moved that Bill C-393, an act to amend the Competition Act, 1998 (negative option marketing) be read the second time and referred to a committee.
Mr. Speaker, I am sure that those who are milling about will want to hear that next week marks the beginning of consumers week in Canada. It is my pleasure to start the debate on Bill C-393 which is a law proposed to change the Competition Act.
This bill has several themes of fairness. These revolve around fairness where there is no protection of consumers, fairness in a marketplace where there is little or no competition, and fairness for consumers against large business interests.
Bill C-393 deals with the business practice known as negative option sales and marketing. It involves receiving a product because a consumer failed to say no to the offering of it and then the consumer is asked to pay for it. This practice known as negative option marketing or sales is a perversion, a twisting of what is generally accepted as being the normal rules of contract or sales, which is that an offer is made, acceptance is given in the affirmative and the delivery of the service and payment for that service are reasonably simultaneous.
Those who use negative option sales reverse that method. An offer is sometimes made, sometimes it is hidden, and sometimes there is no apparent choice at all. Instead of accepting the offer, the consumer is expected to say no, that he or she does not want the service. If a consumer fails to say no, then the service is provided, the consumer is billed for it and is expected to pay for it.
We are certainly one of the few countries in the world which allows federally regulated businesses, or undertakings, as the Competition Act calls businesses, to engage in this type of scurrilous behaviour. It is a sleight of hand type sale of a service. It is often a straightforward case of taking advantage of consumers who have little means to protect themselves.
Negative option sales occur under many guises or disguises. I will give some examples of this technique.
One is in the realm of banking. About a year ago the National Bank in a brochure enclosed in monthly bank statements and sent to people in a certain area of Montreal was advertising health care coverage for those travelling outside Canada. Hidden or buried inside the brochure was an invitation, in fact a requirement, that recipients say no to the offering, failing which their accounts were debited $9.95 a month. Thousands of people did not know they were being charged $9.95 a month for an offer they in fact did not want.
The end result according to the Consumers Association of Canada was that following the start of the debiting of accounts, individual bank branches were receiving between 40 and 50 complaints on any given day. The bank would reverse the offering but there was no way of quantifying how many seniors and other people who did not take the opportunity to check their bank statements were paying for a service which they did not know they were receiving, for which they did not know they were paying $9.95 a month and more important for many of them, for which there was no use or benefit.
Some may think this is preposterous and some may doubt that it happened, yet the Consumers Association of Canada had hundreds of complaints involving this one specific case.
A second example is a couple who applied for a bank mortgage to purchase their first home. Once again, in the mass of paper they were required to sign, there was an offering, a suggestion—and I use that term very loosely—that they would buy through the bank, term life insurance equal to the mortgage amount. When the first mortgage payment was made, the couple realized that they were paying an insurance premium in addition to the principal and interest.
Their omission was their failure to say no to the offering, no that they did not want the term life insurance. There was no requirement to say yes. In brief, failure to say no was by the negative option formula an affirmative, a yes to the insurance policy.
The third example concerns university students at the University of Ottawa moving into town in September. The first thing they do is call Bell Canada to have a phone installed. The phone is installed and they are simultaneously told they will receive two months of call waiting free of charge. Their problem is that at the end of two months the bill starts ticking. At the end of month three, there is an additional charge of $2.70 tacked on to their bill when they had purchased a service they did not know they were buying, they did not know they were paying for it and they never once said “Yes, I know what I am getting. I want it and I know what I am paying for it”.
The fourth example is even more insidious. In the summer of 1997 the Toronto Dominion Bank enclosed an eight page brochure in the bank statements it sent to hundreds of thousands of Ontario residents, including residents of the city of Ottawa.
The flyer was called “You and Your Privacy”. In its eight pages the flyer purported to state that the Toronto Dominion Bank was very concerned about its clients and how it protected and stored information about its clients. And let us face it. Who knows more about an individual than a banker? When people build a relationship with a bank over a period of many years, the bank has all kinds of information about them, their assets and their spending habits.
Page seven of the brochure contained a negative option suggestion. It said that the Toronto Dominion Bank was going to share all this information that it had collected. In the relationship as banker and client, it was going to share that information with its related corporations such as TD Mortgage, TD Green Line and Toronto Dominion Insurance. Unless the clients called the bank and said no, that they did not want the bank to do this, on October 31, 1997 the Toronto Dominion Bank took all of the information it had amassed from hundreds of thousands of people over many years and downloaded it by computer to its subsidiary companies.
Why did this happen? Because it required the consumers to say no, they do not want this to happen. There is an interesting twist on this. A gentleman reported to my office that he had called and said that he did not want this to happen. It was pointed out to him that because he had a joint bank account, his wife in addition must say no.
We see from this that large federally regulated corporations are imposing an onerous and unreasonable burden on people to escape from a situation or to escape a product they do not want and which they are being asked to pay for.
The fifth and final example I will use involved cable companies in this country. If we were to ask any of the eight million cable subscribers who the masters of negative option marketing are, the answer would be very clear. It is the cable companies in Canada.
One can and should ask why we need this bill. The answer is very specific. This bill is designed to apply to federally regulated undertakings or businesses which operate in a marketplace that has little or no competition. This bill is about giving consumers a fair shake in the face of limited or no competition. After all, banking, telecommunications and broadcasting are all areas of business in which there is at best limited competition, if any at all.
I quote from a February 2 editorial in the Hamilton Spectator concerning this very bill: “This bill would change the Competition Act to force federally regulated companies to get the express permission of customers for any new service”. It is not a very revolutionary idea to have the customers say “I know what I am buying. I know what the cost is and what the implications of it might be and yes, I want it”. What could possibly be wrong that? To have federally regulated companies obtain a positive express response of yes before supplying and charging for a service is the way business is done in this country and in most countries of this world. I have to ask why anyone in this place would want to allow it to be otherwise.
This bill constructs a firewall between the consumer and the industry and the consumer and the regulator. This bill recognizes that regulators such as the CRTC have failed to protect consumers from companies which would provide TV services and telephone services which are unwanted.
This bill would not allow the sale of health insurance policies to unsuspecting bank clients. Why would anyone in this place want to be part of a scheme that would allow this to happen? I suggest even further that those who would want this to happen should come forward and say so.
I know there will be those who oppose it on the grounds of the Constitution, that is to say the federal government does not have the power to prohibit this. To those people I would simply note this bill deals only with federally regulated undertakings.
By way of comparison, Bill C-20, currently before parliament, regulates the sale of goods or the questionable sale of goods by telephone. It is certainly difficult to recognize that Bill C-20, a government telemarketing bill, is intra vires while Bill C-393 would be ultra vires because they both deal with federally regulated undertakings.
In addition, there are provincial laws which note the federal powers at the level of telecommunications. For example, the law concerning consumer protection in the province of Quebec, a law which is above all provincial, was written several years ago. In it the rights of consumers are enunciated and it makes very clear that the law of Quebec regarding the protection of consumers does not apply to broadcasting. Why? There is no question that broadcasting is clearly a matter for us in this Chamber to deal with. Banking is also clearly a matter for us in this Chamber to deal with.
This is sadly an area of growth according to an Industry Canada study undertaken recently. After all, what could be easier than to sell a product where there is no need to market it, advertise it or persuade consumers they really want it or need it. Most businesses, in launching a service or product, need to determine there is indeed a want for the product or a public desire for the service and that the consumer is willing to put out the money for it.
What does all this mean in terms of removal of consumer dollars in a situation where choice is eliminated? Let us consider the case of the cable industry in 1996 where cable rates, through negative option techniques, rose about $4 per month per household. The end result was about $400 million being siphoned from the Canadian economy into one sector, cable companies and their program providers, under circumstances where consumers could not say yes.
In return what did we receive? We saw services which were never ordered and quite simply were often not even wanted. This was $400 million of discretionary, after tax dollars, about $50 per household from the eight million cable subscribers in this country. This is $50 of which they no longer had any control; hundreds of millions of dollars to an industry where there is no competition and in which four corporations control more than 90% of the Canadian marketplace.
Let us also consider the situation of the unknown purchase of a life insurance policy to pay off a mortgage in case of death, a mortgage policy which the consumer has acquired unknowingly but after the fact becomes aware of it and is paying for it.
It is good and prudent to buy this insurance. If a purchase is made by negative option that consumer was never given a fair chance to shop the marketplace and get the best possible price. It is a matter of working the marketplace for the best possible deal in terms of service and price. Negative option marketing and sales cuts the legs out from under this.
The office of consumer affairs at Industry Canada in a study of negative option sales and marketing observes: “In general, profits or convenience would appear to be the motivation behind negative option marketing and/or bundling”. Industry Canada, the department responsible for the Competition Act, has recognized the thrust of this business practice. It is all about profits, money and the ease of obtaining it.
In the September 21, 1996 edition of the Ottawa Citizen columnist Tony Atherton asked: “How on earth does a country of barely 30 million souls find itself on the brink of underwriting a total of 51 specialty channels when it can't seem to support one national public broadcaster?”
That is a fair question. The answer which Mr. Atherton supplied himself was: “By now it should be obvious that the usual rules of economics don't apply to the cable industry. Canadian book publishers fold, Canadian magazines tiptoe on the edge of bankruptcy, yet many Canadian cable TV services make money hand over fist”.
He made the insightful observation: “Lack of demand is not an issue because cable channels are not in business to meet demand. They are in business to create it”.
The fact is negative option marketing is selling where there is no market. Negative option techniques allow sales where there is no demand. It is a phenomenon which creates both market and demand where neither exist.
Industry Canada has noted in its discussion paper on this topic: “Government does need to examine its role in influencing and promoting this type of market behaviour in view of users' or taxpayers' expectations”.
This is an appropriate time to raise the spectre of Canadian expectations in terms of marketplace. In a real marketplace where there is demand and open and free competition, consumers can shop for quality, price and choice. When consumers shop for virtually any product they expect an array or a continuum of choices and prices. In the realm of banking, telecommunications and cable there is little to none.
It is interesting to refer to a story published last week, March 6, in the National Post which reported a dispute over market share between Shaw Cable and Look Communications. Look has 6,000 subscribers and Shaw has 1.6 million, a real David and Goliath story. It appears that Shaw is trying to win back those 6,000 subscribers by offering free cable to those who have been given a choice in the marketplace.
It is even more interesting to note that Look has now gone to the CRTC to ask it to step in to mediate the dispute. What could be more ironic, the CRTC mediating a dispute between two corporations when in the past it has talked about this being a market matter, a matter of competition.
Canadians want choice but they also realize that in a large country with a relatively small population choice in certain industries is not always absolute. Having said that, they do want to control the circumstances of exercising that choice. Negative option techniques remove any suggestion of choice. That is why we in this place must move to give consumers that right.
On the verge of consumers week I quote a press release issued today by the Consumers Association of Canada about this bill: “It is timely that private member's Bill C-393 is being debated in parliament this week prior to world consumers rights day. World consumers rights day celebrates eight fundamental consumer rights, of which the right of choice is paramount. A piece of legislation that bans abusive negative option marketing is a positive step in the promotion of consumers' right to choice”.