Accessibility and Access Keys [0]

Skip to Content [1]

PIAC is a non-profit organization and charity that provides legal and research services on behalf of consumer interests, and, in particular, vulnerable consumer interests, concerning the provision of important public services. Please consider making a tax deductible donation.
Faire un don maintenant par CanadaHelps.org!
Donate Now Through CanadaHelps.org!

Negative Option Marketing

SPEAKING NOTES BEFORE THE HOUSE OF COMMONS STANDING COMMITTEE ON INDUSTRY – BILL C-276

BY: Michael Janigan
Executive Director/General Counsel
of the Public Interest Advocacy Centre (PIAC)

We would first like to extend our thanks to the chair and members of this committee for extending an invitation to speak to this issue which has long tried the patience of consumer advocates. We commend the efforts of the honourable member from Sarnia-Lambton for his efforts in sponsoring this legislation to address this problem.

The Public Interest Advocacy Centre (PIAC) is a non-profit corporation which provides legal services and research to vulnerable consumers and the organizations that represent them. This work primarily concerns issues involving important public services including telecommunications, broadcasting, energy, financial services and public transportation. PIAC's members include individuals, groups and organisations representing 2.5 million Canadians.

The concern associated with the practice of negative option billing has its origins in the nature of a contract of purchase and sale, as recognized in common law. As every first year law student learns, such a contract consists of an offer and an acceptance. The history of consumer protection statutes is a chronicle of legislators attempting to ensure that the offer is conveyed without misrepresentation by the vendor to a purchaser who has an opportunity to make an informed choice to accept or refuse the offer. This is because a contract that is made with a consumer who is unaware of key elements of the contract such as price, quantity and quality of the goods to be delivered is subversive of the efficiency of the market as a whole.

We thus have seen the gradual implementation of such statutory measures as cooling off periods, penalties for misleading advertising, and contract recission for misrepresentation. Many consumer protection statutes have also tackled the problem of unsolicited goods, some barring legal remedies for collection where there has been no consent by the consumer to receipt of the goods. It is important to recognize that the intent of such measures is not simply to protect consumers, but also to eliminate any competitive advantage conferred on an unscrupulous seller by engaging in these practices.

I want to address the implied notion of the opponents of this Bill that this Bill attacks industry practices which would otherwise be unassailable in law. Whatever the requirement's that are currently being met by these industries under the standards set out in the various governing acts and regulations, there is nothing that I'm aware of that imparts contractual status to circumstances which amount to the receipt of unsolicited goods. In effect, large industries such as cable or banking have frequently turned a common sense protection afforded to them in law into an aggressive and disreputable marketing tactic.

Common law has always recognized a “course of dealing” exception to the requirement associated with offer and acceptance. For example, a hardware or grocery store may periodically receive shipments of goods to be retailed in the store from its supplier. There is no specific consent to the delivery of individual items, but an understanding exists that the store will pay the supplier for all shipments received within some kind of reasonable limit of business custom. Similarly, no specific consent is required for deliveries of natural gas or fuel oil to the homeowner even though the quantities and time of delivery (ordinarily fundamental terms of a contract) have not been agreed to.

What's important to note here is that the parties are delivering and paying for goods which were pretty much foreseeable under the terms of their initial agreement. In the first example I gave, depending upon the bargaining power of the retailer, he might also be able to ship back the unsold items to the supplier. In business arrangements where parties are of close to equal bargaining power, one will frequently find arrangements to deal with problems arising from an initial lack of detail.

This is a very dissimilar circumstance than that which presents itself in industries that wish to market products or services which are different in significant ways then those that were initially contracted for. Consent to the changes is not simply inferred in law because it might be difficult for the supplier to obtain the same or because a guaranteed percentage of customers must pay for the changes to make them financially viable. Whether the reason is the promotion of cultural content, or maximizing return to the shareholder, there is no blessing of contractual validity that is conferred upon such changes in contractual arrangements. What I am saying is simply this: individual consumers may still retain the legal right to demand their money back for services they did not order in the industries that are affected by this Bill regardless of this Bill's passage or failure. It happens all the time now. It is easier for these industries to quietly give a complaining customer his or her money back and to continue to reap the rewards from the inattentative as a result of negative option practices. What this Bill seeks to do is to enlist the assistance of the Competition Act in making negative option billing review able conduct unless it conforms to the exceptions set out therein. These practices may still be subject to contractual remedies by customers misled by the practice who choose to seek a civil contractual remedy. This Bill provides a statutory means to attempt to reduce the use of this practice and the numbers of customers that may be misled by the same.

For whatever the high flown objections to statutory prohibition of this practice, two important conclusions are inescapable:

  1. The practice has meant that large numbers of consumers in these industries don't know what they are paying for.
  2. The practice has been enormously lucrative for the industries that use it.

The cable industry, of course, is a rather obvious example of the benefits to industry of the use of negative option marketing.

In the 80's and the earlier part of this decade, cable companies were able to add many new subscribers for additional tiers of service, many of whom were decidedly confused as to what they were getting. In 1993, for example, 66% of Canadian cable customers reported that they obtained only basic service while in actual fact only 8% subscribed to the lowest level of service. We are entering an era of provision of service through multi-media and other digital outlets where proponents will be are competing aggressively for market share. It will be possibly fatally injurious to competition if key players using their existing customer base engage in negative option marketing to artificially make demand fit the expense of supply. There will be a whole range of arguments to justify ignoring the requirement for consent in order to establish commercially viable Canadian services.

We would suggest that all of these arguments essentially amount to the supposition that the interests of the industry should be preferred to that of the right of the individual customer to consent to a contract for goods and services. The marketing principle “what consumers don't know, cant hurt them” is very much alive and well in the submissions of the opponents to this Bill.

Bill c-276 seeks to empower Canadian's by insisting that their right to chose be respected and that the historic relationship of vendor and purchaser be restored to industries whose products are important public services. We think this Bill is both overdue and farsighted, a unique combination that commends its passage.