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

Addressing the Terms of Reference

The objective of the Review is to report to the MCCA on the effectiveness of the Model Code. In order to do this the Working Party has addressed the following terms of reference.

1. The extent to which the Model Code has been adopted by industry.
2. The extent to which the Model Code has achieved its objectives of enhancing the potential for consumers to benefit from distance selling and improving the market for reputable businesses.
3. Whether the Model Code’s objectives remain current and valid in view of changes in the regulatory and technological environment.
4. What measures could improve the Model Code and ensure it remains relevant.

The following sections present the Working Party’s findings stemming from the review.

Terms of Reference 1

The extent to which the Model Code has been adopted by industry

ADMA’s adoption of the Model Code

The Model Code was introduced to guide behaviour of participants engaged in direct marketing and also to form a basis for development of specific Codes of Practice.

Subsequent to the finalisation of the Model Code, ADMA developed its own code (the ‘ADMA Code’)¹⁰ based on the provisions of the Model Code. This was an important development as ADMA represents over 500 member organisations and reportedly covers more than 80 per cent of the $16.4 billion¹¹ annual direct marketing spend in Australia. A national non-profit organisation based in Sydney, ADMA has State Branches in New South Wales, Queensland, South Australia, Victoria and Western Australia.

Like the Model Code, the ADMA Code contains a statement of objectives. The objectives of the ADMA Code are to:

• ensure customers have access to the product and service information they need to make informed choices;
• minimise the risk of direct marketers breaching the TPA or state fair trading legislation;
• promote a culture among direct marketers of conducting their businesses fairly, honestly, ethically and in accordance with best practices; and
• increase consumer confidence in doing business with ADMA members.

ADMA’s Code applies to ADMA members and all employees, agents and subcontractors of ADMA members, as it requires that ADMA members ensure subcontractors and suppliers become familiar with the Code.

ADMA members follow the ADMA Code and not the Model Code. ADMA members may be removed from the Association if they are found in breach of the ADMA Code.

ADMA’s Code of Practice was authorised¹² under Section 88(1) of the TPA by the ACCC on 16 August 1999, with such authorisation remaining valid until 16 August 2003. This authorisation requires ADMA to keep its Code up to date with regulatory developments. Amendments to the Model Code, the OECD Guidelines, and the NPPs must be incorporated into the ADMA Code to ensure authorisation.

An indication of the net benefits derived from the ADMA Code occurred during the authorisation process. When originally presented with the ADMA Code the ACCC ordered a number of amendments to it, however, subject to these, found that the Code resulted in a net benefit to the public. That is, while it was agreed that the ADMA Code had the potential for anti-competitive detriment (by restricting ADMA members beyond that required by the law and by the imposition of sanctions) public benefits from the Code (promotion of consumer protection, complaint-handling procedures) were seen by the ACCC to outweigh these.

The ADMA Code is based on the Model Code but includes additional provisions, mainly dealing with privacy and e-commerce issues. The following outlines specific features of the ADMA Code.

ADMA Code Authority

A key feature of ADMA’s Code of Practice is the establishment of an independent complaint body, known as the ADMA Code Authority. The Code Authority is chaired by a person from outside the direct marketing industry and has a board membership of five, with other members equally divided between consumer and industry representatives. The Code Authority investigates unresolved consumer complaints about ADMA members. Members are also required to have their own internal customer complaints-handling procedures in place.

The Code Authority can apply a range of sanctions and recommend expulsion of an offending member. The commercial penalty of being expelled is considered by ADMA to be significant, especially as the accompanying negative publicity may restrict the ability of an organisation to operate in the market. In 2000-01, the Authority dealt with 46 complaints and maintains that over 95 per cent of these were dealt with to the satisfaction of the consumer. The most common complaint arose from customers who were not provided adequate information by marketers regarding the time and procedures necessary to remove their name from marketing lists.

Organisations that are not members of ADMA are not required to follow the ADMA Code although ADMA will refer any consumer complaints to such entities and later, if necessary, to relevant authorities.

Privacy protection

Unlike the Model Code the ADMA Code has adopted the NPPs. The NPPs place limits on the collection of customer information and require marketers to tell consumers who they are, how to get in touch with them and what they intend to do with personal information.

Do Not Mail/Do Not Call service

Under the Code, ADMA has put in place a Do Not Mail and Do Not Call Consumer Preference Service which has become mandatory for all ADMA members. The service requires members to purge from marketing campaigns the names and contact details of consumers who have registered for the service. As at 30 June 2001 over 49,000 persons had registered. This service is available to non-members of ADMA as well as members, to ensure that those who have registered are not receiving unwanted marketing offers. The number of consumers registered and the number of industries subscribing to the list reportedly doubled during the 2000-01 period.

Extension of the ADMA Code to suppliers and non-members

The ADMA Code provides that all members ensure their suppliers become familiar with the Code compliance obligations of the member. This broadens the scope of the Code beyond the membership of ADMA.

E-Commerce Standards

ADMA claims to have satisfied the OECD Guidelines in its Code. These international best practices cover issues such as providing clear and unambiguous information about the identity of the businesses and the goods or services they offer, verifiable contracts, effective consumer complaint handling and security/authentication measures (see above).

Non-ADMA participants in the industry

According to data provided by ADMA, based on consumer spending on direct marketing, 20 percent of direct marketing industry revenue is accrued by non-ADMA member organisations. An objective of the Working Party was to determine what proportion of non-ADMA members have developed their own Codes of Practice based on the provisions of the Model Code.

Provision 9 of the Model Code requests any party wishing to adopt the Model Code to notify the MCCA Secretariat.

To date, no notifications to the MCCA Secretariat have occurred. This suggests that either non-ADMA industry participants are using the Model Code anonymously or alternatively not at all. The Working Party also discussed the possibility that this proportion of the industry may not be aware that the Model Code actually exists and as such, considered that wider promotion of the Model Code may be worthwhile to gain greater industry awareness.

¹⁰ A copy of the ADMA Code can be obtained at www.adma.com.au.

¹¹ Data provided by ADMA indicates this consisted of call centres and telemarketing (61 per cent), catalogues (9 per cent), direct mail (8 per cent), exhibitions (8 per cent), classified directories (6 per cent), Internet (5 per cent) and other (3 per cent).

¹² Effectively this clears the code from any dispute that it is anti-competitive in terms of the Trade Practices Act 1974.

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