Review of the MCCA Direct Marketing Model Code of Practice Discussion Paper

6 Issues for Discussion

Listed below are some ideas for discussion in the review of the Model Code. The issues listed here are for illustration purposes only and do not purport to cover all issues in relation to direct marketing that may be relevant. Submissions are invited broadly on any issues of relevance and may address other issues not listed here.

6.1 No Code

Withdrawal of the Model Code would mean that the only explicit obligations on the direct marketing industry would be the obligations contained in the current legislative regime, such as the Trade Practices Act, the Fair Trading Acts and the Privacy Act. In addition, the ADMA Code would continue to apply, but its provisions would not be linked to the Model Code.

Withdrawal of the Model Code may be appropriate for those sectors which are already regulated, such as banking and insurance. However, there will be some aspects of direct marketing which are not covered by those codes simply because they were not in contemplation at the time those codes were drafted.

It may be thought that direct marketing is not an industry but is merely a technique used by various businesses across various industries for communicating with customers. In many cases, direct marketing is not part of the core activities of the business. It may, therefore, be unnecessary for there to be a direct marketing code, as those industries which use direct marketing techniques should be responsible for incorporating rules about direct marketing into their own regulatory regime.

Withdrawal of the Model Code may impose costs on business in developing a code of practice without guidance from the Model Code, for example, costs for research or consultation. While it would be difficult to quantify or measure, businesses may also suffer because of a lack of consumer confidence in direct marketing if there is no code of practice.

However, withdrawal of the Model Code may benefit business through greater flexibility. This will be the case whether business proceeds with no code, or utilises the greater flexibility in independently drafting a code of practice. This may also help to eliminate any inconsistencies between a direct marketing code and any other applicable codes.

Costs to consumers may arise if the code developed by industry does not provide appropriate protection. Consumers may experience a lack of confidence in direct marketing if there is no code or a code developed by industry without appropriate consumer input.

6.2 Retain Model Code with minor amendments

6.2.1 Code enhancement in relation to privacy

The business environment in relation to privacy has changed significantly since the Model Code was drafted. As mentioned above, amendments have been made to the Privacy Act which extend privacy protection to the private sector.

Technology for storing and retrieving personal information has also improved since the Model Code was drafted. It may be appropriate therefore to consider the issue of collection and use of information from publicly available databases, such as electoral rolls and municipal building approval records.

However, it should be noted that Australia regulates privacy issues separately from consumer protection issues. There is separate legislation and different enforcement agencies with specialised experience. Consequently, it may be desirable not to include privacy provisions within the Model Code, because the Privacy Commissioner is responsible for approving privacy codes for industry. It may, however, be appropriate to make reference in the Model Code to the need for a privacy statement.

While businesses will in any event be required to comply with the privacy legislation, they may benefit from the extra guidance provided by the inclusion of additional provisions in the Model Code, as it may simplify development of an industry code. However, as privacy is already dealt with to some extent in the ADMA Code, there may be costs to business if any enhancements to the Model Code differ from the provisions currently in the ADMA Code, as this will necessitate changes to the practices and procedures for business.

Consumers may benefit from the inclusion of privacy provisions in the Model Code through increased awareness of their rights. However, it will be necessary to ensure that any privacy provisions introduced to the Model Code adequately protect consumers.

Note that approval must be given by the Privacy Commissioner if it is desired that the privacy provisions in the Model Code or the ADMA Code are to take effect as a privacy code under the Privacy Act.

6.2.2 Code enhancement in relation to electronic commerce

Substantial technological advancements have occurred since the Model Code was drafted. With regard to electronic commerce, there is no doubt that future technologies will significantly impact on the practice of direct marketing. In particular, the relative ease and low cost of sending bulk e-mail may dramatically alter direct marketing practices.

Since the Model Code was drafted, the Best Practice Model for Electronic Commerce has been introduced. The Best Practice Model provides that businesses should not send commercial e-mail except to people with whom they have an existing relationship or to people who have already said they want to receive commercial e-mail.

It will be important to address electronic commerce issues in reviewing the Model Code. However, comment is invited on whether these aspects should be incorporated into the Model Code, or whether they are better left in the Best Practice Model.

Since, as mentioned above, technological developments will impact on direct marketing, business may benefit from the extra guidance provided by the inclusion of electronic commerce provisions in the Model Code, as it may simplify development of an industry code. However, as electronic commerce is already dealt with in the ADMA Code, there may be costs to business if any enhancements to the Model Code differ from the provisions currently in the ADMA Code, as this will necessitate changes to the practices and procedures for business.

It will also be important to ensure that the inclusion of electronic commerce provisions does not stifle innovation amongst businesses in the development of policies and procedures in these areas.

If it is decided to introduce electronic commerce provisions to the Model Code, it will be important to ensure that the amended Model Code adequately sets out the respective rights and obligations of business and consumers.

6.2.3 Other minor amendment in response to changing consumer needs

Stakeholders may like to consider whether the Model Code adequately protects the interests of consumers. Issues for discussion might include, for example, the length of the cooling-off period (cl.31) or the permissible hours of calling (cl.56).

If the Model Code is amended, it will be important to ensure that, while greater emphasis is placed on consumer wants and needs, a fair balance is also maintained with the legitimate commercial interests of business. This will ensure that the Model Code retains the support of business. An unsupported Model Code raises significant problems in relation to compliance. Good levels of compliance are essential in making the Model Code effective. Also, it will be important to ensure that an amended Model Code does not stifle innovation amongst business in the development of consumer protection policies.

There may be benefits to business if the increased consumer protection provisions in the Model Code encourage consumer confidence in direct marketing. Also, governments may benefit if the improved consumer protection provisions of the Model Code result in reduced access to other government services.

6.3 Sectoral sub-codes

As noted earlier, direct marketing encompasses a wide range of marketing techniques which are used to sell a wide range of goods and services. For this reason, a series of sectoral sub-codes, either on a product basis (for example, banking sub-code, books and magazines sub-code, fundraising and charities sub-code) or on a technique basis (for example, direct mail sub-code, telemarketing sub-code, market research sub-code) may be better than a single code encompassing the entire direct marketing industry.

Sectoral sub-codes will benefit business by allowing the sub-codes to be better tailored to meet specific circumstances in each sector. This may reduce compliance costs since businesses will only be required to comply with those provisions, which affect their particular business. Improved compliance may also provide benefits to business through increased consumer confidence.

However, business may incur extra costs if the business operates across a number of sectors and is required to comply with several different sub-codes. Costs will be incurred in adopting different work practices in different sectors, as well as incurring costs through a reduction in flexibility to deal with issues that may arise across different sectors.

Reduced compliance costs for business should improve compliance, thus benefiting consumers. However, where there are differences in the content of sectoral sub-codes, costs to consumers may be incurred if consumers are faced with different conditions in the various sectors.

On the other hand, sectoral sub-codes may infuse the various sectors with greater `ownership' of their code and thus improves compliance. Improved compliance by business may reduce reliance on other government services, such as the court system.

6.4 Mandatory code

A mandatory code is a code of practice the provisions of which are enforceable by government through the application of sanctions to offending individuals or companies. A mandatory code would be underpinned by legislation in the Trade Practices Act and State Fair Trading Acts.

It would be expected that some would argue that a mandatory code will require an increase in monitoring and enforcement costs for governments. However, this could be mitigated by a greater reduction in complaints and less demand on government dispute resolution services.

If a mandatory code is significantly more onerous than a voluntary code, then compliance costs for business could be greater. Both mandatory and voluntary codes may stifle innovation if their provisions are too prescriptive and do not keep up with an evolving marketplace. Any increased costs borne by business would be likely to be passed on to consumers as higher prices.

An effective voluntary code depends upon an industry code authority being well resourced and having effective, efficient and impartial dispute resolution, compliance, reporting and review functions. With a mandatory code, the administrative costs are usually shared between industry and government and the costs for industry associated with code compliance are borne by all participants in an industry sector, instead of just voluntary code subscribers.

Others could argue that while a mandatory code may involve increased costs for stakeholders, there may be an increase in consumer confidence flowing from the stricter controls on business processes in relation to direct marketing. Where there is a need for regulatory intervention, it is important to determine an appropriate balance between fair trading and consumer protection measures and the economic interests of business as well as whether there is a need for wider compliance.

6.5 Status quo

Finally, comment is sought from interested parties on the option of maintaining the status quo. This would involve no change to the current system. That is, the Model Code, and subsequently the ADMA Code also, remains unchanged.

Discussion Points Submissions are invited on any issue in relation to the review of the Model Code. Sample issues that may be appropriate for consideration include, but are not limited to: 19. What areas of the Model Code are, or are likely to be, of most benefit to you? What areas of the Model Code are, or are likely to be, of least benefit to you? 20. What areas of the Model Code are, or are likely to be, of most cost to you? What areas of the Model Code are, or are likely to be, of least cost to you? 21. Should any requirements in the Model Code be mandatory? If so, which ones? 22. Is the Model Code consistent with the National Privacy Principles? Are any amendments to the Model Code required to ensure that private information of individuals is protected in line with the National Privacy Principles? 23. Is the Model Code consistent with the E-commerce Best Practice Model? Are any amendments to the Model Code required to deal with the particular characteristics of electronic commerce? 24. How does a code, which does not provide complete coverage of the direct marketing industry, affect the position for consumers? 25. Should the Model Code address the issue of collection and use of information from publicly available sources, for example, electoral rolls and municipal building approval records? 26. Should the Model Code cover direct marketing material circulated with non-direct marketing material (for example, enclosing advertising with the electricity bill)? 27. Should the current limits on the hours during which direct marketers are permitted to contact consumers remain in the Model Code? If so, should those hours be altered? 28. Should the Model Code require that direct marketers be required to obtain a consumer's consent before sending direct marketing material to that consumer? If so, should consent be express, or should constructive consent be permitted? Should direct marketers be required to update their do-not-call and do-not-mail lists within a specified time limit after receiving a request from a consumer?

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