7.1 Door to Door Sales and Other Direct Selling

The Door to Door Sales Act 1967 applies to any credit sale agreement made other than at the “appropriate trade premises” of the vendor. “Appropriate trade premises” is defined as premises where the vendor normally carries on business, or where similar goods are normally offered for sale. Typically the Act applies to sales in the home that result from uninvited traders calling with goods or services for sale.

The Act provides consumers faced with this type of selling method with legal protection in the form of a 7 day cooling-off period after the making of an agreement during which the consumer may cancel the contract by notice in writing. The Act also provides that the seller must disclose to the consumer the rights of cancellation in a written statement and that the contract is unenforceable if the disclosure requirement is not met.

The Act is a legislative response to the perceived vulnerability of consumers purchasing goods and services in their own homes or otherwise away from the vendor’s “appropriate trade premises”. It is premised on the assumption that consumers are vulnerable to being pressured into buying goods or services when they have not chosen to conventionally shop at the seller’s usual trade premises. The vulnerability which may cause consumers to make poor purchasing decisions is due to:

• the seller making the initial approach (unexpectedly), often personally, either face to face or over the telephone
• the seller only offering a limited range of products, and
• salespeople making use of direct selling techniques and strategies which take psychological advantage of the selling environment (usually the consumer’s home, workplace or other environment where the consumer cannot easily walk away without buying something first) to pressure the consumer.

In these circumstances, consumers might not be in the position to make the best choices, or to trade confidently with these suppliers.

Other businesses may also be disadvantaged if they do not have the opportunity to compete fairly with suppliers which might be inappropriately pressuring vulnerable consumers.

History of the Door to Door Sales Act

The Door to Door Sales Act is a limited response to redress the above issues. Most significantly, it only applies to the provision of goods on credit (including hire purchase and hiring)³¹. It does not apply to cash sales of goods because it was assumed when the Act was passed that consumers who were able to pay the full purchase price when the sale agreement was entered into did not need protection.

The Door to Door Sales Act was passed at a time when it was quite common for salesmen to go house to house selling such goods and services as encyclopaedias, photographs, vacuum cleaners, household linen, brushes, heating equipment and pest control. The Act was intended to protect consumers from the sales pressure applied by sellers knocking on their door in an attempt to sell their products.

In the second reading of the Bill, the Minister of Industries and Commerce stated that “The purpose of the Bill is to allow a purchaser who has signed an agreement involving a credit sale if on mature consideration and perhaps discussion with other members of the family, he or she…feels that it is not in her interests to go on with the transaction. It is aimed not at interfering with door to door selling as such, but only at undesirable practices and pressures that are sometimes applied in this type of transaction.”

Ongoing relevance of regulation of door to door sales and direct selling

The Door to Door Sales Act is 40 years old and was enacted before a number of modern sales technologies were envisaged, including telemarketing. There are a number of specific problems with the Act, in particular that it applies to credit arrangements but not sale of goods by cash or using a credit card. Aspects of the Act are also unclear including what is meant by appropriate trade premises.

There are three principal issues to consider regarding any ongoing regulation of door to door and direct selling:

• Is specific legislation necessary to protect purchasers from direct selling pressures and, if any, what transactions should it apply to?
• If legislation is appropriate, what protections should be provided, e.g. cooling-off period, disclosure?
• If legislation is appropriate, should it be in a separate Act or incorporated into an enhanced Fair Trading Act?

Is legislation necessary?

The National Consumer Survey 2009³² found 26% of New Zealanders purchased via door to door selling, telemarketing or other direct selling such as at a seminar, in the previous 2 years (31% under 30 years, 26% 30-64 years and 19% 65 years or over), indicating this is still a fairly popular form of selling. In recent years, door to door selling and telemarketing of telecommunications and electricity services has become popular³³.

It is a form of selling that still attracts some attention and criticism. Consumer NZ occasionally publishes articles in the Consumer magazine about rights under the Door to Door Sales Act and warnings to consumers about pressure selling door to door. There is anecdotal evidence of consumers having problems with direct selling which has been recorded by Consumer NZ, the Ministry of Consumer Affairs and the media. Recently, there were complaints about door-to-door selling of KiwiSaver at residential premises, which is prohibited by the Securities Act 1978, and about the undesirable practices used in selling the product at a university campus (direct selling of investment products at businesses or via the phone or email is not prohibited).

The National Consumer Survey found that 16% of people who purchased via door-to-door selling, telemarketing or other direct selling experienced a problem.

When there is existing legislation establishing protections against certain practices, it is difficult to get a clear view of the problem that would exist if these protections were not in place. The above suggests, however, that this is an area where regulation is still needed.
A similar conclusion has been reached in Australia as part of the development of the Australian Consumer Law. This law includes provisions on unsolicited selling which cover door to door and direct selling.

The Productivity Commission in its Review of Australia’s Consumer Policy Framework³⁴ noted “a particular example of the role played by generic consumer law in protecting vulnerable and disadvantaged consumers is in the area of door-to-door selling (and cooling-off periods). Direct selling practices are sophisticated and widespread across a range of industries and products, including new growth markets such as pay television, telecommunications and retail energy supply. Some of the most vulnerable groups in the community (especially older women living alone, indigenous people and consumers with poor understanding of English continue to be subject to undesirable selling practices.”

What transactions should the law apply to?

What types of direct selling?

Although the Door to Door Sales Act’s title suggests it applies to “door to door” sales transactions, the mechanism used in the Act to define its scope refers to sales other than at the vendor’s “appropriate trade premises”, and this extends beyond door to door situations. The courts have held that the scope of the Act extends to telemarketing despite the argument from the vendor thatits call centre was an “appropriate trade premises”³⁵. It is unlikely that telemarketing call centres were contemplated when the Door to Door Sales Act was passed in 1967. The fact that a case on the application of the Door to Door Sales Act to new technology, new selling techniques and relatively new legal concepts around contract formation and “shrink-wrapped” products went all the way to the Supreme Court indicates that the Act is out of date and could be clearer.

There are also other direct or distance selling techniques where it is uncertain whether the Door to Door Sales Act does or should cover the situation. For example, selling through party plans (i.e. potential customers are invited to a “party” at another customer’s home to view the products), seminar selling, direct response television advertising (0800/0900 dialling), trade fairs and one-off venues.

The “appropriate trade premises” test does not provide a sufficiently clear direction as to whether or not particular direct marketing techniques are covered by the Act. Assessing whether particular trade premises are “appropriate” or not is particularly problematic.
A better option may be to expressly refer to door to door sales, telemarketing and any other form of direct marketing which ought to be covered by the law because consumers are vulnerable to making poor purchasing decisions.

The Australian Consumer Law proposal does not refer to door to door sales at all, but instead refers to unsolicited consumer agreements made by dealers and consumers in each other’s presence other than at a place of business of the supplier, or over the telephone. Simply referring to a “place of business” avoids the requirement to determine whether trade premises are “appropriate” under the current New Zealand formulation.

Initial approach by the direct seller

The Door to Door Sales Act does not apply where the “first inquiry specifically relating to the sale and purchase” is initiated by the purchaser (section 11) because the purchaser has chosen to place him or herself in the potentially vulnerable purchasing position. Many direct selling techniques involve the purchaser choosing to go somewhere (e.g. a sales party, seminar, trade fair etc) or to voluntarily respond to some kind of advertisement (e.g. direct response marketing). The Door to Door Sales Act says any advertising by the seller should be ignored in determining whether the consumer has initiated the sale.

The distinction between direct marketers making the initial approach, either in person or by telephone, and consumers making the initial approach themselves seems to be broadly valid in terms of identifying situations where consumers might be vulnerable and in need of some legal protection.

However there may still be situations where consumers are coaxed into “inviting” direct marketers to demonstrate a product or service in the consumer’s home (by, for example, responding to an offer for a “free quote”). In some instances, a consumer may have entered a competition and provided contact details allowing a seller to follow up. It is unclear whether this would mean the sale contact was initiated by the purchaser.

The Australian Consumer Law seems to clarify these situations by providing that unsolicited selling is when “the consumer did not invite the dealer … for the purposes of entering into negotiations relating to the supply of those goods or services (whether or not the consumer made such an invitation in relation to a different supply)” and “An invitation merely to quote a price for a supply is not taken, for the purposes of [previous quoted clause], to be an invitation to enter into negotiations for a supply.” It may be appropriate to include provisions similar to these in any new law to help deter some of the “enticement” practices.

What type of sales?

As noted, the Door to Door Sales Act only applies to “credit agreements”. For goods, this means the Act does not apply to purchases using cash or a credit card. Agreements to provide services are defined as credit agreements under section 3A of the Act.
If consumers are vulnerable to making poor purchasing decisions due to the direct selling techniques used by vendors, that vulnerability will exist irrespective of how the consumers might pay for their purchases. The distinction in protection needed between consumers using credit sales and other consumers who use cash, credit cards or bank overdrafts to pay for their purchases does not seem justified. Arguably a consumer who prepays for goods or services from a door to door salesperson or other direct marketer is more vulnerable than a consumer who defers payment of the purchase price.

The Australian Consumer Law proposals for regulating unsolicited selling make no reference to how goods or services are paid for.

If protections for door to door and direct sales are only needed for credit contracts, then it needs to be established whether protections beyond the Credit Contracts and Consumer Finance Act 2003 (CCCFA) are needed. The CCCFA includes mechanisms for disclosure and a cooling-off period during which the borrowing consumer can cancel the agreement. (The CCCFA, however, only provides for a three day cooling-off period and cancellation right, whereas a purchaser under the Door to Door Sales Act has a seven day cooling-off period and cancellation right.)

The scope of the contracts covered by the Door to Door Sales Act is wider than the scope of consumer credit contracts under the CCCFA. Under the CCCFA, there need to be interest charges, credit fees or a security interest for a contract to be a consumer credit contract. Consumer credit contracts under the CCCFA also exclude contracts for the sale of goods or services where the purchase price is agreed to be paid within two months. Under the Door to Door Sales Act a credit-sale agreement is simply one where the payment for goods and services is deferred (and where the purchase price exceeds $40, or $20 for books or goods which are hired), and there is no reference to interest or any other costs of credit being payable or to a time limit for paying the full price. Therefore some door to door sales agreements will be covered as credit sales under the Door to Door Sales Act when they are not consumer credit contracts under the CCCFA.

The disclosure requirements in the CCCFA provide for a wider range of credit information than the disclosure requirements under the Door to Door Sales Act because the CCCFA assumes there will be interest charges and other costs of credit, and it provides for those costs and charges to be disclosed. The Door to Door Sales Act does not provide for any costs of credit to be disclosed. If consumer protections for door to door and direct sales continue, these should be complementary to the wider application of the CCCFA as it is important that the fuller disclosure provisions of the CCCFA apply.

As well, if door to door or direct sales protections apply to a sale which is a consumer credit agreement under the CCCFA, then there needs to be avoidance of any unnecessary and potentially confusing duplication of requirements. The only value in the current duplication is that the purchaser has the additional benefit of the cooling-off period which is four days longer under the Door to Door Sales Act than the similar period under the CCCFA.

It may be appropriate to separate the credit aspect of door to door sales contracts from the Door to Door Sales Act and rely on the CCCFA to regulate consumer credit contracts. This would be consistent with the Australian Consumer Law proposals.

Purchase value threshold and other exclusions

The Door to Door Sales Act applies only to credit agreements for purchases of books over $20 and of all other goods over $40. These thresholds have applied since 1967. The purpose of a threshold is to minimise compliance and reversal costs for businesses dealing in low-value and/or low-profit goods. The Australian Consumer Law’s proposed threshold for unsolicited sales agreements is $100.

The Door to Door Sales Act also does not apply to employment or business agreements or agreements related to disposal of an estate or interest in land, a contract of insurance or purchase of shares in a building society. The Australian Consumer Law, rather than having exclusions, provides that the unsolicited selling provisions apply to consumer transactions (the goods or services were of a kind ordinarily acquired for personal, domestic or household use or consumption).

The Australian Consumer Law is suggested as an appropriate approach for New Zealand to consider. This definition of consumer is similar to that used in the Consumer Guarantees Act.

What protections are appropriate?

Cooling-off period

The only remedy provided for consumers in the Door to Door Sales Act to address pressure selling is the right to cancel a credit sale agreement within a seven day cooling-off period. The cooling-off period is linked to the vendor’s statutory disclosure requirement. Door to door sales have several characteristics which mean consumers may benefit from a cooling-off period. A cooling-off period allows the consumer time to reconsider their decision and cancel the purchase if they no longer want to proceed. Consumers are likely to relatively quickly recognise that they have made a poor choice, if it resulted from a high-pressure sales situation and being caught unprepared and unable to simply walk away from the salesperson. The cooling-off period also provides the consumer with the benefit of redressing the lack of ability to shop around in that they can quickly check other available options.

The use of cooling-off periods is also likely to affect the trader’s behaviour. If traders face the prospect of the sale being cancelled, they may be less likely to coerce a consumer into the transaction. Therefore cooling-off periods significantly reduce detriment to consumers who make ill-considered decisions without imposing substantial costs on traders or consumers. Generally they only cause minor delays on transactions.

As noted, the Door to Door Sales Act has a cooling-off period of seven days from the date of the agreement and the Australian Consumer Law has opted for 10 business days, also to start from the date of the sale agreement. Consumer NZ has suggested a 14 day cooling-off period.

Other protections

The proposed Australian Consumer Law goes further than a cooling-off period by prohibiting the supply of, requiring or accepting payment for, the goods or services in that 10 day period. This provision strengthens the cooling-off period provision in that the receipt of the goods does not add to the pressure or temptation. There is a downside, however, for consumers who want early delivery of their goods or services.

The proposed Australian Consumer Law also includes the following obligations on the vendor:

• clearly disclosing the seller’s purpose and identity
• ceasing to negotiate on request
• providing written contracts which conspicuously display information about the cooling-off period
• regulating the hours when direct marketers may call on consumers, either personally or by telephone, and
• prohibiting the inclusion of provisions in an agreement to exclude, limit, modify or restrict a right to terminate the agreement, or to induce the consumer to waive any rights provided by the Act.

There are similar requirements in the Door to Door Sales Act to disclose to the consumer the seller’s identity and contact details and information about the right to cancel the contract, and preventing contracting out of the provisions of the Act. There is no reason why these should not continue to apply to door to door sales, telemarketing and other direct selling. There have been no problems identified in New Zealand with door to door or telemarketing or direct selling suggesting the need for provisions to cease negotiating or to regulate the hours when direct marketers may call on consumers. This may be because of industry codes of conduct in place (discussed below). The regulation of hours when direct marketers can call has received a lot of attention in Australia’s development of the Australian Consumer Law.

Industry self-regulation

There are two industry associations with voluntary codes of practice which supplement the provisions of the Door to Door Sales Act.

The New Zealand Marketing Association has developed (and recently reviewed) a Code of Practice for Direct Marketing in New Zealand which has five basic principles:

• Principle 1: Marketers will comply with the laws and bylaws of New Zealand and all appropriate industry Codes of Practice
•  Principle 2: Offers will be clear and truthful and not present a product, service, or offer in a way that could mislead the consumer
• Principle 3: Orders for products or services will be handled in a responsible and prompt manner
•  Principle 4: Marketers will carry out their business in a way that is socially responsible
• Principle 5: Marketers will uphold high standards of business practice to bring about the trust of consumers.

These principles each sit above a relatively detailed “compliance guide” which reflects best practice for the direct marketing industry. The code requires direct marketers to comply with all consumer legislation, including the Fair Trading Act and Consumer Guarantees Act, as well as the Privacy Act 1993. Other features in the code exceed the requirements of legislation, such as the general social responsibility requirements, and “do not call” lists and a seven day cooling-off period for telemarketing transactions (irrespective of whether they are credit sale agreements). The New Zealand Marketing Association also has a Telemarketing Code of Practice.

The Direct Selling Association of New Zealand (DSANZ) estimates its membership covers 90% of the direct selling industry. Its Code of Practice provides that:

• advertising and promotion is not misleading or deceptive
• sales conduct respects the rights and privileges of the individual customer in the privacy of his or her own home
• product demonstrations give full explanation and cease on request
• disclosure of the direct salesperson’s full identity, address and reason for approaching the consumer
• a minimum 10 days cooling-off period
•  terms of payment are advised at the time the product is ordered
•  provision of comprehensive complaints and disputes procedures, and
• mechanisms exist to ensure that the Code is reviewed periodically.

Many of these objectives reiterate or extend existing consumer legislation. DSANZ’s Code is based on the Direct Selling Industry’s World Federation Code. The current version of the Code was adopted in May 2009.

Do we still need a separate Door to Door Sales Act?

As noted above, there is good justification for continuing to regulate for door to door or unsolicited selling to consumers. The law in this area, however, would significantly benefit from modernisation. There are a number of problems with the expression of the law in the Door to Door Sales Act. The Australian Consumer Law provides a useful model of a modern approach to regulating unsolicited selling.

The Australian Consumer Law includes the provisions regulating unsolicited selling alongside similar provisions to those in New Zealand’s Fair Trading Act.

Taking a similar approach and including door to door or unsolicited selling provisions in the Fair Trading Act would have the advantage that consumer law is found in one statute and it would also provide for enforcement of the provisions by the Commerce Commission. This approach would meet the objectives of the Consumer Law Reform to achieve simplification and consolidation of the existing law. The need for standalone door to door and direct selling legislation is not evident.

In summary:

The Door to Door Sales Act was a limited response to pressure selling in the 1960s, and it now seems out of date. The fact that it only applies to credit sales, and that it sits alongside more modern and sophisticated consumer credit legislation, emphasises the inadequacy of the Act. The courts have also struggled with the “door-to-door” and appropriate trade premises aspects of the Act.

A more modern approach would be for the Act to apply to all direct selling other than at the usual place of business of the supplier, irrespective of when the consumer pays for the goods or services. One question is what threshold amount should apply. The amounts of $20 for books and $40 for other goods were set over 35 years ago. Australia has opted for a $100 threshold amount applying to consumer goods and services.

A cooling-off period still seems to be an appropriate regulatory response to direct sales. There is a question as to whether the cooling of period should be seven days or 10 days or another timeframe.

There does not seem to be any good reason why the laws relating to door to door sales and direct marketing more generally should be in their own specialised legislation, rather than being in an enhanced Fair Trading Act.

In considering the objectives of the Consumer Law Reform, continued regulation of direct selling as part of an enhanced Fair Trading Act will meet the objectives that:

the law will:

• enable consumers to transact with confidence,
• protect reputable suppliers and consumers from inappropriate market conduct,
• be easily accessible to those affected by it, and
• is enforceable;

there will be simplification and consolidation of the existing law; and

harmonisation with the Australian Consumer Law will be taken into account.

Questions

Footnotes

31 Services are deemed to be goods sold on credit – section 3A.

32 National Consumer Survey 2009.

33 Discussions between Ministry of Consumer Affairs and Australian government officials indicate they have observed a similar increase in popularity of door to door sales of utility services contracts.

34 Review of Australia’s Consumer Policy Framework, Productivity Commission Inquiry Report, no 45, 30 April 2008, page 297.

35 Commerce Commission v Telecom Mobile Limited [2004] 3NZLR 667 (High Court), [2005] NZCA 218 (Court of Appeal), [2006] 1 NZLR 190 (Supreme Court). In this case, the courts considered the application of the Door to Door Sales Act to mobile telephone plans through the High Court, Court of Appeal and Supreme Court in the Commerce Commission v Telecom Mobile cases. The courts held that the Act did apply, but the cases involved complex issues about the status of the Telecom call centre as a trade premises, and the actual formation of the sales contract when the consumer unwrapped the new cell phone.