Are cashback, coupon codes, and rewards legally considered promotional schemes?

In the competitive world of e-commerce, platforms often use cashback offers, coupon codes, and rewards programs as promotional schemes to attract and retain customers. These offers are designed to incentivize purchases, encourage brand loyalty, and provide discounts or rewards on future purchases. However, are these promotional offers legally defined as promotional schemes under Indian law? How do the Consumer Protection Act, 2019, and other regulations ensure that such schemes are fair, transparent, and not misleading?

This article explores the legal classification of these promotional offers and the rules that govern them in India.

Legal Classification of Cashback, Coupon Codes, and Rewards Programs:

Consumer Protection Act, 2019:

• Under the Consumer Protection Act, 2019, cashback offers, coupon codes, and rewards programs fall under the definition of promotional schemes. They are considered advertisements that aim to influence consumer behavior by offering discounts, benefits, or incentives.
• Section 2(47) of the Consumer Protection Act, 2019 defines unfair trade practices, which include misleading advertising, false claims, or any promotional activity that deceives or misguides consumers. If a platform offers cashback or discounts but fails to deliver on the promised terms (e.g., hidden charges, undisclosed conditions, or complex redemption processes), it may be held liable for unfair trade practices under this section.

E-Commerce Rules, 2020:

• The Consumer Protection (E-Commerce) Rules, 2020 lay down specific guidelines for online platforms, including how they should handle promotional schemes. These rules require platforms to:
• Provide clear terms and conditions for promotional schemes like cashbacks, discounts, and rewards programs.
• Ensure that all claims made in the promotion are accurate and not misleading.
• Disclose any restrictions or limitations in using the promotional offers, like minimum purchase value, expiry dates, or applicable categories.
• These regulations are specifically designed to prevent misleading promotions and protect consumers from deceptive practices. If a platform fails to adhere to these rules, it can face penalties or legal action.

Advertising Standards Council of India (ASCI) Guidelines:

• The Advertising Standards Council of India (ASCI) provides a framework for ensuring ethical advertising practices. This includes the regulation of promotions, cashbacks, and reward programs.
• According to ASCI guidelines, any promotional offer must:
• Be clear, honest, and not misleading.
• Not include false claims about product quality or the terms of the promotion (such as fake cashback offers or overstated discounts).
• Ensure transparency by providing complete details about eligibility criteria, redemption process, and any conditions.

Discount and Cashback Offers in the Context of Unfair Trade Practices:

• According to Section 2(47) of the Consumer Protection Act, promotions like cashbacks or discounts can be considered unfair trade practices if the terms are not clearly stated or are misleading. For example, if a platform advertises a 50% discount but the actual discount is applied to a higher price or with hidden conditions, such practices could be challenged under unfair trade practices.
• Similarly, if cashback offers or reward programs are not properly communicated to consumers, or the redemption process is unnecessarily complicated, consumers may be misled, and the platform could be subject to penalties.

The Indian Contract Act, 1872:

• The Indian Contract Act, 1872 governs the contracts formed between the platform and consumers. When a cashback, coupon code, or reward program is offered, it can be viewed as part of the contractual agreement between the platform and the consumer.
• If the platform does not honor the promised cashback or fails to fulfill the reward, it could be seen as breaching the contract. Consumers can seek remedies for non-performance or misrepresentation under the Act.

Consumer Rights and Protection in Promotional Schemes:

Right to Clear Information:

• Consumers must be provided with clear information about the terms and conditions of promotional offers. For example, if a coupon code is being offered, the consumer must know:
• The validity period.
• Whether the coupon is applicable to specific categories of products.
• Whether there are any minimum purchase requirements.
• If these details are not clearly communicated, the consumer can challenge the platform's promotional scheme under the Consumer Protection Act for misleading information.

Right to Fair and Transparent Offers:

• Cashback offers and reward programs must not be deceptive or fraudulent. If an e-commerce platform promises cashback or discounts but imposes hidden conditions or complicates the redemption process, consumers may have the right to seek redress.
• Example: A platform offers a 50% cashback on a product but later refuses to honor the offer due to hidden terms. Consumers in such cases can file complaints with the Consumer Protection Authority.

Consumer Redressal:

• Under the Consumer Protection Act, 2019, consumers can approach Consumer Forums or the National Consumer Disputes Redressal Commission (NCDRC) if they feel they have been deceived by a promotional offer that was not honored or misrepresented.
• Platforms must also have a grievance redressal mechanism to resolve disputes related to promotional schemes.

Legal Precedents and Cases:

• Case: Hindustan Unilever Ltd v. Consumer Education and Research Centre (1995):
• In this case, the Supreme Court ruled that any misleading promotional scheme, even if it is a cashback or discount offer, could fall under the consumer protection laws if the terms are misrepresented or deceptive. The court emphasized the need for transparency in advertising and promotional activities.
• Case: Competition Commission of India v. Google India (2018):
• In this case, Google was found guilty of promoting misleading advertisements and unfair practices in promotions. The Competition Commission of India (CCI) took action to ensure that promotional schemes and discounts did not unfairly influence market competition or deceive consumers.

Example Case:

• An online fashion store offers a 30% cashback on purchases above ₹2,000, but when the consumer completes the purchase, they find that the cashback is only applicable to certain categories and not the items they purchased. The terms of the offer were not clearly disclosed.

Steps Taken by the Consumer:

• Complaint Filed: The consumer files a complaint with the Consumer Protection Authority stating that the cashback offer was misleading and the terms were not properly communicated.
• Investigation: The platform is found to have failed to disclose the limited categories of products eligible for cashback.
• Outcome: The platform is required to honor the cashback offer or provide an equivalent refund, and it faces penalties for misleading advertising.

Conclusion:

• In India, cashback offers, coupon codes, and rewards programs are legally considered promotional schemes under the Consumer Protection Act, 2019 and are subject to specific regulations that ensure they are transparent, fair, and non-deceptive. E-commerce platforms must provide clear terms and conditions for such schemes, and any violation of these regulations could result in consumer complaints, legal action, and regulatory penalties.