New Jersey Bill Would Ban Hotel Loyalty Programs From Selling Points

Hotel chains have been bending over backwards not to offend property owners, at the expense of their brand and customers. But many hotel owners still aren’t satisfied, and have lobbied for government to rewrite the rules of the game to save them money.

In fairness, hotel chains have at times been bad actors. For instance, twenty years ago hotel property owners sued purchasing collective Avendra, which was founded by Marriott and Hyatt. They were required to buy supplies through Avendra, and they contended they were being overcharged – vendors marked up goods that they purchased, and rebated a portion to Avendra itself.

Concerns about purchasing, among other issues, are included in New Jersey’s ‘fair franchising legislation’ which is bill A1958 before the Assembly Commerce and Economic Development Committee, and state Senate S3165.

One of the surprising things in that bill though is an effective ban on selling hotel points at a profit.

It shall be a violation of the “Franchise Practices Act,” P.L.1971, c.356 (C.56:10-1 et seq.) for a hospitality franchisor or an entity owned or controlled by the franchisor or affiliated under common ownership by the franchisor to…

j. Sell points or credits in a hospitality franchisor’s loyalty program to a guest for the purpose of permitting the guest to redeem points for a specific stay at a specific franchisee’s facility without compensating the franchisee for the stay at no less than the franchisee’s lowest publicly advertised rate for that stay or the value of the points sold, whichever is less;

Loyalty programs like Marriott Bonvoy, World of Hyatt, IHG One Rewards, and Hilton Honors all sell points to consumers, and generally the cost to the program of redemption is lower than the cost of sale. That practice would be banned by New Jersey law if this ultimately passes.

It’s not at all clear how a program would segregate which points were purchased and then redeemed for a hotel in New Jersey, such that the New Jersey hotel would need to be compensated at the actual cost of points paid by the member. And if hotels had to sell points at cost, why would they sell them? (What the actual cost of the points is can also be unclear when using a third party intermediary like points.com for the transaction.)

Hotel room night redemptions are a boon to many hotels. They represent revenue for rooms that would otherwise go empty, so it’s incremental revenue. When the hotel is heavily occupied, the property generally receives more money (something akin to their average room rate). The hotel chain is generating value for the property by driving these room nights to a property by selling points.

And of course more points are sold to credit card companies than direct to consumer, but it’s only the sales to a guest directly that the law takes issue with. In seeking to force hotel chains to pay properties more for redemption nights, it just removes any likelihood that chains can sell points for redemption at covered hotels in the first place.

Analogizing to supplies, where franchisees and owners of managed properties object to the hotel chain earning a margin, they don’t want the loyalty program to earn one either. But hotels are paying for supplies, and getting paid for redemption nights. That’s a big difference.

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 »

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Comments

  1. I can’t fathom what these hospitality franchisee companies are possibly thinking. This is part of the business model of the franchise. If you don’t want to participate then stay independent, and reap the reduced exposure that comes without the franchise. I think the franchise chains should seriously consider dropping every single franchisee in New Jersey if this has a chance of passing. I have no idea the economics, but I have to imagine it’s less of a hit to the bottom line to drop every single hotel in that state, than to be forced to modify the business model worldwide. If I was the Hilton CEO, I’d be calling up my counterparts at Hyatt and Marriott and seriously propose that we all collectively do exactly that, assuming no creative accounting or corporate structuring can be found to work around this law. By the way, I’ve mentioned in a number of other posts that I’m a NYC resident, and I’ll be the first to admit we have our own hotel public policy blunders, but this is some straight-up anti-consumer bullsh&t. (Also a Hilton Diamond member, for what it’s worth.)

  2. “Hotel room night redemptions are a boon to many hotels. They represent revenue for rooms that would otherwise go empty, so it’s incremental revenue.” Yes, but not if the consumer who plans to stay at that hotel anyway, instead of paying a $200 room rate is able to buy enough points for $150 to cover the cost for that stay. Instead of getting $200 revenue, the hotel get $30 from the chain and the chain pockets $120. I think this is what the bill attempts to address.

    That said, and IANAL, but ” for the purpose of permitting the guest to redeem points for a specific stay at a specific franchisee’s facility” could be interpreted to allow general points purchases, and only prohibit purchases that are tied to the stay, like IHGs points & cash bookings.

    If I’m wrong, as a state law addressing points sales, would this apply to sales only to NJ residents?

    As far as the value of the points, since the bill addresses redemptions, I’d argue that the value of the points is by definition equal to (or greater than) the cost of the room for a cash booking. It doesn’t matter if an IHG point is generally worth a half a cent, if I redeem 100K points for a $1000 stay, then the value of those 100K points is a penny each.

  3. Leave it to NJ to come up with another way to regulate something they have no business in regulating. Imagine you are in NJ and need an extra 1,000 points to book your dream vacation befoe the hotel fills up and “oh, sorry we can’t help you because we aren’t allowed to sell hotel points in New Jersey”.

  4. The heavily Republican, BJP-supporting Gujarati hotel/motel
    owners are pushing for this to become the law in NJ.

  5. As a NJ resident wonder if there can be a workaround if this nonsense ban on buying points gets put in place, such as changing registered mailing address to a fake ond in another state! This is like a socialist control idea why government has to get in way

  6. “This is like a socialist control idea why government has to get in way”?

    Not really. This is more like a Republican-oriented business lobby lobbying for rules to benefit an influential community’s clique of business owners and their well-wishers at the expense of “woke” “big companies”. That it happens to be in an area where neither Republicans nor Democrats want to alienate the right-wing Indians — not to talk about the 50k+ illegal Indian immigrants in the state who are likely to eventually turn out to be NJ voters inclined to support Trump and other Republicans supportive of right-wing nuts in India — just means the Democrats are less likely to oppose the Republican-oriented lobbying group pushing for this change. Hopefully, it will still flop despite the protests of the Indian hoteliers.

  7. Gary—there are all kinds of bad things in that bill, but I think you are reading this incorrectly. It looks like it is seeking to ban the practice of selling points at checkout at a specific property if you don’t have enough points in your account. The points would need to be redeemed for a SPECIFIC stay at a SPECIFIC hotel. That would be much easier to implement (though anti-consumer) and wouldn’t be the end of the world. Of greater concern to me would be the limitations on a franchiser being able to force a franchisee to renovate or be kicked out of the brand. That is huge!

  8. With all the things wrong in the world and the state of New Jersey this is what they are hard at work on?? WTF

  9. Democrat law makers enjoy taking away the pleasures of the common man. Wealthy don’t buy points This is aimed at regular folks.
    Much like banning menthol cigarettes and flavored tobacco. These are all enjoyed by lower to middle income folks.

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