Discussion Paper Summary

Nov 1995

Direct and Distance Selling from a Consumer Perspective

In 1992 the Ministry of Consumer Affairs and Ministry of Commerce commenced a review of the Door to Door Sales Act 1967. The focus of the review was to examine the effectiveness of the Act as an instrument to promote competition and fair trading in retail markets.

It soon became apparent that a wider review of direct and distance selling practices was warranted. Recurring consumer complaints about doorstep trading and other direct and distance sales continue to cause concern. The ease of establishing a direct and distance sales operation using sophisticated technologies has stimulated phenomenal growth in the use of these selling techniques. The Door to Door Sales Act is of questionable relevance as a market control instrument in this area.

Direct and distance selling includes all those activities that promote or solicit sales by way of direct approach to potential customers at places other than usual or appropriate trade premises. These include door to door sales, multi-level marketing, party plan sales, seminar sales, mail order, telemarketing, direct response television advertising, and trade fairs. The Door to Door Sales Act applies to many of these practices in ways that were not envisaged when the Act was passed.

What is the nature of problems with direct and distance selling?

Although direct and distance selling presents significant benefits for many consumers it creates opportunities for sellers to distort the normal workings of retail markets. Direct and distance sellers initiate the sales contact at the customer's home and other places that are not usual or appropriate trade premises. The home environment is not one where competitive market forces can be seen to produce the optimum information and choice levels which are conducive to rational and voluntary purchase decision-making. The home is the very environment where the consumer is most vulnerable to high pressure sales technique and sudden impulse buying. In the home it may be difficult to offer a choice among a range of products, and comparative claims about quality and price cannot be tested through pre-purchase examination of the product.

Problems raised by consumers

Recurring problems with direct and distance selling which are reported to the Ministry of Consumer Affairs Advice Service and other consumer agencies include:
Coercion, nuisance, targeting of vulnerable consumers; lack of accurate relevant trader, product, contract and redress information; non-delivery or delayed delivery of ordered product; seller avoidance of statutory cancellation provisions; and a lack of effective redress.

Issues for discussion

Consumer concerns with direct and distance selling can be grouped into seven categories: information, payment, delivery, cooling-off periods, cross-border shopping, privacy and redress. These issues need to be addressed to meet the Government's objective of promoting social cohesion and competition in fair and informed markets.

Information

Full and accurate information enables consumers to exercise choice, to make rational purchasing decisions, to get optimum user enjoyment out of products, and to get access to redress if and when required. Analysis of consumer problems with direct and distance selling indicates the existence of serious gaps in the content of, and manner in which, information is given to consumers. The paper questions whether any specific information should be given to consumers as a matter of form. If so, what information, when should it be given, and in what form.

Payment

In direct and distance selling transactions consumers are often asked to pay for product in advance of delivery of product or service. Prepayments are problematic for consumers when seller performance is delayed or when things go wrong and a refund is required. The use of credit cards for prepayment creates a potential for fraud. The paper seeks more information about problems with prepayment, the distance use of credit cards and asks whether payment and delivery should be performed at the same time.

Delivery

Delays beyond stated performance and delivery times cause consumers hardship and inconvenience. In cases of prepayment there is little incentive for sellers to meet time commitments for performance and delivery. The paper seeks more information on problems with late delivery and why they occur and asks whether any special controls should apply.

Cooling-off periods

Cooling-off periods allow consumers an opportunity to reconsider purchasing decisions. They are particularly appropriate for door to door sales and telemarketing where the consumer decides to buy in response to pressure or on a sudden impulse. There is an international trend toward allowing cooling-off periods in direct and distance selling transactions. Questions arise whether cooling-off periods should be limited to credit sales and unsolicited sales. The paper questions whether there should be a cooling-off period, and if so, what transactions it should apply to, how long it should last and how consumers should be notified of it.

Cross-border shopping

The ease of use of credit cards for payment of products has induced a global retail marketplace where sellers can use 0800 and 0900 phone lines and computer networks to do business cross-border. The paper asks whether it is a problem for NZ consumers, and if so, what controls should exist.

Privacy

The increasing use for direct and distance selling of sophisticated information collection, storage, matching and transfer technologies raises the issue of personal privacy invasion. Issues of concern include the use and transfer of personal information in the form of marketing lists. The paper asks whether sellers should be required to get positive consent to put consumers onto marketing lists, and whether further controls should be placed on the sale of lists.

Redress

Redress is about putting things right when they go wrong. Problems which are peculiar to direct and distance selling include the lack of information about who to complain to and how, and the cost and inconvenience of complaining across distances by phone or mail. The Ministry of Consumer Affairs supports the development of clear and accessible redress procedures that are well publicised, cheap, speedy, effective and monitored. The paper seeks feedback on whether existing redress procedures achieve these objectives.

Options

A major objective of this review is to look at the ways direct and distance selling is currently controlled and consider what controls are appropriate in future. Retaining the status quo would require an acknowledgement that the Door to Door Sales Act 1967 provides an appropriate mix of controls and incentives to ensure effective competition in direct and distance selling markets.

This paper outlines a number of options including amendment of the Door to Door Sales Act 1967, the development and use of voluntary codes of practice by businesses, and the combination of Code of Practice with general principles of law.

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