8

Determination

Application for Authorisation

Australian Direct Marketing Association
Direct Marketing Code of Practice

Date: 16 August 1999

Authorisation No: Commissioners:

A40077
Fels
Asher
Shogren
Bhojani
Martin
Cousins
Jones

(Converted to HTML by Robin Whittle 17 August 1999) File No: CA 98/25 Summary

The Commission has considered an application for authorisation lodged by the Australian Direct Marketing Association (‘ADMA’). Application A40077 was made under sub-section 88(1) of the Trade Practices Act (‘the Act’) for an authorisation to make a contract or arrangement, or arrive at an understanding, a provision of which would have the purpose, or would or might have the effect, of substantially lessening competition within the meaning of section 45 of the Act, and to give effect to such a contract arrangement or understanding. The application concerned ADMA’s arrangements to adopt a Direct Marketing Code of Practice (‘the Code of Practice’) and enforce the provisions contained in that Code.

The provisions contained in the Code of Practice are drawn from a range of sources. Parts B and C are based on the Model Code of Practice for the Direct Marketing Industry that was approved by the Ministerial Council on Consumer Affairs in 1997. Part D is based on the Draft Recommendation of the Council Concerning Guidelines for Consumer Protection in the context of Electronic Commerce that was released by the OECD in 1998, while Part E is based on the National Principles for the Fair Handling of Personal Information released by the Commonwealth Privacy Commissioner in February 1998.

Many provisions contained in the Code of Practice drew criticism from a range of interested parties. Attachment B to this determination lists the interested parties that made submissions.

The Commission found that the application of the provisions of the Code was often limited by the Code’s narrow definition of direct marketer. Consequently, many of the provisions may only apply where an ADMA member had entered into a contract with a customer for the sale of goods or services that was negotiated at a distance, and a record of that transaction was captured and maintained on a list or database for further marketing purposes. The Commission considered that little or no public benefit arose from such limited application and has required ADMA to make a number of amendments in order to broaden the scope of the Code. Incorporation of these amendments means that at its narrowest provisions contained in the Code will apply to ADMA members who contact potential customers via a means of distance communication and invite consumers to respond using a means of communication at a distance with the intention of supplying goods and services under a contract negotiated at a distance. At its broadest, the Code will apply to all ADMA members.

The Code contains a number of rules outlining standards of fair conduct generally, standards relevant to telemarketing, standards relevant to electronic commerce, and standards relevant to consumer data protection. The Commission is of the view that these rules, once the subject of appropriate scope and a number of other amendments (see paragraph 9.3 of this determination), have the potential to give rise to a number of public benefits in so far as they:

provide consumers with rights additional to those that are granted at law, for example, the right to a seven day cooling off period and to a refund in appropriate circumstances;

protect consumers from unreasonably intrusive forms of direct marketing, and protect consumers’ right to privacy; and

provide consumers with recourse to a resolution mechanism where they have complaints about products or services they have purchased, or the conduct of an ADMA member.

However, the Commission considered that the extent to which the Code would in practice be likely to benefit the public depends upon the level of compliance with the Code’s rules. The Commission had a number of concerns with the structure and operation of the Code’s enforcement provisions including, the independence and accountability of decision-making bodies, the remedies available, and the complaints handling process. The Commission thus required a number of amendments (see paragraph 9.3 of the determination) to the enforcement provisions of the Code.

The Commission has granted authorisation in respect of the Code of Practice until 16 August 2003. However, the authorisation will not come into force until the Commission notifies ADMA that it is satisfied that the Code has been amended in accordance with the conditions set out in paragraph 9.3 of the determination.

The authorisation is subject to additional conditions requiring ADMA to keep its Code up to date with regulatory developments as reflected in amendments to the Model Code of Practice for the Direct Marketing Industry, the OECD Guidelines for Consumer Protection in the context of Electronic Commerce, and the National Principles for the Fair Handling of Personal Information, on which ADMA’s Code is based.

Glossary

ACA Australian Consumers’ Association
ACS Australian Computer Society
ADMA Australian Direct Marketing Association
A-G’s Information and Security Law Division – Attorney – General’s Department
APAC Austel Privacy Advisory Committee
APCC Australian Privacy Charter Council
APF Australian Privacy Foundation
ATCCA Australian Telemarketing and Call Centre Association
ATUG Australian Telecommunications Users Group
the Act Trade Practices Act
the Authority Code Authority
the Board ADMA’s Board of Directors
CAD Consumer Affairs Division of the Treasury
CCLS Consumer Credit Legal Service
CEO ADMA’s Chief Executive Officer
CFA Consumer’s Federation of Australia
CIRS Community Information and Referral Service of the ACT
Code of Practice Direct Marketing Code of Practice
Compliance Officer Code Compliance Officer
the Commission Australian Competition and Consumer Commission
EFA Electronic Frontiers Australia
FSCPC Financial Services and Consumer Policy Centre
IIA Internet Industry Association
MCCA Ministerial Council on Consumer Affairs
Model Code Model Code of Practice for the Direct Marketing Industry
NPPs National Principles for the Fair Handling of Personal Information
NSWPC New South Wales Privacy Committee
PC Privacy Commissioner
PN Policy Network
the Tribunal Australian Competition Tribunal
XC Xamax Consultancy

Table of Contents

Introduction………………………………………………………………………..…1
Background …………………………………………………………………………..2

Direct Marketing ………………………………………………………………………....2

The Australian Direct Marketing Association …………………………………………………………..2

The Model Direct Marketing Code of Practice ………………………………………………………….3

Application …………………………………………………………………………...4

Overview of the Code ……………………………………………………………………….………….4

Part A – Introduction …………………………………………………………………………………...4

Part B – Standards of Fair Conduct ………………………………………………………………..…5

Part C – Fair Conduct Relevant to Telemarketing ……………………………………………….…6

Part D – Fair Conduct Relevant to Electronic Commerce ………………………………………...6

Part E – Fair Conduct Relevant to Consumer Data Protection …………………………………..7

Part F – Enforcement ……………………………………………………………………………………8

Part G – Code Review and Amendment……………………………………………………………….9

Statutory Test……………………………………………………………………….10
Submissions of Applicant …………………………………………………………..11

Anti-competitive detriment……………………………………………………………………………..11

Public Benefits ………………………………………………………………………………………….12

Draft Determination ………………………………………………………………..14
Pre-decision conference and submissions received following the draft determination ……………………………………………………………………….15

Lack of Consultation …………………………………………………………………………………...15

Lack of Coverage ……………………………………………………………………………………....16

Scope of the Code ………………………………………………………………………………………16

Privacy ………………………………………………………………………………………………….17

Electronic Commerce …………………………………………………………………………………..19

Enforcement ……………………………………………………………………………………………21

Outbound Telemarketing ……………………………………………………………………………….22

Interested Parties’ Responses to ADMA’s Amendments …………………………………………...…23

Anti-Competitive Detriment ……………………………………………………………………………24

ADMA’s Response to Comments made by Interested Parties …………………………………………25

Further Consultation ……………………………………………………………………………………27

Commission Evaluation…………………………………………………………….29

Introduction …………………………………………………………………………………………….29

Scope and Coverage …………………………………………………………………………………...30

Scope ………………………………………………………………………………………….30

Coverage ……………………………………………………………………………………...35

The Rules ……………………………………………………………………………………………….36

Part B – Standards of Fair Conduct ………………………………………………………….36

Part C – Telemarketing ……………………………………………………………………….38

Part D – Fair conduct relevant to Electronic Commerce………………………………….....41

Part E – Fair conduct relevant to Consumer Data Protection……………………………….44

Compliance……………………………………………………………………………………………..50

Complaint Handling at the Business Level …………………………………………………...50

Enforcement of the Code of Practice …………………………………………………………51

Administration ………………………………………………………………………………...55

Determination ………………………………………………………………………58

Attachment A – Australian Direct Marketing Association Direct Marketing Code of Practice……………………………………………………………………………………..61

Attachment B – Index of Submissions ……………………………………………………92

Introduction

1.1 On 2 September 1998 the Australian Direct Marketing Association (‘ADMA’) lodged an application with the Australian Competition and Consumer Commission (‘the Commission’) regarding its Direct Marketing Code of Practice (‘Code of Practice’).

1.2 Application A40077 was made under subsection 88(1) of the Trade Practices Act (‘the Act’) for authorisation:

to make a contract or arrangement, or arrive at an understanding, a provision of which would have the purpose, or would have or might have the effect of, substantially lessening competition within the meaning of section 45 of the Act, and

to give effect to such a contract, arrangement or understanding.

1.3 The application concerned ADMA’s proposed arrangements to adopt a Direct Marketing Code of Practice and to enforce the provisions contained in that Code.

1.4 On 7 October 1998, the Commission issued a draft determination in which it proposed to grant authorisation to application A40077 subject to the outcome of any pre-decision conference and subject to the applicant satisfying a number of conditions.

1.5 On 5 November 1998, ADMA forwarded to the Commission, an amended version of its Code, which it submitted, would address the Commission’s concerns as raised in its draft determination.

1.6 On 9 November 1998, ADMA launched its amended Code of Practice and it is the amended Code that is the subject of this determination.

2. Background

Direct Marketing

2.1 Marketing is a form of communication between a marketer of goods or services and a prospective customer. It is usually intended to induce a prospective customer to purchase the relevant good or service and may include the provision of information pertaining to features, conditions of purchase, availability etc.

2.2 Direct marketing is one form of marketing and generally involves marketers communicating with a prospective customer, without the use of an intermediary, via a medium that supports some degree of interaction. It is a broad ranging practice that may involve the receipt of marketing information through the following mediums:

mail, for example, unaddressed printed matter, letter, catalogues;

fax;

telephone; and

electronic channels, for example, e-mail.

2.3 Participants in direct marketing can be divided into two broad groups:

users of direct marketing techniques ; and

suppliers of direct marketing services.

2.4 Users of direct marketing techniques comprise a large group, including companies involved in business and industrial services, charities and fundraisers, consumer product manufacturers and distributors, financial services, health care, industrial product manufacturers and distributors, telecommunications companies, travel services, airlines, hotels and retailers.

2.5 Suppliers of direct marketing services include companies involved in computer services and software database management, delivery and distribution, direct marketing and advertising agencies, electronic media and interactive services, lists, mailhouses and fulfilment services, and telemarketing services.

The Australian Direct Marketing Association 2.6 ADMA was established in 1966 as a non-profit body to represent the collective interests of its members. Its members comprise sole traders, bodies corporate, partnerships, unincorporated associations, employees and other persons who carry on a business, practice or engage in the direct marketing industry in Australia.

2.7 ADMA currently represents over 400 organisations involved in direct marketing including financial institutions, publishers, catalogue and mail-order traders, airlines and travel service providers, charities and fundraisers, call centres and telecommunication service providers, printers and advertising agencies, list and data base specialists, mail houses and fulfilment services. ADMA estimates that its members are responsible for approximately 80% of annual sales derived from the use of direct marketing techniques.

2.8 ADMA conducts advocacy, education and networking activities for the benefit of its members and administers a Code of Practice, compliance with which is compulsory for all of its members.

The Model Direct Marketing Code of Practice 2.9 In November 1997, the Ministerial Council on Consumer Affairs (‘MCCA’) approved the release of a Model Code of Practice for the Direct Marketing Industry (‘the Model Code’). The Model Code was drafted by a Direct Marketing Working Group which was chaired by a Commission staff member and comprised representatives from state and federal government consumer departments, privacy bodies, consumer groups and ADMA. After significant consultation with stakeholders in the direct marketing industry the Model Code was endorsed by the MCCA who encouraged industry associations whose members were involved in direct marketing to establish their own codes, based upon the provisions contained in the Model Code.

2.10 A short time after finalisation of the Model Code, ADMA’s Executive began the process of modelling its own Code based on the provisions contained in the Model Code. ADMA’s Code of Practice, which is the subject of this application, is the result of that process. Except with respect to the area of dispute handling, it is based largely on the Model Code, with the addition of Parts D and E concerning fair conduct relevant to electronic commerce and consumer data protection respectively.

3. Application 3.1 The application which has been lodged on ADMA’s behalf and its supporting submissions are on the public register that is maintained by the Commission. A copy of the amended Code of Practice is Attachment A to this determination.
Overview of the Code 3.2 The Code of Practice sets out specific standards of conduct for participants in the direct marketing industry in relation to their customers and the public and serves as a benchmark in settling disputes between direct marketing industry participants and their customers. All members of ADMA and their employees, agents or sub-contractors are bound by the Code of Practice. However, various provisions of the Code, including the data protection provisions of Part E, apply only to direct marketers as defined in the Code and therefore do not apply to all ADMA members.

The Code of Practice is divided into seven parts:

Part A - Introduction;

Part B - Standards of fair conduct;

Part C - Fair conduct relevant to telemarketing;

Part D - Fair conduct relevant to electronic commerce;

Part E - Fair trading relevant to consumer data protection;

Part F - Enforcement; and

Part G - Code Review and Amendment.

A brief outline of the key provisions contained in each Part is provided below.

Part A - Introduction

3.4 Part A outlines the purpose of the Code of Practice, why it is necessary, its scope and its objectives. Clause 5 provides that the objectives of the Code of Practice 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 Trade Practices Act 1974 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.

Part B - Standards of fair conduct 3.5 Part B outlines standards of fair conduct that will apply to the general business of direct marketing. It covers a number of issues including misleading and deceptive conduct, false claims, the information which should be given to a potential customer at the time an offer is made and the information which should be given at the time the relevant product is delivered.

3.6 Clauses 10 - 13 outline rules that must be followed where direct marketers offer incentives. Clause 10 provides that the terms and conditions under which incentives, including prizes, gifts or other rewards are offered must be clearly stated. This includes disclosure of the manner in which a gift, prize or reward will be drawn or awarded and whether or not its provision is conditional on the customer purchasing goods or services from the direct marketer. Clause 11 provides that such gifts etc must be made available to the customer in the period of time which is stated in the offer, or if no period of time is stated, within 30 days of the customer purchasing goods or services from the direct marketer. Clause 13 outlines the rules that will govern the conduct of lotteries and contests. It provides that a direct marketer who intends to conduct a lottery or contest must make available at the point of entry, the rules which govern the contest, ensure that judging takes place promptly and fairly and is certified by an independent auditor and make the results of the contest or lottery available to participating customers who request them.

3.7 Clauses 15 to 18 deal with delivery. Clause 15 provides that where a direct marketer has not specified a date for delivery then the goods or services must be delivered within thirty days. Clause 16 provides that where an order cannot be delivered within the specified time, or within 30 days, the direct marketer must send the customer an initial notice acknowledging the order. The notice must state the date on which the order is expected to be delivered, the reason for the delay and offer the customer the opportunity to cancel the order and receive a full refund of any money paid. Clause 17 provides that where a direct marketer is not able to deliver the goods or services by the date stated in the initial notice the direct marketer must either advise the customer that it is unable to fulfil the order and refund the customer any money paid, or notify the customer of the new expected delivery date providing a reply-paid or other cost-free response mechanism and including an option to refund any money paid. Clause 18 states that if the direct marketer is unable to deliver the goods or services within the time specified in the second notice, the procedure outlined in clause 17 must be repeated until the goods or services are delivered or the transaction has been cancelled and any moneys paid refunded.

3.8 Under clause 19 a direct marketer must not request or accept payment for goods or services if it intends to supply goods or services which are materially different from those which have been paid for, or if there are reasonable grounds for believing that the direct marketer will not be able to supply the goods or services within the period in which it has specified, or if no time has been specified, within 30 days.

3.9 Clauses 20 - 30 set down procedures which must be followed with respect to cancellation of orders and refunds. Clause 20 provides that each contract which a direct marketer makes with a customer must contain a provision stating that the customer has the right to cancel the contract within a period of time that is not less than seven days and at any time before the goods or services are dispatched to the customer. Clauses 31 and 32 set down rules with respect to minors, while clauses 33- 39 deal with unordered or substituted goods or services.

3.10 Clause 40 provides that direct marketers must have a procedure in place to deal with complaints from consumers, the procedures must comply with the Australian Standard for Complaints Handling, AS 4269.

Part C - Fair conduct relevant to telemarketing 3.11 Part C sets down standards of fair conduct that relate specifically to telemarketing. Clauses 1 - 3 outline procedures that a telemarketer must follow with respect to the provision of identification information. Clause 1 provides that a direct marketer must ensure, at the earliest opportunity in an outbound telemarketing call, that the following information is provided to the customer, and repeated if the customer at any time requests:

the name of the person making the telephone call;

where a service bureau is making the call, the name of the organisation on whose behalf the call is being made; and

the purpose of the telephone call.

3.12 Clause 4 outlines the information that the telemarketer must provide to customers who request it. The information includes the telemarketer’s name and contact details, the name of the person who is responsible for handling customer inquiries which the telemarketer receives, further details concerning the goods or services being offered and details of the source from which the telemarketer obtained the customer’s personal details.

3.13 Clause 6 provides that a telemarketer must not represent that they are undertaking market research where the purpose of the call is to sell a good or service. Clauses 7 and 8 outline acceptable calling conduct, while clauses 9 - 12 contain provisions which deal with permitted calling times, line disconnection times and calling frequency.

Part D - Fair conduct relevant to electronic commerce 3.14 Part D contains provisions outlining appropriate conduct that is specific to electronic commerce. Clause 1 provides that this form of commerce will have the same level of protection as that provided by the practices which apply to other forms of commerce. Clause 2 states that clear, complete and current information about the identity of the business engaged in electronic commerce and about the goods or services that they offer should be provided to customers. Clause 3 provides that acceptance of an offer online should be informed and unambiguously expressed by the customer in a format that allows the parties to maintain a complete and accurate record of the contracts.
Part E - Fair conduct relevant to consumer data protection 3.15 Part E outlines procedures that direct marketers must follow with respect to the information they compile from customers. Clauses 1 - 8 deal with the collection of personal information. Clause 1 provides that a direct marketer can only collect personal information that is necessary for one or more of its legitimate functions or activities. Clause 2 provides that such information should be collected by lawful and fair means and not in an unreasonably intrusive way. Clause 3 outlines a number of facts of which a person who is having personal information collected about them should be aware of at the time that the information is being collected. It includes matters such as the identity of the organisation and how to contact it, the fact that the customer is able to gain access to the information and the purposes for which the information is collected.

3.16 Clause 9 deals with the circumstances in which direct marketers can use and disclose a customer’s personal information. A direct marketer can only use or disclose personal information for a purpose other than a primary purpose of collection in certain circumstances. These circumstances include circumstances where the secondary purpose is related to the primary purpose of collection and the subject of the information would reasonably expect the organisation to use or disclose the information for the secondary purpose or the individual has consented to the disclosure.

3.17 Clauses 10 -11 set out the procedure for determining the primary purpose of collection while clauses 12 - 13 outline the reasonable expectation test. Clauses 14 -18 discuss data quality, data security and a direct marketer’s openness with respect to its data.

3.18 Clauses 19 - 26 set out procedures with respect to access and correction of data. Clause 19 provides that where a direct marketer holds personal information about an individual it should provide the individual with access to the information on request except in certain circumstances. These circumstances include instances where providing access would pose a serious and imminent threat to the life and health of any individual, providing access would have an unreasonable impact on the privacy of other individuals, providing access would be unduly onerous to the organisation or where the information relates to existing legal dispute resolution proceedings between the organisation and the individual and the information would not be accessible by the process of discovery in those proceedings. Clause 24 provides that where a direct marketer holds personal information about an individual and the individual is able to establish that the information is not accurate, complete and up to date, the organisation should take reasonable steps to correct the information so that it is complete, accurate and up to date.

3.19 Clauses 27 - 30 deal with the use of identifiers, anonymity and trans- border flows while clauses 31 -32 set down procedures which must be followed with respect to sensitive information.

3.20 Clause 33 and 34 are headed ‘Respecting Consumer Preference’. Clause 33 requires direct marketers to use the Do Not Mail/Do Not Call services of ADMA when conducting a direct marketing campaign. Clause 34 requires a direct marketer to remove a customer’s name from all internal marketing lists or lists for transfer to a third party at the request of a customer.

Part F - Enforcement 3.21 Part F deals with enforcement. Clause 1 provides that the scope of ADMA’s enforcement procedures will be limited to alleged breaches of the Code of Practice and does not include mediation of consumer complaints which would normally be dealt with by a member’s internal complaints handling process. Where customer complaints do involve an alleged breach of the Code, and are not resolved under a member’s internal complaints handling process, clause 1 states that they must be referred by the member to ADMA as a customer complaint under Part F. Clauses 2 and 3 outline the manner in which a complaint can be made to ADMA, while clauses 4 - 16 outline the manner in which ADMA will respond to complaints.

3.22 Clauses 4, 5 and 6 deal with the process that will be undertaken where ADMA’s Code Compliance Officer (‘Compliance Officer’) does not believe that there has been a breach of the Code of Practice, or where there has been a potential breach of the Code of Practice by a non-member. Where the Compliance Officer considers that an ADMA member may have breached the Code of Practice, the Compliance Officer will write to the member outlining the particulars of the alleged misconduct and requesting a written response within 14 days. If the member is not able to demonstrate compliance within a reasonable period of time the compliance officer must refer the complaint to the Code Authority (‘the Authority’) for its consideration. The Authority is defined in the Code of Practice as being an Authority established by ADMA that consists of an independent Chairperson, two consumer representatives, being persons with special competence in consumer or industry matters; and three industry representatives, being persons of good character and repute in the direct marketing industry. Upon reviewing the complaint, the Authority may direct the Compliance Officer to investigate the complaint further and report the results of the investigation to the Authority, or cause the Compliance Officer to send a notice to the member inviting them to attend a hearing regarding the alleged breach or resolve not to further pursue the alleged breach. Clauses 11 - 16 outline the procedure that will take place at a hearing before the Authority. The direct marketer will receive a written notice of the Authority’s decision within 14 days, and is then given 14 days to comply with the decision. If the member is not able to demonstrate compliance, ADMA’s Chief Executive Officer (‘CEO’) will call a special meeting of the Board of Directors (‘the Board’) to consider removing the member from ADMA, subject to the recommendation of the Authority.

3.23 Clause 17 outlines the sanctions that the Authority may impose where it finds that a member has been in breach of the Code. These include:

requiring the member to take specified remedial action to correct the breach and avoid re-occurrence;

seeking a written undertaking from the member that the breach will not be repeated;

seeking the approval of the ADMA Board to issue a formal written admonition to the member;

seeking the approval of the ADMA Board to publish the written admonition; and

recommend to the CEO that membership is revoked.

3.24 Clause 18 provides that the Authority may only recommend issuance of a formal admonition where the breach is of a serious nature and has occurred more than twice in the preceding 12 months. Clause 19 provides that the Authority may only recommend publication of a formal written admonition, or revocation of membership, where the member has committed multiple breaches of the Code over an extended period of time and demonstrated an ongoing disregard for the Code.

3.25 Clause 20 provides that no fees or charges will be levied by ADMA with respect to the enforcement procedures under Part F, and that complainants bear their own costs.

3.26 Clause 21 provides that ADMA will publish in its Annual Report:

the number of complaints received by the Compliance Officer during that year;

the number of breaches established by the Compliance Officer and the Authority during that year;

an analysis of the enforcement action taken during that year; and

a statistical analysis of complaints by company.

Part G - Code Review and Amendment 3.27 Part G outlines the procedures for reviewing and amending the Code of Practice. Clause 1 provides that the Code of Practice will be reviewed one year after it has been adopted, and every three years thereafter. Clause 2 provides that the Authority, who must consult with groups affected by the Code of Practice where appropriate, will conduct the review. Clause 4 provides that the Board may at any time resolve to amend the Code, after receiving such recommendations from the Authority.
4. Statutory Test

4.1 This application has been made under sub-section 88(1) of the Act.

4.2 In the case of an authorisation relating to a contract, arrangement or understanding which may substantially lessen competition in terms of section 45 of the Act, the relevant test that must be satisfied in order for the Commission to grant authorisation is contained in sub-section 90(7) of the Act.

4.3 Sub-section 90(7) provides that the Commission may only grant authorisation if it is satisfied in all the circumstances that:

the provisions of the subject arrangements or conduct have resulted, or are likely to result in a benefit to the public, and;

the benefit outweighs or would outweigh the detriment to the public constituted by any lessening of competition that has resulted or is likely to result from giving effect to the provisions.

4.4 In deciding whether it should grant authorisation, the Commission must examine the anti-competitive aspects of the arrangements, the public benefits arising from the arrangements, and then weigh the two to determine which is the greater. Should the public benefits or expected public benefits outweigh the anti-competitive aspects, the Commission may grant authorisation outright or grant authorisation subject to conditions.

4.5 If there are no public benefits arising from the conduct, the Commission may refuse authorisation. Alternatively, in refusing authorisation, the Commission may indicate to the applicant how the application could be constructed to change the balance of detriment and public benefit so that the authorisation may be granted.

5. Submissions of Applicant

Anti-competitive detriment

5.1 The applicant submits that the proposed arrangements in the Code of Practice, which have the potential for anti-competitive detriment, are:

the conduct of ADMA members is restricted beyond that required by the relevant State, Territory, and Commonwealth legislation;

the imposition of sanctions (including the revocation of membership of ADMA) where a member is found to be in breach of the Code of Practice; and

the imposition of sanctions against the member where an agent, or subcontractor of the member is found to be in breach of the Code of Practice.

5.2 The applicant submits that the Code of Practice’s requirements with respect to the information to be provided when an offer is made to a potential customer and at the time of delivery, the procedures to be adhered to when delivery is delayed, the requirement to provide in most cases a cooling off period of 7 days or more within which the customer may cancel the purchase contract, the requirement that telemarketer’s identify themselves to potential customers, limiting the times when telemarketers may telephone potential customers and limiting the methods of collection of personal information and the use and disclosure of such information are relatively prescriptive. The applicant further submits that given the ADMA member profile, these restrictions have the potential to standardise the way in which participants in the direct marketing industry conduct their business and that such standardisation may limit the opportunities for ADMA members to differentiate their businesses from one another.

5.3 The applicant contends, however, that the standards do not go beyond what is widely accepted as prudent and fair business practices. It is submitted that the restrictions have no impact on the scope that direct marketing participants have to differentiate themselves via their products and the type of technology used to contact potential members to transact a sale. The applicant further submits that the restrictions on the conduct of ADMA members are directed towards promoting the interests of consumers rather than the prevention of competition between members.

5.4 With respect to the imposition of sanctions, the applicant submits that their availability is directed at encouraging compliance with the Code of Practice without unduly burdening ADMA members. The applicant acknowledges that a significant number of participants in the direct marketing industry are members of ADMA and that therefore the imposition of a sanction where membership of ADMA is revoked has the potential to be anti-competitive. The applicant submits that the inability of a direct marketing participant to be an ADMA member may mean that the participant suffers detriment as a result of the following:

potential customers, whose policy is to deal only with an ADMA member, may refuse to deal with the participant;

the participant will be denied access to the advocacy, education and networking activities conducted by ADMA; and

members whose policy is to deal only with the other ADMA members may refuse to deal with a supplier.

Public Benefits 5.5 The applicant submits that a number of public benefits will result from giving effect to the arrangements contained in the Code of Practice. These claimed public benefits include:

Significant promotion and enhancement of consumer protection. It is submitted that the restrictions on the conduct of ADMA members will protect consumers by ensuring they have access to the product and service information they need to make informed choices; respecting privacy; promoting a culture among direct marketers of conducting their business fairly, honestly, ethically and in accordance with best practices; and protecting consumers from false, misleading or unsafe claims.

Ensuring members put in place appropriate consumer complaint handling procedures;

Providing consumers with a flexible complaint handling procedure in relation to alleged breaches of the Code of Practice by ADMA members.

Responsible development of the direct marketing industry which will increase supply, provide consumers with more purchasing options, promote competition and market efficiency, thereby exerting downward pressure on prices and increase access to, and demand from, off-shore markets which will boost the volume of exports.

Promotion of consumer confidence to make purchasing decisions by a direct marketing method which will enable consumers to take advantage of more convenient methods of purchase and is likely to enable consumers to benefit from lower prices made possible by the lower cost structures required for direct marketing sales compared to shop front retail sales.

Consumer views being taken into account by the presence of an independent chair and consumer representatives on the Code Authority. Member sanctions recommended to the Board of Directors of ADMA by the Code Authority will therefore be a product of public input.

The promotion of equitable dealings in the direct marketing industry.

Improvement in the quality and consistency of the service received by consumers from direct marketers.

5.6 The applicant submits that most members of the public at some stage in the last year will have been contacted by, or viewed advertisements of, a direct marketer. At times, the applicant submits, the person contacted may have been a minor, intellectually impaired or have poor language skills. The person may not have chosen to be contacted and may not have had sufficient opportunity to research the goods or services offered so as to minimise his or her risk of making an ill-informed decision. The applicant further contends that there is an inherent risk associated with distance selling given that there is no opportunity to inspect the goods prior to entering into a purchase contract. It is submitted by the applicant that these restrictions distinguish the direct marketing industry from the shop-front retail industry and necessitate greater restriction on the conduct of direct marketing industry participants so that the disreputable acts of a few do not jeopardise the reputation of the majority.

5.7 The applicant submits that by developing a Code of Practice, ADMA is responding to a need to provide customers and potential customers with further, but not onerous, safeguards to protect their interests. ADMA also submits that in the absence of a Code of Practice, its members will lack guidance as to responsible and appropriate conduct with the probable result that the direct marketing industry will be harmed.

5.8 The use of sanctions, such as revocation of ADMA membership is viewed by the applicant as necessary to deter irresponsible conduct and encourage compliance with the Code of Practice. The applicant contends that administration of the sanctions by the Authority and the Board will be undertaken with a high level of propriety, and will involve fairness and impartiality.

5.9 ADMA proposes to publicise its Code of Practice widely throughout the community and among business. ADMA hopes to raise the public awareness of the Code of Practice and instil an expectation about how industry participants will conduct themselves.

5.10 On the basis of the above, the applicant submits that the Code of Practice would result, or be likely to result, in a benefit to the public which would outweigh the detriment to the public constituted by any lessening of competition that would result, or be likely to result, if the arrangements were given effect to.

6. Draft Determination 6.1 On 7 October 1998 the Commission released its draft determination with respect to application A40077. It proposed to grant authorisation in respect of the application for a four-year period subject to the outcome of any pre-decision conference and subject to the applicant satisfying the following conditions: 1. The Code of Practice is amended to provide that where a complaint which may involve an alleged breach of the Code is not resolved at the business level, members are required to refer the complaint to ADMA to be dealt with via the procedures that are laid down in the Code of Practice

2. The Code of Practice is amended to guarantee independence of the Chair of the Code Authority.

3. The Code of Practice is amended to define the composition of the Authority and provide for equal representation. For example, the Authority should be comprised of an independent chair, one consumer representative and one industry representative.

4. The Code of Practice is amended to provide all parties to a complaint with equal opportunity to participate fully in the enforcement process and ensure that all parties are provided with reasons for any decisions that are made which affect their case. The Code is amended so that complainants have the right to request the Code Authority to review any decision by the Compliance Officer that the Code has been breached.

5. The Code of Practice is amended to specify the breadth of the remedial orders and sanctions which the Authority is empowered to recommend. Guidelines outlining the instances when particular types of remedies or sanctions will be recommended should also be included.

6. The Code of Practice is amended to provide that there are no fees for lodging a complaint or defending an allegation under the Code.

7. The Code of Practice is amended to provide for a system which records and reports all of the complaints which have been received by the Compliance Officer in relation to alleged breaches of the Code and outlines the action which has been taken in regard to the complaints. The Commission considers that inclusion of such information in the ADMA Annual Report would be satisfactory.

7. Pre-Decision Conference and Submissions received following the Draft Determination 7.1 After issuing its draft determination (a copy of which is on the Commission’s public register), the Commission invited submissions from a range of interested parties who were asked to comment on both ADMA’s application and the Commission’s draft determination. The names of those parties who made written submissions are listed at Attachment B. Copies of their submissions have been placed on the public register that is maintained by the Commission.

7.2 A pre-decision conference was requested by the Financial Services Consumer Policy Centre (‘FSCPC’), Australian Privacy Charter Council (‘APCC’), Consumers’ Federation of Australia (‘CFA’), Australian Privacy Foundation (‘APF’), Graham Greenleaf, and Robin Whittle of First Principles. The conference was formally opened on 29 October 1998 and was immediately adjourned, the substantive conference was held on 26 November 1998. A record of the conference has been placed on the Commission’s public register.

7.3 The main issues raised at the conference, and in written submissions, are outlined below.

Lack of Consultation 7.4 The FSCPC, Xamax Consultancy (‘XC’), Australian Computer Society (‘ACS’), Communications Law Centre (‘CLC’), Australian Privacy Foundation (‘APF’) and the APCC submitted that the Code of Practice had not been the subject of sufficient public consultation and urged that such consultation take place.

The FSCPC submitted that ADMA’s claim that its Code was the result of three years of consultation with consumer bodies was untrue. It alleged that six consumer bodies, who ADMA listed in its press release as having been consulted, deny that this is the case. These bodies are the APCC, CFA, Australian Consumers Association (‘ACA’), Australian Telecommunications Users Group (‘ATUG’), Policy Network (‘PN’) and the CLC. Those bodies claim that while they did have some opportunity to participate in the drafting of the Model Code, the National Principles for the Fair Handling of Personal Information (‘NPPs’) and involvement in the Austel Privacy Advisory Committee (‘APAC’), they were never consulted directly regarding ADMA’s Code of Practice. The FSCPC and the Australian Telemarketing and Call Centre Association (‘ATCCA’) also requested that the Commission delay its determination of A40077 on the basis that authorisation of the ADMA Code of Practice would end the opportunity for competition amongst the ATCCA, ADMA and the Internet Industry Association (‘IIA’) in code development that may possibly result in higher consumer standards.

7.6 The Consumer Affairs Division of the Treasury (‘CAD’) stated that the ADMA Code draws heavily on the Model Direct Marketing Code that was developed in consultation with consumer groups, industry and other government agencies, and is consistent with the Commonwealth government policy of supporting industry self-regulation. It was submitted that both the ADMA Code and the Model Code contain extensive review provisions and any operational issues that arise can be addressed through those processes.
Lack of Coverage 7.7 It was submitted by the FSCPC that the extent of ADMA’s coverage should be the subject of further research and assessment before the Code of Practice is authorised. The FSCPC submitted that the test in this case should be an investigation of the volume of direct marketing contacts that will be covered by ADMA’s members, including unsolicited mail, unsolicited e-mail and telemarketing. It submitted that the extent of coverage is one of the most important factors in assessing any likely public benefit from authorising the Code, and that in ADMA’s case coverage would be insufficient. The FSCPC argued that an authorised Code providing inadequate or fractional coverage worsens the position for consumers who may believe that their privacy is protected when, in fact, it is not.
Scope of the Code 7.8 The APCC, the federal Privacy Commissioner (‘PC’), FSCPC, ACA and the Consumer Credit Legal Service (‘CCLS’) submitted that the scope of the Code of Practice was too narrow for a number of reasons:

Situations where marketing material is sent with the intention of inducing a recipient to visit a retail outlet to buy goods or services are not covered by the Code. It was submitted that while some areas of the Code such as quality guarantees and cooling off periods appropriately apply only to situations where goods are purchased at a distance, issues of privacy arise with respect to the targeting of all direct marketing material. It was argued that public benefit would be increased if Part E applied to all forms of personalised, unsolicited advertising or other forms of solicitation engaged in by ADMA members.

Most of the conditions in the Code of Practice apply specifically to direct marketers which is defined narrowly in clause 3.5 of Appendix 1 of the Code of Practice. It was argued that this definition excluded many ADMA members, including fundraisers. The CCLS submitted those provisions in the Code attempting to bind employees, agents or subcontractors would not adequately address this limited scope.

The Information and Security Law Division of the Commonwealth Attorney-General’s Department (A-G’s) expressed concern that the Code gives the impression that it will apply to all ADMA members, and that the definition of ‘direct marketer’ contained in the Code is narrower than that which is commonly accepted by consumers. In these circumstances, A-G’s was concerned that the potential existed for consumers to misinterpret the actual scope and application of the Code.

Privacy 7.9 The consumer data protection provisions contained in Part E of ADMA’s Code of Practice were the subject of much comment. While acknowledging that these provisions were largely based on the NPPs that were released by the PC in 1998, a number of interested parties expressed concern about their application in the Code of Practice.
Interpretation of Clauses 9.1 and 9.3 – ‘the use exception’ 7.10 The APCC submitted that it is unclear whether the ‘use’ exception contained in clause 9.3 of the Code of Practice amounts to an additional ground for use, or whether it is a supplementary condition on use when information is intended to be used for the purposes of direct marketing. It expressed concern that ADMA had interpreted the provision as an additional ground for use in the Code of Practice. In a submission tabled at the pre-decision conference, the PC stated that it was her preliminary view that cl.9.1 and 9.3 (and their equivalent NPPs 2.1(a) and 2.1(c ) were independent alternatives; in order to use personal information, a direct marketer need only meet the requirements in one of those clauses. The PC noted, however, that principle 2.1(c ) is limited to uses of personal information within the collecting organisation; it does not permit disclosures to other organisations. If an organisation wanted to disclose personal information for direct marketing purposes, it would have to meet one of the other exceptions within NPP 2.1, most probably the ‘consent’ exception at 2.1(b).
ADMA’s Do Not Call/Do Not Mail Facilities 7.11 The opt out system that ADMA members are required to use by clause 33 of the Code of Practice was also criticised. The APCC expressed the view that the exception for current customers was unacceptable, it argued that a customer’s expressed preference not to receive unsolicited approaches, should not be overridden because the customer chooses to purchase goods and services. The APCC also argued that ADMA should be required to show cause for ceasing to respect preferences after a particular period.

7.12 Mr Robin Whittle of First Principles submitted that ADMA’s Do Not Call and Do Not Mail services have serious privacy problems. He said that to prevent phone calls, individuals must give their name, address and phone number; all of this information would then be distributed to ADMA’s members. He said that ADMA had no way of controlling what its members or their employees did with these lists. Mr Whittle argued that the best way to protect consumers was to adopt an opt-in approach but alternatively, there existed a better opt-out approach. Mr Whittle’s preferred approach involves the existence of a single, independent body to maintain a list of opted-out telephone numbers of business and residential customers. Under this approach direct marketers forward a list of numbers, or names, addresses and numbers, to the independent body, and for a fee, the body filters the list; returning it with a character or database field to flag those numbers that should not be called because they are on the opted out list. A filtering service of this type is currently being run by the American Computer Group and is called the Telephone Preference Scheme "SAFEtps". Mr Whittle said that the same company operates similar filtering services for direct mail and e-mail addresses.

7.13 The FSCPC also submitted that the Do Not Call / Do Not Mail services should be administered by a trusted third party to ensure consumer confidence.

Public Benefit of the NPPs and their Application to Specific Industries 7.14 Professor Graham Greenleaf and the FSCPC submitted that the Commission, in its draft determination had not examined whether or not the substance of Part E of the Code is in the public interest. Professor Greenleaf said that in developing the NPPs the PC did not consider public benefit issues, her concern was principally to find a consensus between business and privacy groups.

7.15 The APF, APCC and FSCPC stated that it was their understanding that the NPPs would be developed at a general level and would then be adapted to apply to specific industry sectors. The FSCPC suggested the following additions:

the removal of personal information from lists held by list brokers;

the provision of information on whether personal information will be used for list rental; and

the provision, where asked, of information about where a direct marketer has obtained a person’s details.

Trans Border Data Flows 7.16 With respect to trans border flows, the New South Wales Privacy Committee (‘NSWPC’) was concerned that Cl.30.1 allows for the avoidance of consent from data subjects if the transferor of the data and the transferee make a contract containing information-handling provisions. Due to privity of contract the NSWPC argued that data subjects would have no remedy if the recipient organisation ignores the information handling provisions. With respect to cl.30.5, the NSWPC expressed concern that the Code of Practice allowed trans border data flows where such flows would benefit the individual concerned. It argued that this provision was very subjective and open to abuse, given that ADMA sees direct marketing itself as a benefit to customers.
Implementation of Private Sector Privacy Legislation 7.17 Professor Greenleaf made the following submissions with respect to the government’s announcement that privacy legislation will be extended to cover the private sector:

there will soon be a parliamentary process under way which will determine by legislation, the standard of privacy protection that parliament considers to be in the public interest.

there will be a statutory procedure whereby proposed codes of conduct such as ADMA’s Code, can be tested in terms of their compliance with the statutory standard and authorised if satisfactory.

7.18 In these circumstances, Professor Greenleaf submitted that if the Commission is minded to give authorisation to ADMA’s Code, it should only do so as an interim authorisation under s.91 (2)(d) of the Act. Professor Greenleaf stated that this course of action would recognise:

the incomplete status of the NPPs as a guide to public benefit in privacy protection;

the likelihood of the need for variations to any authorisation once these legislative developments unfold; and

the current level of uncertainty in Australian public policy on what constitutes an appropriate level of privacy protection in the private sector.

7.19 The APCC submitted that in light of the government’s announcement any authorisation of the Code of Practice should be strictly time limited until such time as the Code is reviewed under the arrangements that will be put in place under privacy legislation.
Other Comments 7.20 A-G’s submitted that the provisions contained in the Code of Practice relating to data protection are appropriate and reflect international and national standards for personal data protection. While congratulating ADMA on implementing the NPPs, A-G’s also stated that amendments to the enforcement provisions of the Code are needed to ensure that the privacy protection that is provided by the Code of Practice is effectively implemented by complaint handling and enforcement mechanisms.
Electronic Commerce 7.21 While most interested parties showed in principle support for regulation of electronic commerce, the electronic commerce provisions contained in Part D of the Code of Practice were criticised on a number of grounds. Mr Robin Whittle and the APCC argued that the provisions were weak and vague.

7.22 Electronic Frontiers Australia (‘EFA’), the Australian Computer Society (‘ACS’) and Doctor Roger Clarke of XC were very critical of clause 1 of Section D. Clause 1 states that the same level of protection provided by the practices that apply to other methods of commerce should be afforded to customers who participate in electronic commerce. EFA, ACS and XC argued that special problems arose with respect to electronic commerce that required special attention. The problems outlined included the following:

Unsolicited commercial e-mail has a more serious impact on the consumer due to the intrusive use of e-mail incorporating substantial data attachments and the use of ‘push’ technology where selected data can be automatically delivered into a user’s computer at prescribed intervals or based on some event that occurs. It was argued that this was not only intrusive, but also costly in terms of the time taken to read and delete the mail and the capacity to clog up e-mail systems.

Because an e-mail address may be controlled by more than one person it is difficult to verify the identity of the people on either side of the transaction.

Internet traders are not required to have a business premise address or contact details by phone or facsimile. This makes it difficult for e-commerce consumers to seek redress in the event of a dispute. Further, disputes over matters such as the currency in which transactions and refunds are made are also potentially more difficult for consumers in the event that there is no physical location of the business, or it is too distant from the consumer to enable easy return of goods. It was argued by EFA that dispute resolution processes for electronic commerce should therefore be provided on-line.

Consumers are unable to make anonymous purchases when they buy on the Internet, they usually have to display an e-mail address and often have to provide their credit card details. This means that purchases on-line provide opportunities for data-mining that are not available for other forms of commerce. Dr Clarke stated that various programs have been designed to assist with this process, for example, software programs that can handle data supplied to search engines, customised news bulletins and cookies that are capable of providing considerable insight into a person’s interests. Cookies are a record that can be stored on a consumer’s local hard disk, they record data about web-sites that have been visited by the user.

Whereas the cost of using post and telephone are generally borne by the sender, receivers often bear the cost of communications over the Internet, direct marketing may therefore impose financial costs on receivers. The ACS submitted that while present tariffs used by ISPs are a mixture of connection time, transmission volume and subscription, this may change towards volume based charging as the dominant way of collecting money from consumers. Because e-mails are no longer just text-based but are able to transmit voice and video, this substantially increases the costs that may be borne by receivers of direct marketing mail. For these reasons ACS argued that opt-out provisions were not sufficient to protect Internet users and that opt-in provisions would be more appropriate for this form of commerce.

There is a clash in ethos on the Internet. Dr Clarke submitted that the Internet was originally developed on a community minded basis but is now becoming increasingly commercially oriented.

7.23 The FSCPC and the EFA submitted that electronic commerce issues should be removed from the Code of Practice. XC submitted that the Code of Practice should be the subject of further consultation and should advocate an opt-in approach with respect to unsolicited e-mail.
Enforcement 7.24 Most of the parties that provided submissions agreed with the conditions contained in the Commission’s draft determination. Many, however, believed that these conditions did not go far enough.

7.25 Professor Greenleaf, FSCPC, NSWPC and the PC stated that the Commission must ensure that the sanctions and remedies that ADMA is empowered to recommend are adequate and sufficient to protect consumer’s interests. It was also submitted that the substance of these sanctions must be sufficient to meet international privacy standards otherwise Australian direct marketers would face prohibition on the import of any personal information for use in direct marketing from Europe, Hong Kong and other jurisdictions with personal data export prohibitions.

7.26 With respect to compliance mechanisms for an effective information privacy scheme the PC submitted a preliminary view that:

Any framework must provide a mechanism by which organisations can commit themselves to complying with the principles. This would include: effective incentives such as sanctions of one kind or another for organisations to comply with the Principles; a reliable and independent mechanism for monitoring compliance with, and reporting on the effectiveness of the scheme, and providing individuals with access to an accessible, affordable, timely and independent mechanism for complaint handling and dispute resolution.

Action taken as a result of investigations should aim to provide redress to individuals who have been adversely affected by a breach of the principles, and to prevent breaches from recurring.

Redress should involve providing a formal apology for the breach; taking remedial action such as correction or deletion of relevant records; and where appropriate, paying compensation for harm or damage directly resulting from a breach. These should be part of what is meant by specified remedial action in the first dot point of paragraph 17 of Part F.

The absence of any reference to compensation for individuals affected by a breach is a serious deficiency. More serious privacy breaches can sometimes inflict significant financial disadvantage, and serious social and psychological consequences, on the affected individuals. In such cases; financial compensation is the only means of effective redress. The CLCV, Graham Greenleaf, and the FSCPC supported this point.

In order to prevent recurring breaches of the Code the administrator could require the organisation to take positive steps to prevent recurrence of the breach, eg, providing undertakings, implementing better security arrangements; improving public notification of information handling practices etc. The PC presumes that this is what the Code means at paragraph 17 of Part F.

7.27 Professor Greenleaf submitted that the Commission’s suggested amendment that ADMA provide for the reporting of complaints in ADMA’s annual report was inadequate given that most consumers and their representatives do not have access to such reports. Professor Greenleaf suggested that ADMA’s complaint handling should also be reported via its Internet site.

7.28 The CLCV suggested that further amendments are required if public benefit is to be derived from the Code. These suggested amendments included:

independence of consumer representatives must be guaranteed;

the Authority should have an odd number of members so that hung decisions are avoided and there should be a majority of non-industry representatives;

the precise role of the Compliance Officer and the terms and conditions of their employment should be defined;

evidence referred to in Cl.F.8 should be provided to the complainant as well as the ADMA member;

the Authority should be empowered to make binding determinations without reference to the Board; and,

the Code should state that the Authority would apply rules of procedural fairness to reviews of decisions of the Compliance Office.

Outbound Telemarketing

Calling Times

7.29 The allowed ‘cold – calling’ times were criticised as too generous by the CLCV, FSCPC, NSWPC, APCC and Mr Robin Whittle of First Principles. A number of suggestions were put forward for limiting these hours. These suggestions included:

making Sunday a call-free day;

providing a free silent line service; or

developing a Code with much wider coverage and then consulting with consumers about acceptable hours.

7.30 Alternative spans of hours that parties suggested might be appropriate, included from 9am to 8pm on week days, 9am to 5pm on Saturdays and the prohibition of calls on Sundays and public holidays. These are the hours incorporated in the Door to Door Trading Act 1986 (Tas) and were viewed by some consumer representatives as more acceptable because they had been agreed to by parliament.
Calling Frequency 7.31 The NSWPC submitted that the calling frequency provision contained in clause 12 needs to be clearly subject to the proviso that if an individual requests that they receive no further calls that request will be honoured indefinitely.
Interested Parties’ Responses to ADMA’s Amendments 7.32 Interested parties made a number of comments on ADMA’s response to the conditions that the Commission had set down in its draft determination.

The CLCV submitted that the amended Code fails to address the Commission’s concerns in so far as:

equality of representation on the Authority is not provided for;

the opportunity for all parties to participate fully in the enforcement process is not provided for;

the Code does not address the provision of reasons for decision either by the Compliance Officer or the Code Authority;

and guidelines for the imposition of sanctions have not been sufficiently addressed. For example, it asked what does ‘a breach of a serious nature mean’?

7.34 The Community Information and Referral Service of the ACT (CIRS) also expressed concern about the composition of the Code Authority as amended. CIRS stated:

It is particularly important that industry and consumer representatives are of an equal number in order to maintain an equitable balance in both the decision making and philosophy of the Committee.

There is already a strong possibility that a perceptual problem is arising with the establishment of the Code Authority as the two proposed consumer representatives were recruited by the industry body rather than by a more transparent and public form of recruitment and appointment. (This was a concern also expressed by the ACA.)

It is difficult to see how an independent chair can substitute for a consumer representative. While the independent chair is not a participant in the industry, it would compromise the Chair’s necessary independence if that position was seen to be a de facto consumer representative or expected to support the official consumer representatives in a voting situation.

Anti-Competitive Detriment 7.35 In addition to the anti-competitive detriment cited by ADMA, Mr Robin Whittle submitted that there are unique anti-competitive aspects to the business practice of direct marketing that concern the cost burdens placed on businesses by being targeted, against their will, by direct marketers. He submitted that these costs include tying up telecommunications services, the cost of receiving e-mails and faxes, staff time wasted, and the disruption to work and concentration, caused by direct marketing approaches by telephone, e-mail and door to door sales people. Mr Whittle submitted that ACCC approval of the ADMA Code would constitute government approval for ADMA members to systematically engage in intrusive marketing practices that cost almost all Australian businesses significantly in terms of lost productivity.

7.36 Professor Greenleaf submitted that ADMA members compete (using methods of direct marketing) in a number of markets to supply goods or services that are or could be, in close competition. In each case the market is comprised of the competing direct marketers and the recipients of direct marketing approaches. He argued that ADMA members compete in those markets by virtue of differences in the nature and quality of the direct marketing techniques that they use. Professor Greenleaf submitted that one of the differentiating factors is the extent of privacy protection provided by the direct marketing techniques that are used. He argued that consumers might choose to buy products or services in part because of the direct marketing techniques that are used to sell them. This includes the way in which the direct marketer deals with aspects of the consumer’s privacy, such as the intrusiveness of the communication and the way in which personal information is used or misused.

7.37 Professor Greenleaf submitted that one effect of ADMA’s code is that it will discourage competition in the provision of different standards of privacy protection as part of direct marketing. In particular, he argued, it will have the effect of discouraging the provision of standards of privacy protection that is higher than those contained in the ADMA Code. He argued that other effects would also result, including the following:

The content of any Code that receives ACCC authorisation, as being in the public interest will be legitimated as ‘all that the public has the right to expect’.

Direct marketers will therefore think of this as ‘the industry standard’, and as all that needs to be offered. They will be indirectly encouraged not to provide any higher standard of privacy protection.

Consumer demand for higher standards of protection from businesses will be blunted. There will be a tendency for consumer complaints to companies or regulators about the standard of privacy protection provided by ADMA members to be dismissed by references to ACCC approval. In the absence of a Code, there is likely to be more persistent consumer demand for higher standards, resulting in less competition to provide such standards.

If uniform standards are set for privacy protection in all forms of direct marketing, this will discourage different levels and forms of protection being provided for direct mail, telemarketing and e-commerce, even though these three different contexts may justify different forms of protection. Such uniform standards will therefore lessen protection and competition between actual or potential providers of similar goods and services in these different contexts. He submitted that the ADMA Code proposes such uniform standards.

7.38 Mr Hamish Gilmore, the South Australian Commissioner for Consumer Affairs, submitted that the availability of sanctions against a member, such as expulsion from ADMA is not anti-competitive in that the sanction does not extend to exclusion from the industry as a whole, or a prohibition on a person becoming a member some time in the future. He stated that membership of ADMA is not a benchmark for the industry; the various competition and fair trading laws fulfil that role. The Commissioner submitted that the following clauses were somewhat anti-competitive:

those requiring members to ensure that their suppliers will comply with the Code; and

those empowering ADMA itself to request non-members to comply with the Code.

ADMA’s Response to Comments made by Interested Parties

Definition of Direct Marketing

7.39 ADMA made the following submissions with respect to its definition of direct marketing:

It is based on the definition contained in the Direct Marketing Model Code of Practice. That definition, it submitted, singles out one segment of direct marketing, that is, the charitable and fundraising segment and infers, through reference to a contract, that the direct marketer keeps a record of the transaction. ADMA stated that it dropped the specific reference to fundraisers because if it listed all of the different activities that came under the definition of direct marketing, the definition would be unwieldy. ADMA argues that its definition of fundraiser contained in Cl.3.6 of Appendix 1 tie fundraisers to the definition of direct marketer.

It has presented a classic definition of direct marketing, albeit one that may not be comprehensive. It argues that it is direct marketers who have to see themselves and what they do reflected in the Code; the definition that has been put forward is one that any direct marketer should be able to identify with.

If the definition of direct marketing included sending an offer to customers to get them to come to a retail store, they would not be able to satisfy some key requirements in the NPPs. For example, if the flier has no direct response component to it, the retailer would be unable to satisfy the compulsory requirement under the ADMA Code to provide an opportunity to opt out of receiving further direct marketing offers.

Part E – Data Protection 7.40 ADMA stated that the PC’s November 20, 1998 Revision Draft of the NPPs has upheld the original drafting of NPP 2, with the addition of a specific requirement that "if the individual declines to receive further direct marketing communications, the organisation does not send any." ADMA claim that this addition has been accommodated under clause 34 of section E of the Code of Practice which requires a direct marketer to remove a consumer’s name from all internal marketing lists or lists for transfer to a third party at the request of the consumer.
Consultation 7.41 With respect to consultation, ADMA submits that the fair trading elements of the Code of Practice embody those contained in the Model Code of Practice that was endorsed by MCCA. Further, it stated that:

the telemarketing provisions are lifted from the government’s APAC report entitled "Telemarketing and the Protection of the Privacy of Individuals".

the e-commerce component contains the latest draft OECD Guidelines for Electronic Commerce"; and,

the data protection section is taken from the NPPs.

ADMA submits that all of these published standards have been the subject of extensive consultation over a period of three to five years.
E-Commerce Standards of Practice 7.42 ADMA submits that its e-commerce standards of practice are drawn from the latest OECD Guidelines for electronic commerce and are consistent with the Consumer Protection in Electronic Commerce Principles that were prepared by the Australian National Advisory Council on Consumer Affairs. ADMA also acknowledged that these standards are still being reviewed.
Monetary Compensation for Consumers 7.43 With respect to monetary compensation for consumers, ADMA submits that it has no statutory right to affect rights, other than those of members to belong to the association, nor does the Authority have the power to measure damages suffered by individuals or adjudicate upon the rights that might give rise to such damages.

It also expressed concern that the establishment of a compensation fund would attract "every kind of charlatan with a real or imagined complaint against direct marketers". ADMA considers that it would be appropriate to raise this matter in the context of the one year review of the Code so that reference could be made to other compensation schemes in other business sectors to ensure complementarity.

Further Consultation 7.45 After taking into account the views of interested parties outlined above, and engaging in further discussions with the applicant, Commission staff drafted a proposed final determination in relation to the application for authorisation. Chapters 8 and 9 of the proposed determination outlined a number of conditions of authorisation that staff intended to recommend that the Commission include in its determination. These chapters were circulated to selected consumer and privacy advocates, as well as a number of relevant government departments, for comment.

7.46 The Commission received a number of submissions during this third round of consultation and while most submissions were supportive of the proposed conditions contained in draft Chapters 8 and 9, a number of criticisms continued to be made in relation to certain aspects of ADMA’s Code. For instance, consumer and privacy advocates continued to criticise:

the lack of coverage of ADMA’s Code in terms of the number of direct marketing contacts that will be regulated. Particular concern was expressed in relation to the Code’s coverage of electronic commerce and telemarketing contacts.

ADMA’s failure to adopt an opt-in approach with respect to both telemarketing and email direct marketing approaches.

the failure of the Code of Practice to provide for monetary compensation where an ADMA member is found to be in breach of one of its provisions. The Privacy Commissioner re-stated his view that the award of monetary compensation in appropriate cases should be explicitly included in the Code.

the fact that the Code Authority, which is responsible for enforcing the substantive provisions of the Code of Practice, is also charged with the responsibility of reviewing the performance of the Code. Advocates were strongly of the view that the Code of Practice should provide for independent review.

Part D of the Code of Practice concerning electronic commerce. Advocates criticised Part D on the basis that it contained no net public benefit and had the potential to damage the development of effective consumer protection standards in electronic commerce that are being developed in other arenas.

8. Commission Evaluation

Introduction

The Commission’s evaluation of Application A40077 is made in accordance with the relevant statutory test that is outlined in chapter 4 of this determination.

8.2 In general terms, the Commission is required to determine whether the provisions of the Code of Practice for which the applicant has sought authorisation are likely to result in a benefit to the public that is sufficient to outweigh any likely anti-competitive detriment resulting from the provisions.

8.3 It should be noted that the Commission’s role in the authorisation process is not to design, or insist upon, the development of an ideal Code of Practice, it is constrained in this respect by its statutory duty. In Re Media Council of Australia (No. 3) the Australian Trade Practices Tribunal (now the Australian Competition Tribunal) made the following observation with respect to its own role:

"... an important matter to have in mind when approaching our analysis of the Codes is that the Tribunal’s function is not to require the design of an ideal system of code administration within the advertising industry, but to determine whether the proposed Codes within the Media Council system fulfil the statutory tests prescribed by sec. 90 of the Trade Practices Act." Further, in Re: 7 – Eleven Stores Pty Ltd, Independent Newsagents Association, Australasian Association of Convenience Stores Inc the Australian Competition Tribunal (‘the Tribunal’) stated the following: " … the Commission’s role is not to design for others business arrangements that can be authorised, nor insist on optimum arrangements before granting authorisation, but rather to assess formally whether some proposed conduct that might breach the provisions of the Act yields a net public benefit, and therefore can be authorised."

The Commission accepts that direct marketing, and distance selling in particular, has many specific characteristics which cause it to differ from shop front retailing. For the purposes of consumer protection and consideration of ADMA’s Code, the consumer’s lack of opportunity to inspect goods prior to entering into the purchase contract, the fact that transactions are often initiated by the direct seller without the consumer’s consent and that consumers may not have sufficient opportunity to research the goods and services that have been offered are most relevant. The Commission also accepts the statement by the applicant, and contained in the Model Code, that these distinctions mean that it is appropriate that specific rules are developed to govern those who are engaged in direct marketing and distance selling.

Scope and Coverage

Scope

The extent of public benefit that arises from ADMA’s Code depends upon the variety of situations that its provisions cover. Clause 6 of Part A of the Code states that it binds all ADMA members and all employees, agents or subcontractors of ADMA members. Clause 9 states that the Code requires members to ensure that their suppliers comply with the Code, by requiring that it is a condition of contracts between members and their suppliers.

8.6 Detailed provisions of ADMA’s Code are, however, often limited by the definition of direct marketer that is contained in clause 3.5 of Appendix 1 of the Code. ‘Direct marketer’ is defined as: " … an individual, corporation, partnership or organisation contracting or intending to contract for the sale of goods or services to a customer where:

the customer is contacted through a means of distance communication; and
customers are invited to respond using a means of distance communication; and
it is intended that the goods or services be supplied under a contract negotiated through a means of communicating at a distance; and,
a record of the transaction is captured and maintained on a list or database for further marketing purposes."

8.7 Interested parties claim that this definition limits the application of the Code of Practice in the following ways:

telemarketing, mail or e-mail that is aimed at promoting goods or services available through retail stores or separate phone or mail response is not covered;

fundraisers are excluded because there is no contract; and

situations where an ADMA member sells through distance communication are not covered unless a record of the transaction is captured and maintained for further marketing purposes.

ADMA made the following submissions with respect to its definition of direct marketer:

It is based on the definition contained in the Direct Marketing Model Code of Practice. The specific reference to fundraisers was dropped because listing all of the different activities that fall within the definition of direct marketing would make the definition unwieldy. Cl.3.6 of Appendix 1 ties fundraisers to the definition of direct marketer.

It has presented a classic definition of direct marketing. It is one that any direct marketer should be able to identify with.

If the definition of direct marketing included sending an offer to customers to get them to come to a retail store, ADMA would not be able to satisfy some key requirements in the NPPs. For example, if the flier has no direct response component to it, the retailer would be unable to satisfy the compulsory requirement under the ADMA Code to provide an opportunity to opt out of receiving further direct marketing offers.

8.9 As noted by interested parties, ADMA’s definition of direct marketer is particularly important as key provisions contained in the Code apply only to direct marketers (as well as their employees, agents, sub-contractors and suppliers). Part B – Standards of Fair Conduct 8.10 Most of the provisions contained in Part B of ADMA’s Code, with the exception of clauses 4, 5, 8, 10, 11, 27, 28, 33 and 34 refer specifically to direct marketers, and are accordingly limited in their application to direct marketers. The provisions of Part B are summarised in chapter 3 above and deal largely with the information that should be provided when direct marketers are making an offer or delivering goods or services, the offering of incentives, delivery, payment and cancellation and refunds.

8.11 The Commission notes ADMA’s claim that Part B of its Code is based on the provisions contained in the Model Code. Clause 6 of the Model Code provides that its Part 2, the fair trading requirements which are reflected in Part B of ADMA’s Code, are designed to apply to distance sellers rather than charities and fundraisers. The Model Code defines a distance seller as:

‘ … an individual or organisation contracting or intending to contract for the sale of goods or services to a consumer where the consumer is contacted through direct marketing. A distance seller may engage in direct marketing itself or employ a direct marketer to do so.’ ‘Direct marketing’ in turn is defined as: ‘ ... the marketing of goods or services or the seeking of donations through a means of communication at a distance where:

consumers are invited to respond using a means of communication at a distance; and
it is intended that the goods or services be supplied under a contract negotiated through a means of communication at a distance.

8.12 As the provisions of Part B of ADMA’s Code set standards of fair conduct in respect of pre and post sale behaviour as well as in respect of contracts of sale, it is appropriate that these provisions apply to those ADMA members who seek to contract with customers for the supply goods or services. Thus, Part B of ADMA’s Code would not apply to charities and fundraisers (as is also the case with Part 2 of the Model Code). However, the provisions of Part B are further limited in their application to direct marketers as defined by ADMA and, as noted, this definition requires that a record of the sales ‘transaction is captured and maintained on a list or database for further marketing purposes’. Consequently, the provisions of Part B may, as suggested by interested parties, apply only when a sale actually occurs. Therefore, the pre-sale standards of conduct in relation to the promotion of goods or services may only be enforceable against an ADMA member where such conduct results in a sale. Further, the provisions of Part B may not be enforceable against an ADMA member if the member does not maintain a record of the sales transaction or if the member does not intend to use the record for further marketing purposes.

As noted, the application of equivalent provisions in Part 2 of the Model Code is clearly not so restricted, with clause 6 of the Model Code providing that such provisions are designed to apply to ‘distant sellers’ (but not to charities or fundraisers). However, it is also noted that clause 7 of the Model Code states that Part 2 is not intended to apply in circumstances where a contract is initiated from a contract solicitation made using a means of communication at a distance but is finalised in the presence of both parties to a contract. The footnote to clause 7 states that the other Parts of the Model Code apply to the components of the transaction conducted at a distance, but to apply the requirements of Part 2 would place businesses using this part distance/part traditional approach at a competitive disadvantage to other retailers.
The Commission concludes that ADMA’s definition of direct marketer is not likely to result in benefit to the public in view of the limits it places on the scope of ADMA’s Code. ADMA’s definition of direct marketer should be amended so that it is equivalent to the Model Code’s definition of ‘direct marketer’ which includes by reference the Model Code’s definitions of ‘direct marketing’ ‘telemarketer’ and ‘telemarketing’. The Commission also concludes that it would be appropriate for ADMA to limit the scope of Part B through provisions equivalent to clauses 6 and 7 of the Model Code.

Part C – Fair Conduct Relevant to Telemarketing 8.15 Clauses 1, 2, 3, 9, and 10 of Part C of ADMA’s Code apply to ‘direct marketers’, while clauses 4, 5, 6, 7, 8, 11 and 12 apply to ‘telemarketers’. The Commission notes that ‘telemarketer’ is not defined in ADMA’s Code. Clause 3.7 of Appendix 1, however, defines a ‘telemarketing telephone call’, a term that is otherwise not used in the Code, as: ‘ … a telephone call initiated by a direct marketer or by an automatic dialler mechanism of a direct marketer that is designed to induce customers to purchase goods or services.’ In light of this clause it appears that the term ‘telemarketer’ refers to a ‘direct marketer’ who uses a telephone or automatic dialling mechanism to contact prospective customers. The application of the provisions of Part C is therefore limited to direct marketers as defined by ADMA.

8.16 As discussed in chapter 3 of this determination, the provisions contained in Part C set standards relating to the identification information that must be provided by direct marketers, information that must be provided at the customer’s request, acceptable calling conduct, permitted calling times, line disconnection times and calling frequency. These provisions are primarily concerned with regulating the times when direct marketers can contact prospective customers, and the manner in which they conduct themselves while communicating with these prospective customers, that is, conduct that takes place whether or not a sale results from the contact.

8.17 The Commission is concerned that the application of Part C may be considerably restricted by ADMA’s definition of direct marketer (as it is in respect of Part B, see paragraph 8.12 above). It is also noted that the provisions of Part 3 of the Model Code (which are reflected in Part C of ADMA’s Code) are specified to apply to ‘distance sellers, charities and fundraisers engaging in telemarketing’ (see clause 50 of the Model Code). Telemarketing, is defined in the Model Code as meaning:

‘… all activities that relate directly or indirectly to direct marketing and which involve the use of a telephone, facsimile machine, or other customer equipment connected to a telecommunications network to contact a consumer.’

Given the type of conduct that Part C of ADMA’s Code is designed to regulate, the Commission concludes that in order to give rise to adequate public benefit, the Part should apply to all ADMA members who contact prospective customers via telecommunications equipment such as telephones, facsimiles etc, whether or not they are seeking to contract with customers for the supply of goods or services. As the conduct that Part C regulates applies equally to those trying to sell goods or services or those trying to generate donations, the scope of the Part should cover not only direct marketers (see paragraph 8.14 above) but also fundraisers and charities, as is the case in the Model Code.

Part D – Fair Conduct Relevant to Electronic Commerce 8.19 An equivalent of Part D of ADMA’s Code is not contained in the Model Code. ADMA claims that Part D is based on the Draft OECD Electronic Commerce Guidelines. The Commission notes that Part D of the Code does not use the term ‘direct marketer’ or any similar term to limit its application to particular ADMA members only. The Commission concludes that Part D potentially applies to all ADMA members. Part E – Fair Conduct Relevant to Consumer Data Protection 8.20 The provisions contained in Part E of the Code are clearly limited to direct marketers as defined by ADMA. Interested parties were highly critical of this limitation. The Privacy Commissioner, for instance, stated that: ‘… the public benefit of the Code could be greater if the application of Part E, the data provisions, were less restrictive. The definition in Appendix 1 limits the scope of ‘direct marketing’ and hence the scope of the code by excluding the sending of material where:

the intention is to induce the recipient to visit a retail outlet to buy goods or services, or

the contract itself is not negotiated remotely; or

the transaction entered into is not for the provision of goods or services.

… much of the public benefit that could arise from Part E springs from the requirements to handle responsibly the personal information used to target marketing material – in a broad sense – to particular individuals. These requirements apply just as much to personal information used to encourage visits to retail outlets or to solicit donations as they do to approaches that offer a remote means of purchasing goods or services.

… So far as consumers are concerned, any personalised approaches based on information about their tastes and demographic characteristics have information privacy implications. Questions such as ‘where did they get my details’ and ‘what else do they know about me’ are just as applicable to promotions for physical retail outlets as they are to catalogue or Internet sales, and to charities as much as for-profit business. … [T]he protections of Part E should apply to all forms of personalised, unsolicited advertising or solicitation engaged in by ADMA members.’

8.21 The Commission is concerned that the application of Part E may be considerably restricted by ADMA’s definition of direct marketer (as it is in respect of Parts B and C, see paragraphs 8.12 and 8.17 above). In view of this restriction the Commission is not satisfied that the provisions of Part E would be likely to give rise to sufficient public benefit so that authorisation may be granted. As with Part C of ADMA’s Code, Part E is concerned with conduct that is not dependent on the selling of goods or services. It regulates the types of personal information that an organisation is able to collect, and what the organisation can do with that information. The Commission concludes that, like Part C, Part E of ADMA’s Code should cover not only direct marketers (see paragraph 8.14 above) but also fundraisers and charities.

8.22 In addition, the Commission sees no public benefit in limiting Part E of ADMA’s Code by excluding from its scope the conduct of direct marketers’ sending an offer to customers to get them to come to retail stores. The Commission shares the Privacy Commissioner’s view that the need to handle responsibly the personal information used to target marketing material applies just as much to personal information used to encourage visits to retail outlets as to approaches that offer a remote means of purchasing goods or services.

8.23 The Commission notes ADMA’s submission that direct marketers would not be able to satisfy some key requirements of Part E (and the NPPs) if the application of Part E is widened to include the sending of an offer to customers to get them to come to a retail store. ADMA submitted, for example, that if the flier has no direct response component to it, the retailer would be unable to satisfy the compulsory requirement under ADMA’s Code to provide an opportunity to opt out of receiving further direct marketing offers. It is also noted that APCC considered this argument entirely spurious, and submitted that a phone number or address can and should be provided for the purposes of opting-put and other complaints in all cases. The Commission considers that any compliance problems caused by extending the application of Part E in this way should be able to be resolved through discussions between ADMA and the Privacy Commissioner, who has welcomed the Commission’s suggestion of such discussions.

The Commission is of the view that ADMA should be granted interim authorisation for a period of six months in respect of a provision excluding from the scope of Part E the conduct of direct marketers sending offers to consumers to get them to come into retail stores. This period will provide ADMA with the opportunity for discussions with the Privacy Commissioner to overcome the compliance problem raised by ADMA.

Part F – Enforcement 8.25 Part F of ADMA’s Code sets out the manner in which it will be enforced. Most clauses apply to ADMA members. Clauses 2 and 13 however, refer specifically to a ‘direct marketer’. Clause 2 states that any person who has a complaint against a direct marketer may refer it to ADMA, while clause 13 provides that the CEO must send the direct marketer a notice containing the decision of the Code Authority within 14 days of the conclusion of the Authority’s hearing.

8.26 For the provisions of Part F to be effective and result in net benefit to the public, complaints should be able to be lodged, and enforcement action should be able to be taken, against all ADMA members who may breach the provisions of the Code. Part F of the Code should therefore refer to ADMA members rather than direct marketers.

Clause 1 of Part F refers to ‘customer complaints’ when discussing the referral of unresolved member complaints to ADMA. This may potentially imply that a member complaint can only be referred to ADMA where a contract of sale has been entered into, and the complaint has been generated by an actual customer of the member. As most of the provisions in the Code regulate conduct that takes place whether or not a contract of sale, or relationship between the consumer and the ADMA member, actually exists, the Commission is of the view that Part F should apply to ‘consumer’ rather than customer complaints.

Coverage

8.28 A number of interested parties submitted that the extent of a code’s coverage is one of the most important factors in assessing any likely public benefit that arises from the provisions contained in a code. It was recognised that ADMA may have adequate coverage regarding direct mail, but it was submitted that ADMA’s coverage with respect to new direct marketing techniques such as e-mail and telemarketing is insignificant. The FSCPC submitted that the test in this case should be an investigation of the volume of direct marketing contacts that will be covered by ADMA’s members, including unsolicited mail, unsolicited e-mail and telemarketing. It submitted that the Commission should undertake or commission some independent research on coverage. FSCPC argued that an authorised code that provides inadequate or fractional coverage worsens the position for consumers who may believe that their privacy is protected when, in fact, it is not.

8.29 ADMA stated that it is responsible for approximately 80% of annual sales derived from direct marketing techniques and represents over 400 organisations. It submitted that the coverage of its Code extends beyond its actual membership given the fact that its supplier members are involved in most direct marketing campaigns that are undertaken in Australia. It submitted that suppliers have an enormous commercial stake in ensuring that their customers adhere to best practices. ADMA also provided figures demonstrating that of the 40 organisations, who did the greatest number of direct mail campaigns in 1997/98, 30 were ADMA members. It stated that it was safe to assume that virtually all the rest would intersect with ADMA through their use of a member agency, mail house or list broker.

The Commission accepts that, while ADMA members undertake a significant proportion of all direct mail campaigns, they may initiate only a limited number of telemarketing and e-mail direct marketing contacts. It is noted that for a code of conduct to be an effective form of industry regulation, the code needs to have a good coverage of the industry concerned. Some interested parties (ACA and FSCPC) were in fact opposed to ADMA’s Code on the basis that it was either a form of industry self-regulation or was not mandatory. The mechanisms by which ADMA’s Code can be made mandatory are limited; it needs to be either embodied in legislation, or prescribed under the Trade Practices Act or similar state legislation. Whether either of these options is desirable is a matter of government policy. (It is noted specifically in respect of the protection of privacy raised by FSCPC, that the federal Government has announced that private sector privacy legislation is to be introduced which will apply to those industries that have not implemented their own approved privacy regulation. This proposed legislation is further discussed later in this determination.)
The Commission also notes that, in terms of the authorisation test, the wider the coverage within an industry of a code that prescribes satisfactory standards of conduct, the larger the public benefit likely to result from the code. However, a code that prescribes satisfactory standards can still result in public benefit even though it has limited coverage of an industry. Not only will persons dealing with industry participants that are covered by such a code benefit from the code’s standards of conduct, but other industry participants may also be encouraged, through competition or in order to avoid government regulation, to adopt standards that are equal to or higher than those prescribed in the code. The Commission concludes that the limited coverage of ADMA’s Code with respect to direct marketing contacts by e-mail and telemarketing is not of itself sufficient to satisfy the Commission that the relevant provisions of ADMA’s Code may not be granted authorisation. The issue of whether the standards set by ADMA’s Code are satisfactory, is discussed later in this determination.

The Rules

The following paragraphs comprise the Commission’s consideration of the substance of the rules contained in ADMA’s Code. The conclusions that are expressed are based on an assessment of the rules as they would apply once the scope of each of the Parts of the Code has been expanded in accordance with the Commission’s requirements as outlined above.

Part B – Standards of Fair Conduct 8.33 Part B of ADMA’s Code outlines standards of fair conduct relevant to those who engage in the use of direct marketing techniques. It is based on the provisions contained in Part 2 of the Model Code and covers a number of issues including misleading and deceptive conduct, false claims, the information that should be provided to a potential customer at the time an offer is made and the information that should be given at the time the relevant product is delivered. Clauses outlining the rules regarding the offering of incentives, delivery, cancellation of orders and refunds and complaint handling procedures are also included.

8.34 Many of the clauses contained in Part B reflect legislative provisions that are enforceable in court. For example, clauses 1, 2 and 9 prohibit direct marketers from engaging in misleading and deceptive, or unconscionable, conduct. These are mandatory standards that are prohibited by the Trade Practices Act or State and Territory fair trading legislation, and for which anyone can be taken to court if they are thought to be in breach. Given that direct marketers are required by law to comply with such standards in the absence of ADMA’s Code, agreement by ADMA members to comply with such standards reflected in the Code (ie, comply with the law) is not anti-competitive. Other clauses contained in Part B set minimum standards that go beyond what is required by law, for example, clauses requiring delivery of goods and services within 30 days and providing for a cooling off period of seven days or more. Through their imposition of minimum standards, these clauses have the potential to standardise the way in which participants in the direct marketing industry conduct their business and therefore may result in anti-competitive detriment, if the subject of adequate enforcement.

8.35 Direct marketing and distance selling methods have many specific characteristics that cause them to differ from shop-front retailing. The nature of sales using such methods mean that consumers will often not have the opportunity to inspect the relevant goods prior to entering into the purchase contract, or may not have sufficient opportunity to research the goods and services that are being offered by the seller. Those clauses that expand on the law by, for example, providing for information disclosure requirements and the introduction of a seven-day cooling off period, have the potential to ensure that consumers of goods and services are provided with adequate information about both their rights and purchases. Where appropriate, they also provide consumers with the additional protection of being entitled to a refund within seven days of the direct marketer receiving the returned goods or notice of the cancellation of the contract from the customer. Potential public benefits therefore result from the prescription of such minimum standards. While the Commission acknowledges the concerns expressed by some interested parties with respect to the breadth of exemptions to the cooling off period, it is noted that these exemptions are no broader than those contained in the Model Code.

The Commission considers, however, that clause 17 of Part B of ADMA’s Code, which deals with delayed delivery of ordered goods or services, requires clarification. The Commission requires the last sentence of the clause to be amended to provide as follows – ‘This notification must be accompanied by a reply-paid or other cost free response mechanism and include an option for the customer to cancel the order and receive a full refund of any money paid.’

While those provisions that reflect the law do not add to the level of protection that consumers are already entitled to, they will result in public benefit if they encourage compliance with the law and are the subject of efficient complaint or dispute resolution procedures. The promulgation of effective complaint handling procedures contributes significantly to a scheme’s ability to deliver public benefit. Quick and inexpensive dispute resolution procedures benefit the public through resolving consumer concerns and taking pressure off the courts. They also provide a mechanism through which industry is able to identify problem areas and take steps to rectify them, in addition to facilitating better business practices and the provision of higher quality goods and services. The effectiveness of the ADMA complaint handling mechanisms is discussed later at paragraphs 8.88 to 8.91.

Part C – Telemarketing 8.38 Part C of ADMA’s Code sets down standards of fair conduct that relate specifically to the technique of telemarketing. Clauses 1 –3 outline procedures that a telemarketer must follow with respect to the provision of identification information. Clause 4 outlines the information that the telemarketer must provide to customers who request it. Clause 6 provides that a telemarketer must not represent that they are undertaking market research where the purpose of the call is to sell a good or service, while clauses 7 and 8 outline acceptable calling conduct. The provisions contained in Part C are largely based on those contained in Part 3 of the Model Code of Practice. 8.39 Interested parties criticised Part C on the following grounds:

where a service bureau makes a call on behalf of a direct marketing organisation, it should be required to identify itself as well as the organisation on whose behalf it is making the call;

the term ‘telemarketer’ should be defined;

the permitted calling times are too generous; and,

if an individual requests that they receive no further calls in relation to a campaign, that request should be honoured indefinitely.

8.40 ADMA did not address these concerns in its submissions to the Commission. 8.41 On the issue of definition of the term ‘telemarketer’, the Commission has concluded (see paragraph 8.14 above) that ADMA should adopt the equivalent of the Model Code’s definition of ‘direct marketer’, which includes by reference the Model Code’s definitions of ‘direct marketing’, ‘telemarketer’ and ‘telemarketing’. The Commission has also concluded (see paragraph 8.18 above) that the provisions of Part C should extend not only to direct marketers (so defined) but also to fundraisers and charities.

The PC in particular has expressed concern that where a service bureau makes a call on behalf of a direct marketer, it should be required to identify itself as well as the direct marketer on whose behalf it is making the call. (The PC has raised this same concern in respect of clause 5 of Part E of ADMA’s Code, see paragraph 8.69 below.) ADMA has advised that there would be compliance problems with such a requirement. The Commission notes that the relevant provision of the Model Code requires telemarketers to identify themselves, the direct marketer they represent, and advise the purpose of the call. However, clause 1 of Part C of ADMA’s Code requires a direct marketer to ensure the following information is provided to the customer – the name of the person making the telephone call; where a service bureau is making the call, the name of the organisation on whose behalf the call is being made; and the purpose of the telephone call. ADMA has advised that for practical reasons such as clarity and brevity of the introduction, when the call is made by a service bureau, the individual making the call would identify him/herself, but not the service bureau, and the organisation on whose behalf the call is being made. Clause 1 of Part C thus reflects industry practice. The Commission considers that the issue of appropriate disclosure of identification information in telemarketing calls where make by a service bureau, and the compliance problem raised by ADMA, should be the subject of further discussion between ADMA and the PC. The requirements of clause 1 of Part C of ADMA’s Code should be reconsidered, in the light of such discussions between ADMA and the PC, as part of the first review of ADMA’s Code.

8.43 The Commission recognises that telemarketing, as a technique, gives rise to special problems. Issues of intrusion upon an individual’s private space, as well as concerns regarding the quality of information that consumers receive about the product that is being marketed, and their recourse to a resolution mechanism for complaints about either the product or the telemarketing activity itself are relevant. The Commission is satisfied that the provisions contained in Part C of ADMA’s Code dealing with the provision of information, acceptable calling conduct, line disconnection times and calling frequency have the potential to address these problems.

8.44 The clauses of Part C concerning the provision of identification information and information to be provided on request potentially ensure that a consumer is given adequate information so that they have some recourse in the event of a complaint concerning the conduct of a telemarketer. The Commission is also satisfied that those clauses of Part C that require direct marketers, fundraisers and charities to consider the convenience of the customer, limit the times when they contact customers and release a customer’s telephone line within 5 seconds of the customer hanging up, will contribute to the protection of the customer’s right to privacy and to not be intruded upon in their home or workplace.

8.45 The Commission notes, however, the concerns of a number of interested parties regarding the span of permitted calling times contained in clause 9 of Part C. This span is drawn from the span of hours included in the Austel Privacy Advisory Committee (APAC) Report ‘Telemarketing and the Protection of the Privacy of Individuals’ which states that:

Without an individual’s consent an organisation should not use the telephone or ACE [automatic calling equipment] to contact the individual before 8am or after 9pm local time at the individual’s location or on Christmas Day, Good Friday or Easter Sunday.’ The same span of hours was included in clause 56 of the Model Code.

8.46 The Commission notes that the more restrictive are the permitted calling times of ADMA’s Code, the greater is their anti-competitive effect through the resulting standardisation of ADMA members’ behaviour. On the other hand, the Commission recognises that there is public benefit in establishing an industry minimum standard with respect to permitted calling times. Such a standard contributes to the protection of consumers’ privacy and minimises intrusion upon their personal space. The Commission agrees with interested parties that the permitted calling times of ADMA’s Code are generous. Consequently, this provision of the Code is likely to have minimal anti-competitive effect, but is also likely to result in relatively little benefit to the public. On balance the Commission considers that the provision is likely to result in net public benefit. It is noted that the permitted calling times adopted by ADMA have been endorsed through the Model Code process by the MCCA. The Commission would expect that interested parties will again raise the issue of permitted calling times when the Model Code is being reviewed.

The NSWPC submitted that if an individual requests that they receive no further calls in relation to a campaign, that request should be honoured indefinitely. Mr Robin Whittle of First Principles further submitted that direct marketing approaches, where they are not wanted, impose costs on consumers and businesses. These costs include tying up telecommunications services, the cost of receiving e-mails and faxes, staff time wasted, and the disruption to work and concentration. These submissions raise issues relating to the adoption of adequate procedures whereby consumers can communicate their desire not to receive direct marketing approaches, which are discussed later at paragraphs 8.72 to 8.82.
In January 1999 the Commission received a joint submission from FSCPC and the Australian Telemarketing and Call Centre Association (ATCCA), which has 1100 members including most banks, non-bank financial institutions, telemarketing bureaus, commercial and charitable organisations. They advised that ATCCA is developing, in close consultation with consumer representative organisations, a new code of conduct that will cover all aspects of telecommunications based communications between its members and consumers. They expressed concern at the damage that could potentially be caused by the premature authorisation of ADMA’s Code, which purports to cover activities like telemarketing and e-mail marketing, but which sets relatively low standards of consumer protection, and only provides limited industry coverage.
As noted above, the Commission considers that Part C of ADMA’s Code sets standards of conduct for telemarketing that are likely to result in net public benefit. As also noted, the provisions of Part C are based on Part 3 of the Model Code, which has been endorsed by the MCCA. It can thus be concluded that the MCCA also does not consider that Part C of ADMA’s Code sets inappropriate standards of conduct for telemarketing. On the issue of industry coverage, the Commission has concluded (see paragraph 8.31 above) that the limited coverage of ADMA’s Code with respect to direct marketing contacts by telemarketing is not of itself sufficient to satisfy the Commission that the relevant provisions of ADMA’s Code may not be granted authorisation. Further, the Commission does not consider that its authorisation of ADMA’s Code will prevent other industry associations from developing their own codes of conduct, including codes that prescribe higher standards of conduct where an association assesses that this is desirable to better address industry problems or consumer concerns.