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 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, 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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  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.

  10. The author seems ignorant of definition of loyalty .

    This bill actually helps loyal guest by preserving the value of loyalty points .

    The bill does not ban point sell . Bill just protects NJ hotel onwers from abuse by chains of selling point and only giving the hotels 20cents on dollar .

    Point sell is not banned only the value of the point sell should go to hotel .

    this bill will help hotel consumers and loyal members .

    Ever thought the Loyalty redemption gets worst room ? Why ? Since they only pay $20 per stay to the hotel.

    Selling points is also cheating state of sales tax revenue .

  11. AMAZING! This Needs to be Passed! Franchise Companies making money on back of Hotel Owners!

  12. This article is so fake like Donald Trump! Did Brand paid this guy to publish fake article and misleading statements?

    This propose NJ bill say that Franchisors can’t sell loyalty points for profit.

    I just want to remind public that Hotel (franchisee) pay to the brands 5% off total average daily rate so the guest can earn the points. Franchisee do not have any issues that guest earns the point.

    The problem is when guest redeem those points franchisee get pay on $15 to $20. 80% off the points brands put it their pockets and sell those to company like American Express and etc to make money.

  13. This whole points or rewards system is a bad idea for both guests and hotel owners, only the hotel brands are optimizing out of this. They are great value for their shareholders. This should be banned by the government as they are not benefiting from it and actually losing the tax revenue when the room is paid with points. The franchise brands are double dipping the owners with royalties and are avoiding taxes to be paid for local and state governments.

  14. Brands will defend their practices using every avenue so their profitability stays intact and will keep finding new ways of making more money for the share holders as that’s how the CEO and senior staff gets their bonuses.

    Owners need support in their fight to protect their bottom line and their investments. Owners are abiding with all rules they signed up for – these are the stuff the brands started doing and owners do have the rite to defend using small business friendly legislation.

    Loyalty Points will work and keep bringing value till it’s not sold for money. Selling of points only devalues itself.

    Stay away from misinformation provided by the writer of the article.

  15. Franchise chains drop each hotel if you can. Hotel owners work hard and chains sell points and make
    Millions of dollars and give nothing to the hotels. Chain gives $30.00. Today housekeepers need minimum $17.00/hour and they spend at least 1 hour to clean that room. What about the amenities, utilities and laundry? From these $30.00 the franchise chains takes back $6.00 as Royalty. Now 17+6= $ 23. Now please count what is left for the hotel. It’s better for a hotel to leave that room empty instead of selling with points reimbursement.

  16. How many of you writing as if hotelier or their supporters are wrong do actually own and operate a hotel?
    Over the years, an average hard working hotel owner operator is being squeezed by everyone. Franchisor, Lender, Local, Federal State Govt thru labor wage increases and so on
    All of them come to the operator adding to his cost but no one comes to him/her to fill his/her rooms
    After extensive renovation as mandated by a franchisor, there is no guarantee on reservation
    After having 1000s of hotels under each franchise umbrella, many of them fail to secure online reservation outside of OTA causing double dip in reservation fees/costs
    Labor and wages keep going high which is support as a need. But no politician adds in those laws that employee should do proportionally more work.
    So please buy a small hotel/motel and than share your opinion with some real sweat and mental agony behind it caused by squeeze from every side.
    If brands are so strong or revenue generators than why don’t they own the real estate and run the hotels themselves?

  17. Selling points are cheating every state on sales tax.

    This article is from a company that does paid articles. It does not so research. I no.longer look up to this source. You just lost a customer.

  18. This article is poorly written and clearly is misleading people to believe the bill is attempting to ban the sale of points by loyalty programs. It’s unclear what the intentions of the writer are here but they are attempting to paint a picture that favors hotel franchisors.
    The very first statement clearly shows this is an opinion piece and not an article of facts. “Hotel chains have been bending over backwards not to offend property owners, at the expense of their brand and customers” is commonly known to be a false statement by those who travel often.
    At it’s basis this bill seems to want the hotel chains to pay their franchisees what they pocket from selling points upto the fair amount or equal of the revenue they lose out on.

  19. The whole reward system is a scam where guest or hotelier get bare minimum at hotelier’s cost. This should be in the agenda’s of every state, not just New Jersey. Selling points should be banned everywhere. The sad part is that when points expire, who keep that money? Hoteliers get nothing refunded when franchise expires those points. That is another major issue which this article does not want to talk about. There are billions of unused expired points which franchise pocketed without giving back any portion to the guest or hoteliers.

  20. “The whole reward system is a scam where guest or hotelier get bare minimum at hotelier’s cost. ”

    You really don’t understand how this works.

    – you get the GUESTS who pay, thanks to the program
    – you could be compensated more for award nights, but that would mean you have to pay more for each paying guest

  21. @Gary. Since this thread appears to have been bumped, I’m genuinely curious if others agree with your view on this potential legislation since I really believe your reading of it is incorrect (see my comment a month ago). To me, it looks like it would only apply to a narrow situation where, for example, you have 60,000 points in your account and the hotel cost is 80,000, and at checkout the web site asks if you want to buy 20,000 more points to make the reservation. I think your interpretation ignores the phrase “specific stay at a specific franchisee’s facility”. Just generically buying points to be used at any franchisee’s facility at any stay in the future (the way you are reading it) doesn’t appear consistent with the proposed language.

  22. Gary says u don’t understand how this works. Friend, I am hotelier since 1997 and owned almost every chain since. Explain me $20 or $30 reward for one night stay benefits hotelier when his average rate is $150? It would not even cover operation payroll. It look like you are parrot of this brand. Explain also who get money for all billion unused or expired rewards?

  23. Hotels are rental properties, renting rooms is their business not selling points. Cheapest thing you can do is get points and sell them for profit and when used by individuals like you, Hotels don’t get paid but $30 – $40. I doubt if Gary has ever managed or owned any hotel, if so he would understand and respect the hoteliers but I guess he might be getting hefty amounts of points from the franchises.

  24. This article is a joke paid by the franchises in the form of advertisements. He has to cower to them since it pays for his livelihood. Same like AHLA and every other hospitality publication. They are sponsored by the brands, and completely biased. the hotel owners do not care about you buying loyalty points. Its the compensation the hotel is given in return for the free room night. Most hotels take a lost at 40 dollars compensation these days. Not only that, they charge royalties, and other fees on that 40. Its one sided. He acts as if the avendra thing was solved. Has no idea how bad franchises like choice, wyndham and ihg are behaving. Choice makes over 60 million dollars annually in sponsorships and preferred vendors while forcing hotels to use more expensive and crappy mandatory brand standards. these costs get passed on to consumers and the continued decline in quality is obvious. Gary should get more perspectives or just stick to worrying about his points status and not a multibillion dollar business he clearly doesn’t comprehend.

  25. Let’s clarify something. The redemption that a hotel receives from a guest who books on points is only akin to the average rate that day – if the hotel reaches high occupancy (96% with some brands). Less than that and they get back less, even down to the point where the brand is paying them $15 for the room, which isn’t even enough to cover the cost of operation. Hotels LOSE money on the redemptions far more often than they make anything. And when I say lose, I’m not talking about lose the opportunity to make more money – I’m saying the hotel would be better off in many cases to have the room sit empty, because their true loss would not be as great.

  26. The fight isn’t against consumers using their points. The issue is the brand selling points for a direct profit for themselves the corporation while creating a direct loss to the franchisees. Certain brands require 98% occupancy to reach the higher reimbursement. So if the hotel has one out of order room, their compensation from brand is 20 bucks. At this point it’s a loss. There used to be balance in the franchise model. Now corporate greed is creating issues in every part of the model. Owners are fighting back on several points. Some are extreme but it’s the only way in a one sided system to get to a compromise. The brands are not scared of using threats and lawyers to silence dissent from the owners. Look at all the lawsuits going on with choice, Ihg, and others

  27. This is a huge profit generator for the brands. See their balance sheet. No one cares if the consumer buys points. The hotel owners wants to be fairly compensated from the corporate overlords. Not lose money one 5-10% of room nights sold. Stop wall street greed before it ruins all hotels.

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