Appendix C Letter from the Department
of Trade and Industry to the Committee Specialist
Proposal for the Regulatory Reform (Unsolicited
Goods and Services Act 1971) (Directory Entries and Demands for
Payment) Order 2004: reply to request for information
Thank you for your letter of 29 June requesting further
comments on this proposal. I am pleased to provide the Department's
response that is attached. I am copying this letter to Christine
Salmon, Clerk to the House of Lords Select Committee on Delegated
Powers and Regulatory Reform, as requested.
I should be happy to assist if any further information
is required.
DTI response to questions on the proposed Regulatory
Reform (Unsolicited Goods and Services) (Directory Entries and
Demands for Payment) Order 2004
Introduction
1. It may assist to summarise the main changes being
advanced by the Order upfront. The Act prescribes three methods
of authorising an entry in a directory, and these are
- Business Order Method,
where an advertiser requests an entry on a document with their
letter-head
- Note of Agreement,
where the publisher sends the advertiser a Note, which they sign,
return, and retain a copy for themselves, and
- Electronic Communication, where
the publisher send an electronic communication, which the advertiser
acknowledges receipt of and agreement with the terms of.
2. The proposals in this RRO are to add two additional
methods of authorising an entry, being
- A simplified procedure for renewals and extensions,
which disapplies the authorisation procedures set out above where
extending or renewing and existing entry.
- Telephone authorisation,
where certain prescribed information is given verbally and the
advertiser pays by debit/credit card.
3. We are also updating the provisions in the Unsolicited
Goods and Services (Invoices etc.) 1975 regulations so that an
invoice or similar documents which states the amount of any payment
must include a statement that no claim is made to payment if it
is not to be construed as asserting a right to payment.
4. We spoke to the Local Authority Co-ordinators
of Regulatory Services (LACORS) in preparing these responses,
as well as the consumer regulation enforcement division of the
Office of Fair Trading (OFT).
Whether the proposal has the effect of continuing
any necessary protection as required in Section 3 (1)(a) of the
Regulatory Reform Act 2001 (S.O. No 141(6)(c))
Whether the proposal has been the subject of,
and takes appropriate account of, adequate consultation (S.O.
No. 141(6)(d))
Q 1 Has the Department given any consideration
to the comparative levels of telephone based deceptions in connection
with the directory publishing industry in other EU member states
and the effect that the various regulatory regimes of member states
may have on the incidence of deceptions of these kinds?
5. The starting point for the Department in developing
this Regulatory Reform Order was to determine the level of protection
that the 1971 Act provided to advertisers within the UK. We examined
whether there was scope for reducing the burdens placed on legitimate
publishers (and also advertisers) while maintaining the level
of protection for businesses generally against scam publishers.
6. The Department gave some consideration to the
regulatory regimes in other EU states in light of the protections
that they offered British advertisers being targeted by scams
from those countries. We considered the options available for
enforcement of United Kingdom law and for the prosecution in the
UK of scams perpetuated from other EU states.
7. The OFT informed us of a number of scams operating
from Europe and abroad which make use of the telephone. The most
common scams operating from Europe, however, tend to be paper-based.
The European City Guide (ECG) scam operating from Barcelona was
an invoice-based scam, which fraudulently signed up businesses
to a directory entry in fine-print, then when payment was not
forthcoming phoned up businesses to threaten them with debt-collectors.
There have been instances of scams from Europe where the first
contact has been made by phone. However, this contact is then
followed by the issuing of an invoice demanding payment for an
entry it was claimed was agreed over the telephone. The most
common telemarketing scams of this nature are based in Canada.
In none of these scams, however, has there been a practice of
demanding credit or debit card details over the telephone.
8. The types of scams the OFT refer to would continue
to be illegal within Great Britain under the changes that the
Department envisages making to the 1971 Act. They are also almost
certainly illegal in their countries of origin. European Member
States tend to rely on principled rules to ensure that businesses
adhere to good marketing practices, or a cooperative approach
to contract law requiring the parties to contract in good faith,
before, during and after the contract. [31]
9. We are unaware of any comparable legislation as
focused or prescriptive as the 1971 Act within other European
Union Member States. There are difficulties using the Act to
prosecute scams operated by people based in other countries.
Where electronic means are used by persons based in other EU
countries, the activity would be subject to the laws of that country,
as a result of the E-Commerce Directive. The 1971 Act might
be applicable where the scams from Europe are paper-based, or
use the telephone or a mix of both mediums. However, there are
practical difficulties in prosecuting entities based overseas.
10. The consultation for this RRO suggested there
was widespread ignorance of the Act within the United Kingdom,
and that a number of small or occasional directory publishers
were probably breaking the law without realising it. The feedback
from this, and the low level of prosecutions suggested that the
1971 Act was not itself acting as much of a deterrent. The reasons
for this, as noted in our response to Question 10, is because
most such scams originate from Europe, and there are difficulties
in enforcing this piece of domestic UK legislation in respect
of such scams.
11. The best way to deter scams of the type referred
to by the OFT, and which the Committee has particular concerns
about, is through co-operation with the enforcement authorities
of the European State concerned. In relation to the ECG scam,
the OFT sought the co-operation of the Catalan authority, under
Catalan law on misleading advertising. The court ruled that ECG
was to be temporarily shut down for one year and fined €300,000
(over £200,000) for its deceitful advertising. In another
case, the Liechtenstein authority shut down the Tour and Travel
Guide because its business practices were injurious to the state
in accordance with its laws.
12. The prosecution of these cases indicate that
the lack of a prescriptive law targeting directory publishing
in these countries does not necessarily prevent action being taken
against such scams.
Q 2 Please indicate whether any consideration
was given to permitting contracts for directory entries to be
agreed in the context of face to face discussions between publishers
and advertisers (or their respective representatives and agents),
as permitting the agreement of oral contracts by telephone call
but not in person appears to create an anomaly.
13. The 1971 Act does not prevent an advertiser agreeing
to an entry in a face-to-face discussion with a publisher or publisher's
representative, and the Department does not propose to change
this in these proposals. The requirements for authorising an
entry in section 3 or in the new section 3B can be met during
a face-to-face meeting.
14. The 1971 Act sets out three methods of authorising
a directory entry - being the Business Order Method, the Note
of Agreement Method and the Electronic Communication Method.
The Department proposes to add another two methods of authorising
a directory entry, being the Telephone Authorisation Method and
the simplified procedure for renewals and extensions.
15. A face-to-face meeting could be used by an advertiser
or publisher to authorise an entry in either of the first two
methods of agreeing a directory entry. The advertiser could use
a face-to-face meeting to place a Business Order for an initial
entry, which complies with section 3(1)(a) of the Act (an order
signed by the purchaser or on his behalf complying with section
3). The Publisher could also use a face-to-face meeting to provide
a Note of Agreement to the advertiser for their signature, thus
complying with section 3(1)(b). An additional requirement of
this method of authorisation is that the Publisher provide the
advertiser with a copy of the signed Note for their retention,
which could also be done at that meeting.
16. The new section 3B sets out pre-conditions for
renewals and extensions. The section does not specify formalities
for entering into a new contract. It could be orally in a face-to-face
meeting. However, if it is a term of the original contract that
the purchaser renew or extend, then the required written notice
must be given, and the 21 day period elapse without the purchaser
withdrawing his agreement. In any event the Publisher would need
to send the advertiser an invoice to obtain payment.
17. The telephone authorisation proposal would work
as follows: if there is a telephone call and the advertiser, having
been given the required information about the directory entry,
agrees to the entry then that does not give rise to a liability
to pay. That is, unless the advertiser subsequently provides
credit or debit card details to make the payment. As noted in
Question 1 above, where a demand for payment is sent out claiming
that an entry has been authorised over the telephone that would
continue to be illegal under the 1971 Act and under this telephone
authorisation proposal.
18. The telephone authorisation proposal is similar
to the Business Order method of authorising an entry in a directory,
taking account of the uniqueness of the medium of the telephone.
The advertiser agrees to the directory entry, having been given
the information necessary to make an informed choice. The directory
publisher is able to require payment when the advertiser provides
credit or debit card details. This is akin to where an advertiser
sends an Order on their letterhead paper. That is, they are making
a conscious decision to accept the entry by providing credit/debit
card details of their own volition.
19. Currently, the telephone can be used as part
of the existing three methods of authorising a directory entry.
Payments can be made over the phone if a client issues a Business
Order, signs a Note of Agreement from the Publisher, or transmits
an electronic communication agreeing to the charge. They then
must make a subsequent phone call to the publisher's accounts
department offering payment by credit or debit card.
20. The Department considers that the telephone authorisation
proposal does not, therefore, create an anomaly. The 1971 Act
allows directory entries to be authorised in a face-to-face meeting,
and as amended would still allow such authorisation, as well as
telephone authorisation if advertisers choose this method.
Q 3 Given the concerns expressed by the OFT
and in particular the difficulties likely to arise for advertisers
or enforcing authorities from the absence of any requirement for
a record of the telephone conversation(s), does the Department
consider it might be preferable to protect UK businesses against
telephone-based deceptions by excluding the possibility of instant
payment for proposed directory entries by credit or debit card
in the context of telephone discussions and requiring that payment
may only be sought when written particulars of the directory and
entry have first been supplied to the purchaser in writing?
21. The effect of this suggestion would be that the
proposed new telephone authorisation procedure in the new section
3(1)(d) of the Act inserted by the draft Order would effectively
become the same as the Note of Agreement method in section 3(1)(b).
As explained in our answer to Question 2, face-to-face meetings
and telephone calls can be part of the process leading to authorisation
of an entry under the Business Order or Note of Agreement Methods
of authorisation.
22. If the publisher were required to send paperwork
after the phone call to confirm the conversation, then there would
also need to be written acknowledgement signed by the advertiser
to prove that the details had been received. This is the Note
of Agreement Method. In such a case the Publisher could not demand
payment until the signed Note of Agreement was received.
23. The OFT suggests that it will be difficult for
enforcement authorities to prosecute in the absence of any record
of a telephone conversation. However the feature of the telephone
authorisation procedure we consider important is that the advertiser
must have the confidence to pay by credit or debit card. The
contract will only be concluded if the advertiser subsequently
pays in this way. If the publisher is not given these details
then it will have to seek agreement to an entry using one of the
other procedures, e.g. by providing written information to the
advertiser.
Q 4 Can the Department please provide a more
detailed analysis of how the test of materiality would operate
in practice and whether the effect of the proposed provision would
be to require directory publishers to notify their clients of
all changes in the form and content of directories and of individual
entries in them before repeat/renewed business could be charged
for?
24. The Department proposes a simplified process
for where an advertiser is renewing an entry or extending that
entry from one issue of a directory to the next. Essentially,
to do away with the current paperwork or exchange of document
requirements where there is a "roll over" of an existing
entry.
25. The intention is to relax these requirements,
because there is an existing business relationship between the
advertiser and publisher, which makes it unlikely that the publisher
will suddenly start behaving in a disreputable manner. There
are also additional protections in that the directory and the
entry are required to be "materially the same" as the
previous directory and entry or any substantive change must be
an improvement. This is to ensure that over time changes to the
entry are not made that are disadvantageous to the advertiser
and to which they have not consented.
26. The
"materially the same" test is whether the form, content
or distribution of the new directory or entry is materially the
same or an improvement on the original entry. The particular
test is "whether a reasonable person in the position of
the purchaser would
view the
two as being materially the same; or
view the
later directory or the later entry as being an improvement on
the earlier directory or earlier entry."
27. The reason for the "materially the same"
test is that certain changes are implicit in the publication of
directories or there would be no requirement to produce a new
edition. This applies to such matters as addresses, telephone
fax and email addresses and other particulars of businesses.
Further, some advertisers may cease trading and new ones may enter
the field. We consider this would not prevent the directory being
"materially the same" or the provision would be of little
value. However a significant drop in the number or quality of
entries would render the directory not materially the same. The
materially the same (or better) test is however needed to protect
the advertiser. This accounts for the narrowness of the "materially
the same" test.
28. This test would be applied on a case-by-case
basis. A number of such cases will be clear-cut as being materially
the same (or the change is an improvement to the advertiser).
In such cases, publishers will not be required to follow one
of the authorisation methods set out in section 3(1)(a) to (d).
29. There will be other cases that will not be so
clear-cut. As the Committee notes, the onus will be on the publisher
to determine whether the test of materiality is satisfied or not.
The publisher will wish to ensure that the test of materiality
has been met, or they will be taking the risk that their charges
will be unenforceable or recoverable.
30. We were alerted, by the OFT, to a potential scam
whereby an advertiser might be signed up at the stage of initial
authorisation to multiple entries in a directory. We address
this concern by requiring the publisher to provide written notification
of the renewals and details on costs, where these are part of
the initial contract. The advertiser then has 21 days to withdraw
consent. The relaxation of the authorisation procedures therefore
has a protection built-in in these cases.
31. The Department believes this proposal will have
significant benefit for directory publishers, as one large directory
publisher informed us that about 50-60% of renewals and extensions
are relatively clear-cut renewals of the "same" entry.
The benefits for the industry are not as significant as they
would be if the authorisation requirements were relaxed for all
renewals and extensions, regardless of materiality. However,
we considered this went too far in removing protections against
changes that are potentially detrimental, and which the advertiser
had not consented to.
Q 5 Does the Department consider that the
proposal creates adequate requirements in respect of the notification
of increases in the price of directory entries in such situations,
given that the publisher will not be required to make the amount
of the charge explicit in the ways currently prescribed in the
1971 Act?
32. The Department does consider there are adequate
requirements for notifying price increases where an entry is renewed.
33. Where there is a renewal or extension of a contract
and the conditions in the new section 3B are satisfied (i.e. the
directory and entry are materially the same etc) then the publisher
and the customer may contract as they choose. In such a case
the publisher will not have to satisfy the formal requirements
of section 3(1)(a) to (d) in order that the charge for the entry
is enforceable. The normal legal rules for the formation of the
contract will apply to the new agreement. The parties will have
to agree the terms including price. The publisher cannot unilaterally
impose a higher charge on the purchaser - the purchaser will have
to agree to it as it is an essential term of the contract.
34. If the earlier contract contains a term that
the purchaser renew or extend the contract for the entry then
the publisher will be required by the new section 3B(1)(h)(i)
to send the purchaser a notice with the information required by
Part 3 of the draft Order which includes the cost of the new contract.
The advertiser will then have 21 days to withdraw its agreement
to continue with the contract.
35. This means that the parties will have to agree
the terms including price. The publisher cannot unilaterally impose
a higher charge on the advertiser - the advertiser will have to
agree to it if there is to be a contract.
Q 6 Please explain why it is thought desirable
to remove the requirement that these statements must be included
on invoices not asserting rights to payment, given that they appear
unambiguously to establish the status of those invoices in a way
which is beneficial for those who receive them?
36. The draft order is updating the requirement that
these statements appear unambiguously to establish the status
of the invoices, not removing them.
37. The draft order does not remove the requirement
that an invoice or similar document which states the amount of
any payment must include a statement that no claim is made to
payment if it is not to be construed as asserting a right to payment.
This is contained in section 6(2) of the Unsolicited Goods and
Services Act 1971, which the draft Order amends so that it will
refer to Schedule 2 to the RRO instead.
38. The Regulations, which it is proposed to revoke
and replace with the provisions in Schedule 2, are highly prescriptive
about font size, specific wording, the colour of paper and how
far the lettering should be from the margins. The effect of this
is to make it impossible for electronic documents to satisfy the
requirements of the Act. In relation to margins, for example,
it is impossible to determine how a document will display on a
particular computer screen, nor prescribe that it should display
a certain number of inches from the edge of the screen.
39. The significance of this is that someone who
sends an electronic document stating the amount of a payment cannot
comply with the requirements of the existing Regulations in order
to avoid asserting a right to payment. Therefore the person sending
such an invoice or other document electronically may commit an
offence under section 3(2) by "asserting a right to payment".
40. The proposal is to continue the protections contained
in the 1975 Regulations, and to allow electronic documents as
well as paper documents to satisfy them. This is also required
to comply with article 9 of the Electronic Commerce Directive.
We are proposing to do this by requiring such documents to contain
a statement
"to the effect that it is not asserting a
right to payment, displayed in such a manner that makes that statement
readily apparent to a reasonable person reading that invoice or
similar document".
41. As a result the same requirements for an invoice
or similar document not to assert a right to payment will apply
to paper and electronic documents. This would place the two on
an equal footing, as the Directive requires and will continue
the protections currently in the 1971 regulations.
Whether the proposal appears to be incompatible
with any obligation arising from membership of the European Union
(S.O. 141(6)(i))
Q 7 Can the Department indicate why it decided
to make this amendment to the 1971 Act by regulations under the
European Communities Act 1972, rather than delaying the laying
before Parliament of the present RRO proposal and (if appropriate)
including this point in the proposal?
42. The requirement to amend the 1971 Act to comply
with the requirements of article 9 of the E Commerce Directive
was identified after the consultation on the RRO had taken place,
and at the time of drafting of the Order. Rather than having
to re-consult on the RRO and so delay bringing the Order before
Parliament, it was decided to make the amendments under section
2 of the European Communities Act 1972.
43. The reason for this was because of the potential
for negative reactions from the Directory Publishing sector to
delay. The commitment to simplify the 1971 Act was first made
in the 1998 White Paper "Modern Markets, Confident Consumers".
The Department's first proposal in relation to renewals and extensions
came out of the consultation on simplifying the 1971 Act, which
was undertaken in 1999. We were concerned that having committed
to carrying through this proposal, we would be seen to be delaying
the Regulatory Reform Order for no good reason.[32]
44. Essentially, we wanted both to meet the expectations
of the sector and implement this aspect of the Directive in a
timely and transparent manner. We believe we can achieve both
by proceeding with the section 2(2) regulations in parallel, in
a way that is transparent and avoids further delaying the RRO.
The use of section 2(2) powers is also a normal and accepted
route for implementing EU obligations. We also chose to consult
on these parallel s2(2) regulations, though we are under no legal
requirement to do so.
Q 8 Can the Department indicate the nature
of the responses received to the consultation exercise and, to
the extent that these have been decided, state its plans for giving
effect to the additional reforms to the 1971 Act it believes are
required to ensure compliance with the E-Commerce Directive?
45. The consultation document on Electronic Business
Order Forms for entries in Business Directories was placed on
the Department's website in March 2004. 58 organisations were
written to and the consultation closed on 18 June. We received
7 responses, five from Directory Publishers, which included the
DPA, as well as the Advertisers Association (AA), the Periodical
Publishers Association (PPA) and the Trading Standards Institute
(TSI).
46. The Directory Publishers generally saw the proposal
as not significant, as few advertisers used the Business Order
method to authorise entries in business directories. There were
concerns that additional burdens not be imposed on directory publishers
through requirements such as electronic letterheads, embedded
logos and watermarks. However, they noted that publishers did
not generally receive unsolicited entries in this way, and would
generally confirm them either through a Note of Agreement or an
Electronic Communication.[33]
Nevertheless, a recurrent theme was that publishers not be put
at a disadvantage through burdens such as embedded logos, in comparison
to other advertising media or overseas directory publishers.
47. The Advertisers Association and Periodical Publishers
Association supported the views of the Directory Publishers. The
TSI thought the proposals were more wide-ranging than they were
and that they would "make alteration to the 1971 Act such
that businesses can enter into contracts for entries into business
directories using electronic means". The ability to contract
for directory entries using the electronic medium was made law
in 2001, and the current proposal only relates to allowing one
method of contracting, the "Business Order" method,
to be done electronically. TSI noted that the problems the Act
was designed to address were UK based, and that with the spread
of electronic communication many are based abroad and EU actions
for breach need to be conducted cross-border.
48. Once the consultation responses are fully analysed
and responded to, the Department will draft the section 2(2) Regulation.
If the RRO is approved by each House, then the Minister will
sign the Regulation soon after signing the RRO. These will be
laid before each House subject to the negative resolution procedure.
This approach will ensure that the RRO does not fall foul of
section 1(4) of the Regulatory Reform Act.[34]
49. The commencement dates of the two instruments
will be harmonised, so that guidance to business and stakeholder
information will cover both sets of changes. The guidance will
be sent out to businesses 12 weeks prior to the RRO coming into
force. This should be helpful to the sector adapting to both
sets of changes, which have also been flagged in advance.
Other matters arising from the Committee's
consideration of the proposal (S.O. 141(5))
Q 9 Given the number of existing and proposed
amendments to the 1971 Act, can the Department indicate whether
it has any plans to consolidate the legislation relating to the
publication of directory entries?
50. The Department agrees that consolidation of legislation
is in principle desirable when an Act has been amended a number
of times. However, there are issues of resources in preparing
a consolidation as well as Parliamentary time for its passage.
Given that consolidated texts of legislation are available in
on-line databases and from commercial publishers, the Department
has no plans to consolidate this legislation at the present time.
Q 10 Please indicate why the Department considers
there has been a very low level of prosecutions for offences under
the 1971 Act, despite the continued existence of the deceptive
practices prohibited by the 1971 Act?
51. It is difficult to get precise information on
the number of cases that have been taken under the 1971 Act, as
the offence under section 3(2) of the Act of demanding payment
is only summary. However, Local Authority Co-ordinators of Regulatory
Services (LACORS), who are enforcers of the Act, informed us that
there were few prosecutions under the Act. During the preparation
of the RRO we identified only one appeal against a prosecution
under the Act, since the Act came into force in 1971.
52. The main reason for this, we were informed, was
that most such scams originate from overseas, and that there are
difficulties with using this piece of UK legislation to prosecute
them. The Control of Misleading Advertisement Regulations (CMARS)
also enables the OFT to bring civil proceedings for an injunction
in respect of misleading advertising. The best approach is cross-border
co-operation between enforcement agencies, and prosecutions under
the laws of the Member State involved.
Concluding comments
53. The Department thanks the Committees for their
consideration of this proposed Regulatory Reform Order.
54. It would like to add that the proposals it is
advancing concern changes to an existing code governing the authorisation
of entries in directories within the UK. The proposals do not,
and cannot, seek to regulate the activities of directory publishers
(bogus or otherwise) operating from other European countries or
overseas. The vast majority of scams in the business directory
field are operating from outside the UK.
55. The Department acknowledges the Committees' concerns
about the prevalence of these scams. These scams would continue
to be illegal under the 1971 Act as the Department proposes to
amend it, including in relation to telephone authorisation. Most
such scams are also illegal in their country of origins. The
changes that the Department is proposing will have neither a positive
nor negative effect on these foreign-based scams. We think the
best means to combat such scams is through cross-border co-operation
between enforcement bodies, and prosecution under the laws of
the state concerned.
56. As our answers to a number of the questions indicate,
we consider the proposed changes reduce burdens, while retaining
adequate protections around both initial entries and the renewal
and extensions of those entries. Though a small measure, we do
consider that these changes will be beneficial to the UK Directory
publishing sector, both publishers and advertisers. We thank
you for your consideration.
31 The view we received from the consultation responses
was that the laws in other EU states are "frequently less
restrictive than UK law". Back
32
The practical implications of this issue were not clear. That
is, whether putting electronic business order forms on an equal
footing with their written counterparts would have a significant
effect on the business of directory publishing - i.e. by opening
up a new and lucrative means to authorise directory entries. As
indicated in our response to Question 8 below, the consultation
on this has tended to show that most in the industry do not see
this proposal as significant, and that the Business Order Form
method of contracting is seldom used. Back
33
The DPA informed us it was industry practice for a publisher receiving
an unsolicited order (the Business Order Form method) to contact
the advertiser confirming the order and so ensure compliance with
the Act through the Business Note or Electronic Communication
method. Back
34
That a RRO may not be used to amend the law contained in any provision
of an Act where that provision has been amended … in the
two years before the making of the RRO. Back
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