliated credit card that may be used to earn points. For example, will a hospitality program for which an affinity card is offered by a third-party bank, in which that card may be used to earn points, be regulated by the new law? And if the more expansive reading applies, will it reach only program members holding the credit card, or all members of the loyalty program?
Unfortunately, the definitions in the statute are ambiguous and not particularly helpful on this point. For example, the law defines "points" broadly, as "units that can be accumulated in an account in connection with a credit card reward, loyalty, or other incentive program, often referred to as points or for certain travel-related rewards as miles, which are redeemable, fungible, or otherwise exchangeable, in whole or in part, for rewards[.]" The definition is not limited to points that are earned by spending money on a credit card, but includes "other incentive program[s]," such as travel-related rewards like miles.
Moreover, with many credit card loyalty programs, the members are governed by two different agreements—one for the credit card and one for the overarching reward program. The rewards program agreement often allows members to accumulate points not only for purchases on the card, but also for actions taken in connection with the linked reward program (such as flying with an airline or hotel stays).
The broad definition of "points" thus arguably encompasses both the credit card and the related loyalty program points, suggesting that the notice provisions may potentially apply to all members in a loyalty program that is associated with a credit card–regardless of whether the credit card issuer sponsors the loyalty program, or the credit card is simply an affinity card held by a subset of members. However, the law will need to be further clarified.
Most credit card loyalty program agreements include provisions that the program can be modified and/or terminated and points can expire at any time and without notice. Section 520-e changes this in New York. Moreover, the law specifies that any attempt to disclaim the rights provided under the law will be void as contrary to public policy. Therefore, companies offering loyalty and reward programs that have not already done so should review their program terms closely for compliance.
As written, Section 520-e lacks a formal enforcement mechanism for holders, and it does not provide for specific penalties for violations. That said, because the new law amends New York's General Business Law to add a new section, both private plaintiffs and the state attorney general could bring actions for up to $5,000 per violation. It remains to be seen what will happen with enforcement, but a good start for companies running loyalty programs in this space would be to review their terms and conditions and keep an eye out for similar bills in other states.
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