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

Appendix A: Possible options for the Model Code

Listed below is a discussion of various options dealing with the future of the Model Code.

1. Withdrawal of the Model Code

Withdrawal of the Model Code would mean that the only compulsory 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. However, the majority of the industry would continue to be regulated in a voluntary manner subject to the obligations of the ADMA Code and other parts of the industry could develop their own codes of practice.

Arguments in favour of withdrawing the Model Code include that:

• the advent of the ADMA Code (which incorporates the Model Code) makes the Model Code unnecessary:
  • that is, a major part of the direct marketing industry is already regulated by the ADMA Code and not the Model Code;
  • in addition, having two codes operating simultaneously for the direct marketing industry may cause confusion especially where the provisions of each code are different;
  • the Model Code is currently reviewed on a three year cycle and on this basis becomes quickly outdated by new legislation and events;
  • the ADMA Code already goes further than the Model Code in certain areas.
• as it is voluntary, it could be argued that the Model Code provides little protection to consumers;
• the resources required to maintain and review the Model Code could be better employed elsewhere;
• the withdrawal of the Model Code would encourage differentiation of the market between those subject to the ADMA Code and those not subject to requirements of this nature; this in turn would allow users of direct marketing to better assess risk within the marketplace.

Arguments against withdrawing the Model Code include:

• the code provides a possible ‘conduit’ for achieving changes to the ADMA Code (that is, an initial condition for gaining ‘authority’ from the ACCC was that the ADMA Code comply with all provisions of the Model Code — thus changes to the Model Code may result in similar changes to the ADMA Code);
• it would place a reliance on ADMA to make appropriate changes to its code in a timely manner;
  • it may impose costs on ADMA in maintaining an industry code of practice without guidance from changes to the Model Code, for example costs for research or consultation;
• it may be perceived (whether correctly or not) that Governments were reducing their regulation of the direct marketing industry;
• businesses may suffer because of a lack of consumer confidence in direct marketing if there is no Model Code of practice.

2. Retain Model Code with amendments

This approach would result in the retention of the Model Code with amendment for changes to the business and regulatory environment since the code was released in November 1997. Issues include what amendments should be made and the process and frequency of these amendments in the future.

The arguments in favour of amending the Model Code include:

• unless necessary amendments are made, the process of continuous improvement and best practice becomes more difficult to ensure; and
• changes to the Model Code could lead to changes to the ADMA Code (unless the ADMA Code has already adopted such changes) affecting a large part of the direct marketing industry in a manner considered desirable by regulators.

The question arises as to which, if any, amendments should be made to the Model Code, both now and in the future. For example, should any new and relevant legislative changes be incorporated into the Model Code, and how quickly, and whether the Model Code, through its existing amendments, should seek to go further than existing regulatory requirements?

Further, questions arise as to whether issues associated with e-commerce should be incorporated into the Model Code and whether these issues are better addressed elsewhere, for example, retained within the BPM.

• The BPM is (in effect) another code with a target audience of industry associations for use in respect of their e-commerce activities. Two codes operating simultaneously may encourage confusion, especially where the provisions of each code are different. Countering this argument, the incorporation of the BPM into the Model Code may provide guidance and help facilitate broader e-commerce objectives through compliance with the BPM.

The timing of amendments to the Model Code is a significant issue. Currently the Model Code has been subject to a three year review. An advantage of this approach is that industry players and the public in general are provided with an opportunity to contribute to the consultative process leading to a more rounded view of required amendments. The disadvantage is that amendments may not be undertaken in a timely fashion. That is, inevitably, the Model Code would lag important changes occurring elsewhere — perhaps resulting in the Model Code rarely aligning with industry codes of practice, for example, the BPM or relevant legislation, ultimately generating some confusion.

3. Retain Model Code with no amendments

This approach would retain the Model Code but not amend it for any changes in the environment (either legislative or otherwise). While it seems counterproductive to have a Model Code and not update it as necessary, this approach would have some advantages. These include:

• in overcoming difficulties associated with amending the Model Code in a timely fashion;
• allowing the resources required to review the Model Code to be used elsewhere;
• the onus for implementing desirable change would be placed upon industry groups operating their own codes of practice;
  • this would test the industry group’s self-regulatory effectiveness; and
  • place the cost of regulation mainly upon the industry itself.

4. Make the Model Code mandatory

The provisions included in a mandatory code 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, State Fair Trading Acts and other Acts.

The advantage of making the Model Code mandatory would include the following:

• there may be an increase in consumer confidence flowing from the stricter controls on business processes in relation to direct marketing; and
• that, where there are market failures, a mandatory code is more likely to lead to their correction;
  • from data available to the Working Party, it remains unclear to what extent direct marketing is subject to market failure.

The disadvantages of a mandatory code include that:

• a mandatory code would involve greater monitoring and enforcement costs for governments;
• present enforcement difficulties;
• it would likely lead to higher compliance costs for business;
  • any increased costs borne by business may be passed on to consumers as higher prices;
• a mandatory code may stifle innovation;
• a mandatory code would need to be based on clear evidence that existing self-regulatory approaches in the direct marketing industry were failing; and
• it could be seen to be contrary to government consumer policy that is based on the principles of effective self-regulation.

5. Alter the Model Code into a series of sub-codes

Direct marketing encompasses a wide range of marketing techniques that 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.

The advantages of the sectoral sub-code approach includes:

• it would 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 would only be required to comply with those provisions that affected their particular business;
• improved compliance may also provide benefits to business through increased consumer confidence and reduced reliance on other government services, such as the court system; and
• it may infuse the various sectors with greater 'ownership' of their code and thus improve compliance.

The disadvantages of the sectoral sub-code approach include:

• business may incur extra costs if the business operates across a number of sectors and is required to comply with several different sub-codes with these costs potentially shifted to consumers.

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