Vanderbilt Policy Accelerator & UC Berkeley Center for Consumer Law and Economic Justice – “…But today, as seen with McDonald’s, loyalty programs have evolved into data-harvesting machines that lawmakers should scrutinize as closely as any other surveillance-based business model. They track not just what consumers buy, but who we are, what we search for, and even how we move our cursors across a screen. Companies then monetize this data — selling it to brokers, building profiles on each of us, and most importantly, learning how much each of us is willing to pay.8 At the same time, they design the programs to be sticky, murky and confusing, while steadily raising prices or cutting back benefits. Today, these programs can generate more profit for companies than their actual business. In recent years, regulators around the world have been sounding the alarm that firms can use loyalty programs to rip off their most loyal customers.15 This paper builds on that work by examining the devolution of loyalty programs — from simple coupon programs to major lines of business transforming the retail experience. This devolution is happening in three stages. In the first stage — the hook — companies entice consumers by promising generous upfront benefits if consumers enroll. In the second stage — the hack — companies use loyalty programs to extract deep insights into our spending habits and willingness to pay, effectively hacking our brains. And in the third stage — the hike — companies make these programs worse for consumers — raising fees, devaluing points, limiting redemption options, and curtailing benefits. The result of these three stages is a wholesale transfer of wealth from consumers to corporations, with companies collecting ever-more data while offering ever-diminishing savings. We use “loyalty programs” as a catch-all term for programs including discount clubs, rewards programs, and other programs in which companies provide rewards, discounts, or other benefits to customers in exchange for repeat business or continued engagement. These programs have a long history — emerging in the late 18th century, and evolving to include tokens, coupons, trading stamps, and proprietary currency. Today, they have become backdoor laboratories for the future of pricing — where firms test new ways to watch us, sort us, and ultimately charge each of us the maximum they think we will bear. States have strong tools to challenge abuses in these programs. Using their consumer protection and privacy laws, they can deter deceptive claims, ensure rewards are transparent, and challenge secret price hikes. The final section of this paper details how states can ensure these programs are truly rewarding for consumers…”