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

7 Appendix A - International experience

It is important to note that some direct marketers operate internationally, as well as in Australia. Therefore, it is important that the regulatory approach taken in Australia conforms, as far as possible, with regulatory standards applying in other countries where these companies also operate.

Set out below is a brief summary of work undertaken in selected other jurisdictions on direct marketing.

7.1 OECD Guidelines On Consumer Protection In The Context Of Electronic Commerce

The OECD Guidelines were promulgated on 9 December 1999. They are designed to help ensure that consumers are no less protected when shopping online than when they buy from their local store or order from a catalogue. By setting out the core characteristics of effective consumer protection for online business to consumer transactions, the OECD Guidelines are intended to help eliminate some of the uncertainty that both consumers and businesses encounter when buying and selling online.

The OECD Guidelines are not mandatory, but were developed to facilitate regulation by member nations. Within Australia, the OECD Guidelines have been substantially implemented through the E-commerce Best Practice Model.

7.2 United States

In addition to enforcing US fair trading legislation, the Federal Trade Commission (FTC) has taken various steps to regulate direct marketing. The FTC has promulgated the Mail or Telephone Order Merchandise Rule and the Telemarketing Sales Rule. These Rules take the form of subordinate legislation. Further information can be obtained from the FTC at www.ftc.gov.

7.2.1 Mail or Telephone Order Merchandise Rule

7.2.1.1 Scope

The Mail or Telephone Order Merchandise Rule applies to sales in which the buyer has ordered merchandise from the seller by mail or telephone, regardless of the method of payment or the method used to solicit the order. Telephone order merchandise includes both direct and indirect use of the telephone, including fax machines and computers.

However, the provisions of the Rule do not apply to subscriptions ordered for serial delivery after the initial shipment has been made (for example, magazine subscriptions) or orders made on a collect-on-delivery basis. Also, where the merchandise is shipped together with an invoice which is payable on receipt, this is not covered by the Rule.

Importantly, the Rule only applies to merchandise and does not apply to services.

Penalties for breaking the Rule include fines of up to US$10,000 per violation, in addition to any damages payable to consumers.

7.2.1.2 Delivery and delays

The Rule imposes obligations in relation to delivery of merchandise within specified time limits. When a seller advertises mail or telephone order merchandise, the seller must have a reasonable basis for stating it can deliver within the time specified by the seller. If the seller does not specify a time in the advertisement, the seller must have a reasonable basis for believing it can ship within 30 days.

If the seller cannot deliver within the applicable time (whether specifically stated or 30 days) the seller must seek the buyer's consent to the delay. If the buyer does not consent, the buyer is entitled to a refund.

When notifying the buyer of a delay, the seller must provide the buyer with a revised delivery date (or, if unknown, a statement that the seller is unable to provide a revised delivery date, together with the reasons for the delay), a statement that the buyer may cancel the order and obtain a full and prompt refund, and a means for the buyer to cancel the order at the seller's expense (for example, reply paid envelope or toll free telephone number).

7.2.1.3 Unordered goods

It is unlawful for the seller to send any merchandise without the express request of the recipient, or try to obtain payment for or the return of unordered merchandise. Consumers who receive unordered merchandise are legally entitled to treat the merchandise as a gift.

7.2.2 Telemarketing Sales Rule

7.2.2.1 Scope

The Telemarketing Sales Rule was adopted by the FTC under the Telemarketing and Consumer Fraud and Abuse Prevention Act. Telemarketing is defined as a plan, program or campaign which is conducted to induce the purchase of goods or services by use of one or more telephones and which involves more than one interstate telephone call. It does not include the solicitation of sales through the mailing of a catalogue where the seller receives telephone calls initiated by customers in response to that catalogue.

The Rule does not apply to banks, common carriers (for example, long distance telephone companies and airlines), non-profit organisations or insurance companies.

The Rule extends beyond sellers and telemarketers in making it a violation of the Rule for anyone to substantially assist a seller or telemarketer if that person knows or consciously avoids knowing that the seller or telemarketer is violating the Rule. This applies, for example, to a third party that provides sellers or telemarketers with mailing lists or assistance in creating sales scripts.

Violations of the Rule are subject to civil penalties of up to US$10,000 per violation, in addition to injunctive relief and damages.

7.2.2.2 Information about the goods or services

The Rule requires a seller or telemarketer to provide certain material information to a consumer before the consumer pays for the goods or services. Material information is information that a consumer needs to make an informed purchasing decision. Information may be provided either orally or in writing, however the information must be clear and conspicuous. The Rule specifies four broad categories of material information:

• cost and quantity;

• material restrictions, limitations or conditions;

• no-refund policy; and

• prize promotions.

7.2.2.3 Information about the seller

In outbound telemarketing calls, the Rule requires the telemarketer to promptly disclose:

• the identity of the seller;

• that the purpose of the call is to sell goods or services;

• the nature of the offered goods or services; and

• in the case of a prize promotion, that no purchase or payment is necessary to participate or win.

`Promptly' is not defined in the Rule, however at a minimum it requires that the information be provided before any sales pitch is given. Where a particular call has multiple purposes (for example, the sale of goods or services along with some other objective, such as market research or determining customer satisfaction) the identification disclosures listed above must be made promptly during the first part of the call, before the non-sales portion of the call takes place. If the seller as no plans to sell goods or services during a call (for example, the call is merely to welcome a new customer), the seller is not required to make the disclosures, even if at some point during the call the customer asks about other goods or services offered by the seller and the seller responds by describing those goods or services.

7.2.2.4 False or misleading statements

The Rule prohibits a seller or telemarketer from expressly or impliedly making any false or misleading statement to induce anyone to pay for goods or services. In addition to the general prohibition, the Rule prohibits seller from misrepresenting certain specific categories of information about a transaction that are likely to affect a consumer's purchasing decision regarding the goods or services offered. The seven categories of information that must not be misrepresented are:

• cost and quantity;

• material restrictions, limitations or conditions;

• performance, efficacy or central characteristics;

• refund, repurchase or cancellation policies;

• material aspects of prize promotions;

• material aspects of investment opportunities; and

• affiliations or endorsements.

7.2.2.5 Abusive practices

The Rule prohibits a seller or telemarketer from engaging in abusive conduct, including threats, intimidation or the use of profane or obscene language.

The Rule imposes calling restrictions on telemarketers. These restrictions prohibit calling consumers repeatedly with the intent to annoy, abuse or harass the consumer, calling any consumer who has previously requested that he or she not be called, and calling any consumer's residence before 8.00am or after 9.00pm local time at the consumer's location.

The Rule requires verifiable authorisation for use of a consumer's bank account information to obtain payment. The requirement for verifiable authorisation can be satisfied by advance written authorisation from the consumer, a tape recording of the consumer giving oral authorisation, or by a written confirmation sent to the consumer prior to the submission of a draft for payment.

7.2.2.6 Records

The Rule requires sellers and telemarketers to keep records relating to their telemarketing activities. The records must be maintained for two years. The following records must be kept:

• advertising and promotional materials;

• information about prize recipients;

• sales records, including the name and last known address of each customer, the goods or services purchased, the date such goods or services were shipped or provided, and the amount paid by the customer for the goods or services;

• employee records; and

• verifiable authorisations for demand drafts.

7.3 United Kingdom

The Consumer Protection (Distance Selling) Regulations 2000 transpose into UK law the European Directive 97/7/EC on the protection of consumers in respect of distance contracts. The Regulations are available at www.hmso.gov.uk/si/si2000/20002334.htm. The Directive is available at http://europa.eu.int/eur-lex/en/lif/dat/1997/en_397L0067.html.

7.3.1.1 Scope

The Regulations apply to contracts for goods and services to be supplied to a consumer where the contract is made exclusively by means of distance communication, that is any means used without the simultaneous physical presence of the consumer and the supplier. The Regulations do not apply to contracts relating to the supply of financial services, and have limited application to contracts for the regular delivery of goods intended for everyday consumption (for example, daily milk deliveries) and contracts for the provision of accommodation, transport, catering or leisure services.

A contract can be made in a number of different ways, including completion by the consumer of a clip-out coupon in a newspaper advertisement, during a telephone conversation or by use of an interactive web site.

The Regulations only apply to contracts concluded in the context of organised distance sales or service provision schemes. It will not apply if a business does not usually sell goods or services by distance, but agrees to do so in response to a one-off request from a consumer over the telephone.

7.3.1.2 Information about the goods or services

The supplier must provide clear and comprehensible information to enable the consumer to decide whether to buy. This information must include:

• the supplier's name and, if payment is required in advance, the supplier's address;

• a description of the goods or services;

• the price, including all taxes;

• delivery costs (if applicable);

• arrangements for payment and for delivery of goods or performance of services (if no date is specified delivery of goods or the start of performance of a service must be within 30 days of the order);

• the right to a cooling off period, and whether return of the goods will be at the expense of the supplier or consumer;

• if the consumer is to use a premium rate telephone number the cost of the call must be specified;

• how long the offer or price remains valid;

• the minimum duration of the contract in the case of a contract to supply goods or services continuously (for example, mobile phone) or recurrently (for example, a monthly book club); and

• if the supplier wants to be able to offer substitute goods or services if those ordered are no longer available, the consumer must be told of this in advance and informed that in this case the cost of returning substitute goods would be borne by the supplier.

If a business cold calls consumers by telephone with a view to concluding a distance contract, the caller must clearly identify the business and the commercial purpose of the call at the beginning of the conversation.

After conclusion of the contract the seller must send to the consumer confirmation in writing of the main items of information (that is, supplier's name, description of goods, price, delivery arrangements, cooling off period). The confirmation must be provided at the latest by the time that the goods are delivered or, in the case of services, before or at an early stage during the performance of the contract.

In addition to the information mentioned above, the confirmation should include details about when and how the consumer can exercise the right to cancel, a physical address for the supplier (not a post office box number) and details of any after-sale service.

7.3.1.3 Cooling off period

The Regulations provide a cooling off period and an unconditional right to cancel during that period. However, the right to cancel does not apply to services that begin before the end of the cooling off period, the supply of goods or services the price of which is dependent on fluctuations in the financial market which cannot be controlled by the supplier, goods made to the consumer's specifications, perishable goods, the supply of audio or video recordings or computer software if they are unsealed by the consumer, the supply of newspapers, periodicals or magazines, and gaming, betting or lotteries.

The cooling off period begins as soon as the order has been made and ends, in the case of services, seven working days after the order was made or, in the case of goods, seven working days after receipt of the goods. If the supplier has not complied with the requirement for written confirmation, the cooling off period can be extended for up to three months.

The Regulations require the consumer to send a notice of cancellation in writing. The effective date of cancellation is that date on which the notice is sent.

When a consumer cancels an order, all money paid must be returned within 30 days. Charging for delivery and recovery in the event of cancellation are commercial decisions for the business and will be a factor in a consumer's choice between competing suppliers.

When a consumer exercises the right to cancel under the cooling off provisions, ownership of the goods will revert to the supplier. The consumer is required to take reasonable care of any goods that have been supplied.

7.3.1.4 Fraud and consumer confidence

With regard to unsolicited goods, the consumer has the right to retain or dispose of unsolicited goods as if they were an unconditional gift. It is an offence to demand payment from consumers in respect of unsolicited goods or services.

Suppliers are not able to contract out of the Regulations by inserting contractual provisions inconsistent with the Regulations.

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