Loyalty Program Fraud Working Groups Too Often Hate Members and Refuse to Look in the Mirror…

I’ve been around several ‘loyalty fraud’ discussions recently amongst airline and hotel loyalty program executives. Fraud by members is a huge topic of conversation for loyalty programs these days.

And I’ve figured out that there are really four kinds of loyalty program fraud. And programs are focusing on the wrong ones.

  1. Hacking. This is the greatest threat to loyalty programs because of scale and cost, and because it’s usually done by people who aren’t even the program’s customers. It’s true fraud, not taking advantage of rules, and is done on thousands, tens of thousands, or even hundreds of thousands of accounts at a time.

    Starwood got hacked. This came shortly after American, United, and Hilton got hacked. Points are advertised for sale cheap online.

    The Priority Club shopping toolbar vulnerability that let members script their browsers to earn hundreds or thousands (or more) points over a weekend could be thought about in a similar way (although at a smaller scale).

    All of these are essentially stealing large numbers of points from the program. The points are usually cashed out quickly, for rewards that cannot be clawed back (like electronic gift cards that are immediately redeemed).

    In general hacking isn’t a great concern for members, because the programs ‘make good’ on the points taken from accounts and because anti-hacking measures often involve inconveniences to members (like changes of passwords, captcha, two factor authentication, etc).

    But it’s where the real costs are. And programs are only waking up to it, and only slightly.

  2. Selling awards. This increases program costs. It reduces breakage (points going unused, and eventually expiring). Rewards claimed tend to be of higher value than otherwise. And often purchased awards displace revenue tickets (although not always from the same airline whose awards are claimed) — people buy awards instead of tickets. Here’s why airlines and hotels won’t let you sell your points.

    Attacking this is programs trying to manage costs by maintaining a monopoly over and restrictions on use of their currency.

  3. People who benefit too much. Members may follow the rules, to the letter, but still benefit disproportionately from a program. That’s probably a large number of readers of this blog… using points for the highest-valued awards, getting more than our fair share of upgrades. Or – in the words of one loyalty executive, “Not using the program as intended.”

    Programs write the rules, and if they don’t like any given sort of activity they could change the rules. Yet they would love to fire customers they believe are unprofitable under their own rules.

    In some sense, if Delta would only be transparent about what they’re doing, then Delta would be the most honest here. They can avoid providing much value to their members by simply changing the program itself.

    Many programs – though not all – like suckers who accumulate expensively and redeem cheaply. The answer there of course is to design a program like that… not to blame the customers when you failed to design what you wanted. (At least British Airways changed their program to align with this, and provided three months’ notice.)

    Air France KLM’s Flying Blue may be the most aggressive in this area right now, shutting down accounts that follow the programs terms and conditions and putting roadblocks in the way of new members transferring in points from partners like American Express from redeeming their points. I’ve heard Flying Blue representatives say they believe members redeeming their points for others – even though allowed by the program terms – are committing fraud.

    Not only is this unfair — they write the rules, so the actions that follow within those rules are entirely on their hands, not the members’ — but it’s against the interests of the program. There’s a reason why high value awards are offered and it’s because that’s a motivator for consumers to act irrationally, to over-invest in search of those awards, to install Hawaii or Bali imagery as the background for their computer and dream. Some members benefit more than others, and when dealing with large numbers you take a portfolio approach and determine whether your program is profitable overall rather than in every instance. Killing off the long tail has implications for the value proposition as a whole that your program does benefit from.

  4. Programs commit fraud on members. Program changes without notice, especially to award types and award charts, is fraud. It may not legally be fraud because program terms and conditions say they can do it, and the Airline Deregulation Act has been interpreted to preempt traditional common law contract rules that require reasonable terms (especially in adhesion contracts).

    Members are offered a value proposition – save up your miles over time, perhaps over a period of years, and there’s a free trip at the end of the rainbow. Members do their part, buy tickets or transact with partners and credit their miles and as they get close, the terms change and cost goes up.

    Or worse yet a specific award they’re after is simply eliminated. American offered ‘distance-based’ oneworld awards up through April 8 of last year. I heard from several readers that were saving miles for their honeymoon or a special anniversary and planned to use this award. Then one day it was simply gone, the years of effort planning for it was down the drain and while award redemption was still possible making more stops or routing in a preferred way became much more expensive.

    Loyalty programs make a promise of value and pull the rug out via short or no notice devaluations. This is the most common fraud affecting the most members .

Selling awards is against program rules, members have plenty of notice, so it’s not unreasonable to enforce this. All things equal it’s not a huge problem, and in some programs it may be a higher strategic priority than warranted, but that’s a matter of emphasis.

In some programs selling awards (legitimately) and members getting ‘too much benefit’ (far less legitimate) get higher priority than hacking, which is perverse.

Fraud working groups think their members are out to get them. Their members are the enemy and using the program to gain ‘Ousized value’ is equated with fraud.

Yet it’s bizarre for programs to talk about fraud while feeling no obligation to treat members honorably when those members follow the rules.

Since American’s April 8, 2014 changes they’ve given plenty of notice and transparency in moves they’ve made, especially as their US Airways merger has proceeded, but American specifically says they have no duty of good faith or fair dealing towards members though of course the Supreme Court ruled that no airline frequent flyer program does.

This is especially vexing because authenticity and fair dealing matter most to members. While United says in court they don’t have to keep their promises to members.

There’s no sense of irony whatsoever on the part of loyalty executives taking part in fraud discussions and expressing moral indignation that – hacking aside – they’re most often the ones perpetrating the fraud, and their fraud impacts the greatest number of members.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »



  1. i have found IHG absolutely culpable in this regard, i had their rep in Salt Lake attempting to lecture me on having too many nights with them (400 + suite nights inc 125 for an employee) in 2013, and telling me to rent a serviced apartment, or try other alternatives, the only motivation for him to be advising this must have been about customer yield or profitability that they must have deemed inadequate in respect of the business i gave them. I did tell his CEO, and others in senior management, that he was a wonderful benefit for the other hotel groups, discouraging IHG business.Then we had a dispute over RA renewal earlier this year, i emailed IHG CEO Richard Solomons, in writing the rep from Salt Lake denied RA renewal based on 60 IHG nights, 20 at IC’s and three IC properties. I’m just burning 2.4m points now, last long term stay was for 122 nights at the end of 2013, since then, other than redemptions and free nights, i’ve paid for less than a few nights, mind you, i’ve enjoyed the usual upgrades, presumably based on my point count, and maybe the letters of introduction i get from senior corporate friends in the UK head office, Presidential Suite in Costa Rica for eight nights last summer, a top two bedroom suite with balcony, and spa tub in Panama for a week, Woodrow Wilson suite at the Willard over New Years, and recently the Pembroke suite in Dublin, one under Presidential, i’ve spent a lot of money with them, and really do enjoy the loyalty i’m shown at the coalface, at their properties, and friends in corporate UK, but have no love for Salt Lake, and the rest of their mucked up management, they have no idea of loyalty. I don’t disagree with your sentiment Gary, that they do defraud their customers, especially their loyal ones, when they make changes to their program rules, unannounced, then close people’s accounts, take away their points etc, they tried that with me, when i told Salt Lake, i would sue, they reopened my account and put all the points back. They’ve lost c 600 suite nights from me since then.

  2. Exactly a program simply cannot get away with doing things like that.. such as Air France.. closing accounts for no reason, even though all rules are followed, someone should sue their asses. I personally just do not do any business with programs that have a bad reputation.. very simple.

  3. @Tim

    I understand expending effort to reinstate your account and points for future redemption. However when they say they are no longer interested in revenue patronage – why bother engaging in a discussion? There are numerous competitiors who do not need to be convinced you are worth while customer.

  4. Well said, but I would also classify point number three as fraud as well. When members follow the rules and airlines such as KLM freeze the accounts or make-up new rules because they don’t like it, that’s fraud too.

    By the way, I am not even a member of the KLM program, so this isn’t a disgruntled customer, just someone who knows right from wrong.

  5. Although I usually am not in favor of government intervention I think the programs have grown so large that there have to be consumer protections. When these things started it was nothign like this. The programs can five alot of business. I am sure Gary knows some stories he cant publish. I do like to bring some light to this topic.

  6. @Tim O’Brien:

    Somehow I feel we’re not getting the full story as to why IHG wanted to break up with you!

  7. 3…… ““Not using the program as intended.””???

    This executive is so disgusting even can be called deceiving. The program advertises sweet deals so people are attracted to come to the program. What the program advertises is what customers rightfully deserve. Maybe this executive meant to say we advertise good deals to get people hooked and really intended to have customers be stupid enough never take advantages of good deals we promised.

    Really shameless.

  8. This Tim guy sounds like a real DYKWIA treat. Reading about your (exaggerated) 600+ suite night rant on a random travel blog has been a real pleasure

  9. @Vinhsynd, they didn’t say that, it was all i cld infer from their rep in salt lake telling me to steer business away from InterCon, that it wld be more economical for me to use serviced apartments for seven month stays, that was whet he said verbatim i can’t see how corporate would agree with their own rep stating that to a loyal customer, other than if i wasn’t profitable for them.

  10. @stvr , they didn’t like the colour of my eyes? i know they liked the colour of my money, and so wld their shareholders, problem is when they have employees, not acting in the interest of the shareholders

  11. @dave, it’s nothing to do with DYKWIA, i paid for 400 plus nights in 2013, that’s a fact, and i gave them a handful of paid nights in 2014 and 2015 to augment at the front end of redemption stays to burn points.

  12. It’s a simple calculation. Unfortunately what has occurred is simple.

    An entity hiding behind a corporate veil takes a look at a customer who is mistreated by their rule changes and determines the following; if I change XYZ rule, what can that customer do to me? how could that potentially benefit myself as a business? and most importantly what can the customer do to retaliate against me for my bad faith dealings?

    Just as employees and calendars changes year to year, so do excuses. Yes this used to how we did things when Stephan worked here however that was several years ago and I’ve gotten some pretty negative reviews about his performance. Please don’t hold it against us moving forward.

    When they really get absurd is when they start claiming that they have no direct involvement. Yes you paid for this or that but your order is fulfilled through a third party. I’m sorry our regional service is not actually part of the company.

    The company itself can be reached at nondescript P.O. Box on dusty lane USA.

    I’m sorry that you had a negative experience, we strive to provide excellent customer service.

    Whatever do you mean? What the heck is antitrust? I’m sorry but I’m not an expert in these matters and really have no idea what you’re talking about. Oh manners and courteous behavior? They went out in 1994. How may I deplete your accounts today? Do you know I live somewhere in A foreign land not subject to your laws? My last pair of shoes were purchased from my Uncle Sandy. He was a fracker.

    Are you aware that we employ individuals to illegally attempt to track your behavior even when you’re not speaking to or purchasing from us? Why? We have no idea but somebody at the Huffington post knows this guy who used to work for these guys.. I don’t know the whole story but I hear he’s in Russia now… Russia Yeah can you believe it? Ok so anyways ….

    Did you think we let Kensey do all that stuff for years for nothing? Why do you think we made all those cute movies about monkeys?

    Did you know that in some hole in Montana, it takes a prairie dog 2432 nibbles to crack an acorn? And when he does, we’re there to tell him that’s not really an acorn, he went about it all wrong.

    Then we’re confused when he sits up on his hind legs, sniffs once or twice, gives us “that” look and scurries off to Venezuela.

    Speaking of South America, did you know those bastards hit me up for a diet coke and peanuts without even showing up to fix my sprinklers last year?

    What’s my name again?

    It’s all about showing up, getting a couple coins, and treating the paying customer like they were born to provide your homestead. Wilkommen Amerika 2015. It’s much worse than anything Ridley Scott ever dreamed in Blade Runner. And in some senses much worse than the greatest fears that swept across Europe several decades ago.

    Did you know that there’s an ACTUAL movement to attempt to legislate “niceness”? As if there’s an actual scale where one can judge whether an Internet comment is “nice”.

    Not an attempt to prevent slander or libel, all of which are well established under common law, but a concerted effort to enforce “niceness”.

    Now if that isn’t the dumbest thing I’ve ever heard or the most repugnant to the memory of James Madison, Samuel Adams, or any of the thousands of people who came after fighting and dying, I don’t know what is.

    We only like the nice patriots. Even if they cheat worse than the rest. Isn’t Tom just so CUTE?

    Keep showing them those pictures of Jefferson when he had the Red hair. He’s so friendly and inviting.. No no , not pictures of Madison or Taylor or Van Buren.

    Did you see Kim’s dress last week? Her “parent formerly known as a Decathlete” is such a camera hog. Where did that ever find that shade of blush? I’ve been looking for 4 years and they always hide it in the back when it gets shipped to my store.

    Sorry did I ramble. Life on Lake Wobegan. Ah better than any sealed Seinfeld letter ever postulated.

  13. I apologize to the wheel of karma if anything I’ve written is perceived as negative and/or mean spirited.

    It’s not my intent to be deceptive or disingenuous however we would like YOU to conform to our Borg commune of disingenuity.

    Failure to comply will have serious consequences.

    “You know this will do down on your PERMANENT Record. Oh yeah well don’t get so distressed.”

    You know I have very little control what your reaction will be ;0]

    In other words, save us all the foreplay, just yell curses in our faces next time you see us.

    There’s really no need for that voodoo doll. I’m right here.

Leave a Reply

Your email address will not be published. Required fields are marked *