Select Committee on Public Accounts Appendices to the Minutes of Evidence


ANNEX

REGULATION OF DIRECT SELLING

MARKETING LICENCE CONDITIONS

  The marketing licence conditions were introduced, in light of experience in the early stages of the new domestic gas market, to supplement existing general regulations on direct selling and to provide Ofgem with powers to protect consumers. The licence conditions were introduced into the gas and electricity licences in 1998 and further enhanced in 2001.

  The licence conditions introduced in 1998 required supply licensees in respect of direct sales to ensure that:

    —  staff are properly selected and trained;

    —  agents are readily identifiable and contact takes place at reasonable times;

    —  sales on the doorstep or by telephone are audited;

    —  reasonable steps are taken to cancel contracts when requested by the consumer; and

    —  complaint handling facilities are to be set up.

  In light of Ofgem's experience with the market and the licence conditions, in January 2001 we introduced the following enhancements:

    —  a requirement on suppliers to ensure consumers had understood they had entered into a contract;

    —  an extension of the current requirements on electricity suppliers to send out terms and conditions following a telephone sale to gas suppliers;

    —  widening the licence requirements to cover sales in shopping centres and other public places; and

    —  made suppliers provide appropriate on-going management of sales agents (including those employed by agencies).

THE FORGERY AND COUNTERFEITING ACT 1981

  A person is guilty of forgery if he makes a false instrument, with the intention that he or another shall use it to induce somebody to accept it as genuine, and by reason of so accepting it to do or not do some act to his own or any other person's prejudice. Instrument includes any document, whether of a formal or informal character.

  The Act can be enforced by the police or Trading Standards Officers. As outlined in the report, it is difficult to obtain prosecutions and many suppliers report that police forces do not consider prosecuting sales agents to be a high priority given that the consumer has often not made any monetary loss (often they are better off).

THE TRADE DESCRIPTIONS ACT 1968

  This prohibits the mis-descriptions of goods, services and accommodation; and prohibits false indications as to the price of goods and requires information to be published about advertised goods. Criminal proceedings may be instigated against agents, agencies or trainers or the company itself. This legislation is enforced by Trading Standards Officers.

  In 1999, Cheshire Trading Standards successfully prosecuted Northern Electric and Gas plc for a number of offences under the Trade Descriptions Act for doorstep mis-selling during the year. Customers were told they were signing for information only when in fact they were entering legally binding contracts. The company pleaded guilty and was fined £12,000 plus costs.

THE CONSUMER PROTECTION (CANCELLATION OF CONTRACTS CONCLUDED AWAY FROM BUSINESS PREMISES) REGULATIONS 1987, KNOWN AS THE DOORSTEP SELLING REGULATIONS

  The Regulations give consumers the right to a seven day cooling-off period during which they can cancel an agreement to buy goods or services. In addition, the Seller must provide consumers with a notice setting out their cancellation rights. Failure to do so makes the agreement unenforceable against the consumer.

  As some doorstep sellers used unscrupulous practices and exploited apparent loopholes to the detriment of consumers, the DTI consulted and introduced enhancements in 1998. These created a new criminal offence where a trader fails to deliver to consumers the required written notice of cancellation rights. Trading Standards Departments will be responsible for enforcement of this aspect of the new Regulations.

THE CONSUMER PROTECTION (DISTANCE SELLING) REGULATIONS 2000

  These came into force on 31 October 2000. They implement the EU Distance Selling Directive, and give the Director General of Fair Trading and trading standards departments new powers to stop suppliers harming the interests of home shoppers. The new regulations address the gulf between the comprehensive information consumers have when shopping conventionally, and the relative lack of transparency when buying at a distance. They give consumers a clear understanding of their transaction, whether buying by post, phone, fax or Internet.

  Under the regulations suppliers must provide the following information before a sale: name of supplier, description of the goods and services, price, arrangements for payment, the right to cancel and how long the offer or price remains valid. After the consumer has decided to buy the supplier should confirm the earlier information in a written or durable form such as fax, letter, contract or e-mail. The confirmation should include: details of when and how a contract can be cancelled (under the regulations consumers have up to seven working days from the date of contract for services to cancel); a postal address for the suppliers to which complaints can be addressed and details of after-sales services and guarantees.

THE `STOP NOW' ORDERS (EU DIRECTIVE) REGULATIONS 2001.

  This will allow bodies such as the OFT, Trading Standards departments, consumer organisations and regulators (Ofgem) to have the right to seek injunctions for breach of certain directives. The directives covered will include misleading advertising, distance selling and unfair contract terms in consumer contracts.

VOLUNTARY CODES OF PRACTICE COVERING THE DIRECT SELLING OF GAS AND ELECTRICITY

  There are a number of bodies involved in regulating the activities of direct marketing through the use of codes already in place. Many suppliers are members of one or more of these bodies:

    —  Direct Marketing Association (DMA) are the largest marketing trade association, representing companies that use direct marketing or who supply direct marketing services. The DMA has a Code for Direct Marketing, which helps to ensure compliance with key legislation and to ensure best practice;

    —  Direct Selling Association (DSA) aims to promote high standards in direct selling. The DSA's consumer code has been developed as a generic code for direct selling of all consumer goods and services. The code deals with methods of selling, advertising and identification of direct sellers, cancellation rights and administration; and

    —  Association of Energy Suppliers (AES) was established in 1997 with the aim of bringing together all energy suppliers to promote good practice in the marketing of electricity and gas and associated goods or services. A Panel made up of consumer groups and suppliers with an independent chair enforces its Code of Practice for Marketing.

9 May 2001


 
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Prepared 17 January 2002