Ban on Expiry of Loyalty Miles and Points Has Passed in Ontario

It took some time for me to digest this information (which is why I took so long to write about it). I still can’t actually believe that a government body has decided to step in to regulate loyalty rewards industry. Not only that, this bill passed unanimously. Did they open pandora’s box? Are loyalty programs really going to sit there and let the government push them around like this?

Granted this is not the first time that the Ontario government stepped in to regulate the industry. In 2007, they also banned expiration dates on gift cards. But that was a much smaller law.

How the New Law Works

As for this current law, basically, loyalty programs that want to operate in Ontario can not longer have a hard expiry policy. In other words, so long as they give clients a way of keeping their miles or points active, they will be compliant with the law.

Let’s use a new example, other than Air Miles instead. WestJet currently has an expiry policy whereby all WestJet Dollars will expiry 5 years from the day that they were deposited, regardless of activity. This expiry policy is going to be affected and will need to be updated to be compliant.

Conversely, Aeroplan miles expiry 12 months if there was no activity. But if there is some sort of activity, it resets the 12 month policy, which means that Aeroplan is actually already compliant with the new law, so they will not be affected.

So let me give you my 2 cents on the pros and cons of this move.

Pros

Will this keep the Ontario Liberal government in power when they go for re-election? Joking aside, I can understand that this is a good move for the majority of miles and points collectors who may not be as savvy about mastering the miles and points game.

There is no question that this new law caters to the majority. It gives everyone a more equal opportunity to redeem their hard earned miles and points. I can’t argue with the fact that making it easier for consumers to keep their mile and points isn’t a positive. It definitely is a positive! Heck, I wish that miles and points never expire, regardless of activity.

The problem is, to have such a generous rule, it will come at a cost, which is my transition into the cons.

Cons

A confusion may arise when loyalty programs partner up with companies and you see the word “free” being used to help with marketing. For example, a credit card company may say, you an earn 15,000 Aeroplan miles upon sign up, and that is 1 FREE short-haul ticket within North America. Is it really free if you have to pay the annual fee, along with taxes and fuel surcharges when all is said and done?

Anyway, my point is, that loyalty program are still a business at the end of the day, and they still need to make money. So if they offer something generous in one part of their business model, you can be sure that they will make up the costs in another area. Most loyalty programs are publically traded companies that need to answer to shareholders. Unfortunately, the bottom line (profits) is what is most important to them, which works completely against consumers.

So now let’s use the Air Miles program. They were probably banking on the fact that this new expiry policy will help them save some money. With this new rule, if the savings don’t come to fruition, then they will need to make up the money somewhere. I would expect them to devalue their reward redemption ratios sooner than they may have anticipated or they may make the devaluations steeper.

Regardless of what they do, they now have to follow a new law that is completely out of their control. So what should we do going forward?

Going Forward

I will continue to preach diversification to everyone as devaluations are bound to happen. The best protection really is the diversify your miles and points portfolio. The second thing that I recommend is the earn and burn approach. Try not to sign on your balance for too long, as you are bound to hit devaluations or unfavourable changes to the program. The main reason for this is due to inflation. Loyalty programs have their own costs to keep up with, so it’s only reasonable that they need to watch their balance sheet.

If diversification is too much trouble, then I would recommend switching to a cash back only portfolio. With a cash back portfolio, you know exactly what return you are getting. What I would recommend is to have several credit cards to increase your return on specific spending categories to maximize your return.