Review of the MCCA Direct Marketing Model Code of Practice - Report

Executive summary

In November 1997, the Ministerial Council on Consumer Affairs (MCCA) released the Direct Marketing Model Code (Model Code) to deal with problems associated with direct marketing. The Model Code represents a statement of appropriate business practice for direct marketers. Compliance with the Code is voluntary.

This paper provides a Review of the Model Code by a Working Party consisting of Australian Government and State Government officers¹. The Working Party has sought to answer a number of questions including the extent to which the Model Code has met its objectives, whether these objectives remain current and what measures could improve the Model Code. Additionally the Review also addresses the extent to which the Model Code has been adopted by industry.

The paper notes that since its introduction there have been significant developments, both in relation to regulation and technology, that have had significant implications for the direct marketing industry and the Model Code. These include:

• The introduction of the Privacy Amendment (Private Sector) Act 2000 (Privacy Act) which has provided a nationally consistent regulatory framework for privacy;
• Changes to the Corporations Regulations 2001 affecting telemarketing hours for the hawking of certain financial products;
• The development of the Australian E-Commerce Best Practice Model (the BPM) which provides voluntary guidance to industry and consumers on the elements of an effective self-regulatory framework in electronic commerce (e-commerce);
• Technological developments, including the more widespread use of commercial e-mail, cookies², Short Messaging Service (SMS)³ and the emergence of 3G⁴ and interactive television;
• The major industry group, known as the Australian Direct Marketing Association (ADMA), developing its own code (the ‘ADMA Code’) based on the provisions in the Model Code; and
• Various international regulatory developments in the area of direct marketing.

The objectives of the Model Code are to enhance the potential for consumers to benefit from distance selling⁵, to improve the market for reputable business and to prevent unreasonably intrusive forms of direct marketing.

Supporting a view that the Model Code had achieved its objectives was evidence of strong revenue growth of the direct marketing industry since the introduction of the Model Code. ADMA data suggests that direct marketing revenue has grown by two and a half times over this period. While various factors could contribute to this, a possible conclusion would be that the Model Code had played some part by improving consumer confidence to the benefit of distance selling and reputable businesses.

The development and enforcement by ADMA of its own code (that is, the ‘ADMA Code’) may also have boosted consumer confidence in direct marketing. ADMA indicates that its Code (based on the Model Code) has discouraged some less reputable direct marketing practices, led to high levels of code compliant advertising among ADMA members and with the development of the ‘Code Authority’, provided an independent recourse for consumers to challenge any unreasonably intrusive forms of direct marketing. Indeed ADMA maintains that the Model Code has had ‘the greatest possible positive impact on direct marketing practices’.

Other reports suggest the Model Code has not increased consumer confidence in distance selling, as the level of consumer dissatisfaction with aspects of direct marketing remains high and intrusive forms of direct marketing remain. Data obtained during the review showed high consumer dissatisfaction with:

• businesses contacting consumers and/or the sending of marketing material without permission, including by means of new technology;
• businesses having access to personal information including names and addresses of consumers they have never dealt with; and
• organisations not advising consumers how they had obtained personal information.

While of concern, the Working Party noted that this data was not necessarily indicative of low confidence levels among consumers. Indeed, it should be recognised that complaints ‘handled well’ through effective redress mechanisms may provide a strong basis for improving consumer confidence. However, that dissatisfaction exists (in some areas) tends to support the case for further changes to improve the existing regulation of the direct marketing industry. The need for change was supported in all submissions although there were differences of view on what changes should be made.

Ultimately, evidence provided during the Review did not provide sufficient support to form a clear view on whether the Model Code had achieved its objectives. The issue of data collection and analysis is one identified by the Working Party as requiring further action by MCCA jurisdictions.

In examining measures to improve regulation of the industry, the Working Party examined various broad approaches for reform (see Attachment A), before determining that the Model Code should be maintained with amendments to tackle key areas of consumer dissatisfaction.

The Working Party considered that it was important that such amendments did not impact adversely on the activities of reputable direct marketing businesses nor be inconsistent with the existing regulative framework affecting direct marketing. The Working Party agreed however that self-regulatory approaches such as the Model Code may justifiably go beyond minimum legal requirements in order to set best practice benchmarks for industry members.

Set out below are the recommended amendments to the Model Code.

Recommended amendments to the Model Code 1. The National Privacy Principles (NPPs) be included in the Model Code. 2. A reference to the Privacy Commissioner’s Guidelines for the NPPs be included in the Model Code. 3. A ‘qualified opt-in’ approach to unsolicited commercial e-mail be included in the Model Code. 4. Increased identification information requirements for direct marketers. 5. Additional restrictions be placed on telemarketing hours of contact. 6. Direct marketers to inform third party marketers of the provisions of the Model Code. 7. Direct marketers to delete consumers from their marketing lists within 30 days of a request being made. 8. A reference to ‘Unconscionable Conduct’ as included in the Trade Practices Act 1974 (TPA) be included in the Model Code. 9. Extend internal complaint handling procedures to apply to all organisations that receive consumer complaints in relation to breaches of the Model Code. 10. Require a code administration body to develop a strategy to ensure the active promotion of its code. 11. MCCA to actively promote the Model Code. 12. Relevant parts of the Australian E-Commerce Best Practice Model (BPM) be included in the Model Code. 13. A ‘Forward’ explaining the purpose of the Model Code and Government support for industry self-regulation be included to the Model Code. 14. A permanent Direct Marketing Working Group be established in the upcoming two years to review and update the Model Code at the end of this time.

¹ The Working Party consists of representatives from the Australian Government Department of Treasury (Chair), the Australian Competition and Consumer Commission, the NSW Department of Fair Trading and the Victorian Department of Consumer Affairs.

² A cookie is a mechanism that allows a website to record information about its visitors and their movements, which can be used without the consent or knowledge of the consumer.

³ SMS refers to the ability to send and receive messages to and from a person’s mobile telephone.

⁴ 3G refers to the third generation of wireless communication technology and is a radio communications technology that will create a ‘bit pipe’ for providing mobile access to Internet-based services.

⁵ A ‘distance seller’ is an individual or organisation intending to sell goods through direct marketing. A distance seller may engage in direct marketing itself or employ a direct marketer to do so.

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