Nectar points debt is a first! Sorry to hear about your situation, I hope you got your points reimbursed!

I'd imagine they can see obvious fraud, given they know all your purchase history and store location visits. If that suddenly differs from the typical geolocation pattern it has got to be a red flag, you could even use this as a measure to challenge redemption outside of the usual location. Of course this could be innocent in some cases, but there many measures available to challenge it.