State of the Industry Why Loyalty Rewards Transparency and Taxation Should Go Hand in Hand

Earlier this year, two Citibank customers sued the financial institution on the grounds that it used unfair and deceptive trade practices by not fully disclosing that frequent flyer rewards offered as a incentive for opening a checking account could be taxed. The promotion, which amounted to as much as 40,000 miles, ended up costing the pair an estimated $350. Citi said that its rewards program clearly states that the bank may send a miscellaneous income tax form to participants for the acquisition of points. So while Citi may be playing by the rules, I can’t imagine these two disgruntled customers will be banking there anytime soon. If this isn’t a wake up call for loyalty providers, then you’re not paying attention.    

Loyalty rewards transparency is especially critical when it comes to taxation. Consumers don’t like paying taxes at all, let alone for something they perceive as a gift—and doubly so when it comes as a surprise.  In fact, according to a recent poll commissioned by, even if just a portion of rewards were taxable, over half of loyalty card owners (52%) say they would give up their cards altogether. I bet you’re listening now.



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