Discussion Paper Summary

March 2001

Regulation of Unsolicited Services

The inertia selling of services (also known as negative option selling) occurs when a seller supplies unordered services (for example, insurance) to a consumer and then bills the consumer. Often, the supply is accompanied by a form of notice instructing the consumer that if the offer is not rejected within a certain time, the seller will send an invoice or debit an existing account or line of credit. This is known as negative option selling, ie, instead of asking consumers to accept an offer of a service, it is assumed that they do accept it unless they say otherwise.

There have been a number of examples of inertia selling of services in New Zealand that have come to the Ministry's attention (see Appendix One for more detail). In 1988 a major retail store supplied unsolicited credit repayment insurance to customers with store credit cards. In 1991 three banks sent unsolicited credit cards to customers in an attempt to get cardholders to switch from one card to another. Some customers who did not reject the card and never used it were charged the annual card fee. In 2000 an electricity supply company informed its customers that it was introducing a new insurance scheme for call-outs to fix faults on the customer's property. The insurance was free for the first three months, but after that customers would be charged $20 a year unless they opted out. Also in 2000, an insurance company used inertia selling to launch a Roadside Rescue package as an add-on to motor vehicle insurance.

This type of selling is not illegal in New Zealand, although it is prohibited in some comparable jurisdictions such as Canada (see Appendix Two). New Zealand's law treats the inertia selling of services differently from the inertia selling of goods.

Inertia selling is regulated only by the Unsolicited Goods and Services Act 1975. In relation to the inertia selling of both goods and services, the Act says that the person who delivers unsolicited goods or services can demand payment only if:

• the recipient uses or consumes the goods or services, or
• the supplier has reason to believe that there is a right to seek payment for the goods or services.

Specifically, in relation to unsolicited supplies of goods:

• the recipient may keep the goods if the sender does not collect them within three months of the date of delivery (or the recipient can write to the sender and ask for the goods to be collected. If the goods are not collected within 30 days of this notice being sent, the recipient can keep them.)
• the recipient does not have to pay for the goods unless they agree to purchase them, or deliberately throw them away or damage them
• the sender cannot demand payment unless they have good reason to believe that they are entitled to it.

The above conditions provide a negative incentive to deter the inertia selling of goods.

However, the provisions described in the above paragraph do not apply to the inertia selling of services. The purpose of this paper is to address this issue.

The Ministry of Consumer Affairs considers inertia selling to be an unfair selling practice because it relies on inattention, inaction, or non-assertiveness on the part of consumers. Some consumers may not be able to assess whether an offer is value for money, or may be unwilling or unable to approach the provider to reject the offer. Consumers may inadvertently buy a service that they did not actively seek or do not want.

In this paper we propose three options for addressing the problems with inertia selling:

1. For all services ordinarily used for personal, domestic, or household use to be 'prescribed by' (ie, specifically referred to in) the Unsolicited Goods and Services Act.
2. For only certain services (for example, banking, credit, and insurance) to be 'prescribed by' (ie, specifically referred to in) the Unsolicited Goods and Services Act. This is the Ministry's preferred option.
3. For guidelines to be prepared for sellers who choose to undertake inertia selling of services.

Discussion Paper - full text

Download full version ( Adobe Acrobat format), 91kb

Download full version (Word 97), 143kb

If you are unable to download this document email your address details to us at: mcainfo@mca.govt.nz and we will post you a hard copy.