Written by Holly Agnew and Kate Krestow, Associates in the Advertising & Marketing Group
Although at first glance, direct mail’s speed to market of 6-8 weeks and response time of 2-6 weeks would appear to make it the tortoise of the marketing world compared to e-mail’s 1-3 weeks to market and 24-72 hour response rate, it should be remembered that slow but steady can win the race. New programs developed by the Canadian Marketing Association ("CMA") in co-operation with the US Direct Marketing Association and other international direct marketing associations allowing consumers to suppress e-mail addresses may halt unsolicited commercial e-mails but fails to impact direct mail. Likewise, direct mail will also fly past the radar of the Federal task force announced May 11, 2004 to implement "Canada’s spam action plan" aimed at curbing spam. Still, many advertisers are leery of direct mail, citing low response rates.
The US Direct Marketing Association found that the average response rate to direct mail is between ½–2%. This is indeed low. One way to combat this low response rate is to use a system of "negative option billing". Although this type of marketing can be effective, advertisers must be aware of the regulations when planning their campaigns. The Competition Bureau actively monitors direct mailings and will charge, and likely fine, any corporations they feel engage in deceptive and misleading practices.
Negative Option Billing
Negative option marketing as it is referred to by Industry Canada has not been legally defined, which means that the common law rules of contract apply due to the absence of explicit legislative provisions. The general rule is that a recipient of unrequested goods or services is not obligated to pay for them unless he or she consented to having the goods or services supplied. Consent may be inferred from the circumstances, but it depends on the understanding reached between the buyer and the seller. Substituting one buyer for another may void a contract.
This type of uncertainty has resulted in the provinces stepping in to regulate negative option plans. The CMA has also put a hand in to issue guidelines regarding such plans. For example, the CMA Code of Ethics and Standards of Practice allows negative option memberships only if consumers give "prior expressed request or consent to join". The Code and provincial legislation are complemented by federal legislation that is triggered if the terms and conditions of a negative option arrangement are deceptive. The Competition Act and Criminal Code do not govern negative option plans explicitly, but have provisions to penalize corporations that promote their product or business interest to the public in a manner that is false or misleading. Other Federal legislation can also impose negative option restrictions in specific industries, such as the Broadcasting Act or the Telecommunications Act.
Negative option plans are only legal in Ontario if there is a pre-existing contract. The current law in Ontario under the Consumer Protection Act (the "Act") puts a recipient of unsolicited goods under no obligation unless there has been a prearranged contract. Even unsolicited credit cards have no obligation on the person named on the card unless there is a written acceptance or request or use of the card. Negative option billing is currently illegal for goods so, for example, consumers who join a book club will not be obliged to pay for books that just keep on coming though they were never specifically ordered. This is further supplemented by the inclusion of certain rights to cancel executory contracts under the present Act. (An executory contract is one in which delivery of the goods, performance of the services, or payment in full of the consideration is not made at the time the contract is entered into.)
The current Act makes no mention of unsolicited services, but the unproclaimed 2002 Consumer Protection Act will extend its regulation of negative option billing to include services. This new law is designed to protect consumers in cases where service providers continue to withdraw monthly payments from bank accounts once their service contract expires. It would also make it illegal for cable television channels to automatically bill customers for extra channels once a trial period ends.
Therefore, before you start your direct mail campaign keep in mind the following dos and don’ts of negative option billing:
DO review the Consumer Protection Act. All negative option plans must be designed around pre-existing contracts.
DO consider if and how the changes to the Consumer Protection Act will affect your business.
DO review the CMA’s Code of Ethics and Standard Practice, even if you are not a member of the CMA. The Code will give you a sense of best practices when advertising by direct mail.
DO, if advertising outside of Ontario, consider whether the laws in any other jurisdiction will affect your campaign. For example, the US Federal Trade Commission guidelines contain a negative option rule with which you should become familiar before advertising in the US.
DO seek advice from legal counsel before launching a new negative option billing campaign.
DON’T engage in misleading or deceptive advertising practices. If you have any question about your campaign, seek advice from counsel familiar with the Competition Act.
DON’T assume that negative option billing is out of the question. Just make sure you know the rules before you start.
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
© Copyright 2004 McMillan Binch LLP