ORLANDO—New class-action lawsuits against Wyndham Hotels & Resorts and Choice International call hotel loyalty program sign-up methods and franchisee royalty fees into question.
In two complaints filed in U.S. District Court in Orlando during December, franchisees of the two chains contend they are paying royalty fees on guests who do not realize they are rewards program members. Jade Hospitality LLC, Amar Shakti Enterprises LLC, and their partners contend the two chains automatically enroll guests in their rewards programs—Wyndham Rewards and Choice Privileges—when they book guestrooms online, unless guests choose to opt out.
Then, when guests stay at the franchisees’ properties, they are awarded loyalty points through a system of “proactive matching.” According to the complaints, proactive matching automatically identifies guests who are rewards member by matching their names, addresses and/or telephone numbers. The guests are not awarded points based on presenting loyalty cards or identifying themselves as rewards members.
As a result, the franchisees allege they are paying royalty fees of up to 5% of gross room sales generated by the guests who may not realize they are rewards members or do not choose to take part in loyalty programs. Based on the millions of members in Wyndham's and Choice’s loyalty programs, the franchisees are seeking US$260 million in damages from Wyndham and US$225 million from Choice.
“This proactive matching fee is not authorized. It is believed to be an additional extraction that hurts the franchisee,” said David Wood, shareholder in the law firm Ruden McClosky, Orlando, which is representing Jade Hospitality, Amar Shakti, and the two companies’ partners.
“These unwarranted charges are being imposed upon already struggling franchisees and are unreasonable and are exacerbated during difficult economic times,” according to a statement in the complaint filed against Choice Hotels.
While loyalty programs are set up to reward loyal members and encourage multiple stays, that is not happening with all guests of Choice and Wyndham hotels, Wood contends. “There are guests who choose to stay at a particular hotel to get points, and others are just passing through town. They don’t know they are getting points and no one tells them, so the points expire,” Wood said.
The only previous U.S. complaint similar to the Choice and Wyndham suits was a class-action lawsuit filed against franchisees of Super 8 before it was a part of Wyndham. The case, filed in U.S. District Court in South Dakota, was recently settled out of court.
Wyndham and Choice executives chose not to comment on the complaints.
Industry loyalty practices
Most hotel chains with loyalty programs do not have “proactive matching” systems, according to Wood. Instead, guests opt in to be part of the rewards programs and may present their rewards cards upon check-in. “It is our understanding that the Choice and Wyndham loyalty programs are the only ones engaged in what we call ‘proactive matching.’ Marriott, Hilton, and others do not do that,” Wood said.
For example, Marriott International’s Marriott Rewards program is an opt-in only program, according to Ed French, senior VP, Marriott Rewards. “Members must register themselves. They are not automatically entered,” French said.
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Kelly Hlavinka |
Additionally, Marriott Rewards members can set up online profiles so they will be automatically recognized when they make a reservation or check into a hotel, French said. “If they do not do this, they must give the reservation agent or front-desk associate their member number when they make a reservation,” French said.
InterContinental Hotel Group’s Priority Club members are recognized when they check into one of IHG’s properties when they provide their Priority Club member number, said Don Berg, VP, loyalty programs, IHG. “To earn Priority Club points for hotel stays, guests must provide their Priority Club number at the time of booking or at the front desk during check-in.”
Additionally, IHG guests are not automatically enrolled in the Priority Club Rewards program when they make a reservation, according to Berg.
If Choice and Wyndham are enrolling guests automatically in their program with an opt-out clause, that would be unlike most other loyalty programs, said Kelly Hlavinka, managing partner at loyalty marketing education and research firm Colloquy.
“In almost every other industry, the practice is open enrollment. And, to my knowledge, this hasn’t been seen in the hospitality industry,” Hlavinka said. In addition, it would not make sense for guests to be unaware that they were enrolled in a rewards program, Hlavinka added.
“There is a lot of expense in having customers enrolled in a program. In the case of hotels, it is to drive incremental stays. If you have a bunch of people that are unaware that they are in a program, it flies in the face of what these programs are supposed to be doing,” Hlavinka said.
Lawyers for Choice and Wyndham recently asked the U.S. District Court in Orlando for additional time to respond to the franchisees’ complaints.