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«MINIMISING CONSUMER DETRIMENT FROM ENERGY DOOR-TO-DOOR SALES A CUAC RESEARCH REPORT December 2012 Consumer Utilities Advocacy Centre Ltd (CUAC) 172 ...»

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MINIMISING CONSUMER DETRIMENT FROM

ENERGY DOOR-TO-DOOR SALES

A CUAC RESEARCH REPORT

December 2012

Consumer Utilities Advocacy Centre Ltd (CUAC)

172 Flinders Street

Melbourne VIC 3000

P (03) 9639 7600

F (03) 9639 8966

www.cuac.org.au

ACN 100 188 752

TABLE OF CONTENTS

LIST OF TABLES AND FIGURES

LIST OF ABBREVIATIONS

EXECUTIVE SUMMARY

Consumer detriment – nature and extent

Consumer law

Consumer-centred approaches

Self-regulatory and voluntarist approaches

List of recommendations

1. INTRODUCTION

About the research

Aim

Design

Report

2. CONTEXT

What is door-to-door selling?

Door-to-door selling in the Victorian retail energy market

Development of the Victorian retail energy market

The Victorian retail energy market today

Future trends

Door-to-door selling and consumer detriment

Types of detriment

Assessing the extent of consumer detriment

Discussion and recommendations

Extent of misconduct

Financial detriment & the role of door-to-door selling in the retail energy market

Minimising consumer detriment from door-to-door sales

3. CONSUMER LAW

Legal and regulatory framework for energy door-to-door sales in Victoria

Australian Consumer Law

National Energy Customer Framework

Compliance and enforcement

Specific consumer protections

Cooling-off periods

Disclosure of purpose and identity and ceasing to negotiate on request

Information about the agreement

Prohibition

Complete prohibition

Sector-specific bans

Discussion and recommendations

Enforcement

Monitoring and prohibition

4. CONSUMER-CENTRED APPROACHES

Consumer education and information

Consumer education and information in Victoria

The role, effectiveness and limitations of consumer education

No Canvassing stickers and signs

Do Not Knock stickers (Australia)

Excluded zones

No Cold Calling Zones (UK)

No-contact lists and registers

Do Not Call Registers

Do Not Knock Register Bill 2012

No Contact lists

Discussion and recommendations

Consumer education and information

Opt-out mechanisms

5. SELF-REGULATORY AND VOLUNTARIST APPROACHES

Voluntary industry codes of conduct

Appropriate circumstances for a voluntary industry code

Features of an effective voluntary industry code

Energy Assured (Australia)

Energy Sure Code of Practice (UK)

Voluntarism

Consumer Focus’ End of the Road campaign (UK)

Consumer Action Law Centre campaign (Australia)

Discussion and recommendations

Voluntary industry codes

Voluntarism

6. THE FUTURE

APPENDIX A – ORIGIN ENERGY DO NOT KNOCK STICKER

BIBLIOGRAPHY

LIST OF TABLES AND FIGURES

–  –  –

2

LIST OF ABBREVIATIONS

ACCC Australian Competition and Consumer Commission ACL Australian Consumer Law ACMA Australian Communications and Media Authority ACT Australian Capital Territory AEMC Australian Energy Market Commission AER Australian Energy Regulator ASIC Australian Securities and Investment Commission CEO Chief Executive Officer CUAC Consumer Utilities Advocacy Centre CALC Consumer Action Law Centre CAV Consumer Affairs Victoria EAL Energy Assured Limited ESC Essential Services Commission EU European Union EWOV Energy and Water Ombudsman (Victoria) FCA Financial Counselling Australia FCLC Footscray Community Legal Centre FCRC Financial and Consumer Rights Council FRC Full Retail Contestability FTC Federal Trade Commission (FTC) NCCZ No Cold Calling Zone NECF National Energy Customer Framework NEM National Energy Market NERR National Energy Retail Rules OECD Organisation for Economic Cooperation and Development Ofgem Office of Gas and Electricity Markets (UK) OFT Office of Fair Trading (UK) PC Productivity Commission PPIS Price and Product Information Statement SSE Scottish and Southern Energy (UK) UK United Kingdom USA United States of America

34EXECUTIVE SUMMARY

This report looks at the role of door-to-door selling in Victoria’s evolving retail energy market, the consumer detriment associated with it, and the policy approaches – both existing and potential – that may minimise detriment without compromising energy market objectives.

Consumer detriment – nature and extent Since the introduction of Full Retail Contestability to Victoria’s retail energy market a decade ago, unsolicited door-to-door energy selling has emerged and expanded, playing a major role in the transformation of the market. Today, Victoria’s retail energy market has the highest switching rate of any in the world. Nearly all retailers operating in Victoria use door-to-door selling to drive this switching activity, and it is estimated that door-to-door sales account for just over half of all customer switching.





As energy door-to-door selling has grown, however, so too has concern about the ways in which this sales channel can cause consumers – particularly vulnerable consumers – financial and nonfinancial detriment. In terms of non-financial detriment, the time loss and the annoyance that results when uninterested consumers are interrupted by a door-to-door sales call is often fairly minor, but it is also pervasive. This probably accounts, in large part, for the negative community perceptions of door-to-door selling. Should a sales agent conduct themselves poorly, or where the consumer is vulnerable, this non-financial detriment can be much greater.

For consumers who agree to switch at the door, the aim is typically to save money. However, there is real cause for doubt that most consumers make a saving when they accept a door-to-door sales offer. In the UK, a 2008 study found that just under half of those switching at the door were actually made financially worse off by the change. This may be because door-to-door selling creates a ‘situational monopoly’: an environment in which the consumer is reliant on the information provided by only one supplier and cannot ‘shop around’ to find the best deal. Where the product or service offered involves complex terms and conditions, optimal decision-making may be even less likely.

In Victoria, we know that some of the retailers with the most extensive door-to-door sales activity also tend to have the market’s more expensive offers. In the absence of any research, however, we simply do not know what proportion of consumers switching door-to-door incur financial detriment.

This lack of data is a major gap in our understanding of both door-to-door selling and, more broadly, the functioning of our retail energy market. For this reason CUAC is recommending that the Victorian Government commission research to fill this critical evidence gap.

Door-to-door sales misconduct such as pressure sales, misleading claims and exploitation of consumer vulnerability can all exacerbate consumer detriment. The extent of such misconduct has been a major issue of contention between consumer groups, industry, policymakers and regulators.

Industry has tended to claim that complaint numbers are low when considered in relation to the

–  –  –

Consumer law The Australian Consumer Law prohibits certain types of business conduct, such as harassing or misleading consumers and exploiting their vulnerability, that can occur both in door-to-door sales and other environments. At the same time, recognising the particular risk of consumer detriment in the door-to-door sales environment, governments have tended to subject door-to-door sales to additional requirements over and above those in general consumer law. Of relevance to door-todoor energy sales in Victoria, these include the Australian Consumer Law’s unsolicited consumer agreement provisions and the Code of Conduct for Marketing Retail Energy in Victoria. Additional consumer protections applicable to energy door-to-door sales include, most importantly, the provision of a ten business day cooling-off period and requirements on sales agents to disclose their identity and purpose, and to leave when requested. To improve consumers’ capacity to make appropriate decisions, there are also special provisions relating to the agreement information that must be provided to consumers in a door-to-door sales situation.

Throughout 2012, the Australian Competition and Consumer Commission has prioritised enforcement of the Australian Consumer Law in relation to energy door-to-door sales, filing proceedings against energy retailers and the door-to-door sales companies they had engaged. In September 2012, the Federal Court found that Neighbourhood Energy had breached the Australian Consumer Law unsolicited consumer agreement provisions, as well as its prohibition on misleading or deceptive conduct. Neighbourhood Energy and its door-to-door selling contractor, Australian Green Credits, were ordered by consent to pay penalties totalling $1 million. Another case has been brought against AGL Energy, but, at the time of writing, was yet to be decided.

The ACCC v Neighbourhood Energy decision tested the scope of the Australian Consumer Law unsolicited consumer agreement provisions. It demonstrated that energy door-to-door sellers can face penalties for misleading and deceptive conduct and for failing to respect requests to leave – including those conveyed via Do Not Knock stickers. While it remains to be seen whether the ACCC’s enforcement action will translate to improved compliance on the part of energy retailers, the case was widely reported and seen as a landmark. CUAC has recommended that the ACCC solidify these gains by maintaining its focus on enforcement and testing of the ACL in relation to door-to-door energy sales.

In contrast to the ACCC’s active enforcement, Victoria’s Essential Services Commission has taken a ‘light-handed’ approach to promoting compliance with its Energy Marketing Code. Despite ongoing breaches as evidenced by retailer self-reporting and regulatory audits, the ESC has at no time used its statutory powers to enforce compliance with requirements relating to the information that must be provided to consumers at the door.

6 Retailers have now had a number of years to familiarise themselves with these requirements, and have been repeatedly asked to comply voluntarily. It is crucial that consumers making switching decisions on the basis of door-to-door sales presentations are given clear, truthful and comprehensive information about the offer they are considering. CUAC is therefore recommending that the ESC take stronger enforcement action should retailers fail to comply, within the agreed timeframes, with administrative undertakings made following the most recent round of regulatory audits. We are also recommending more timely publication of audit results and evidence of subsequent corrective action.

Consumer-centred approaches One group of approaches to minimising the consumer detriment associated with door-to-door selling can be categorised as consumer-centred. These approaches equip and rely upon consumers to protect themselves from any misconduct or detriment. Primary among this group are consumer education and information initiatives, which have been a mainstay of policy approaches to door-todoor sales. Consumer education and information initiatives aim to give consumers the knowledge, skills and confidence to participate effectively in increasingly complex and information-intensive markets. A range of regulatory and consumer bodies undertake consumer education activities, and/or produce consumer information resources relating to door-to-door sales.

There are some good examples of consumer information resources in Victoria, including non-text materials and documents in community languages. For vulnerable consumers, these resources will often be best delivered in a face-to-face context, and the report recommends that Consumer Affairs Victoria support such activities. Even so, the limits of consumer education and information in relation to door-to-door sales must also be acknowledged. Information provided to consumers will not necessarily be taken notice of and understood, particularly where information is dense or complex, and by consumers who have poor literacy skills. Where information is seen and understood, it may be difficult to translate into action. Hence, complementary policy approaches are needed to tackle misconduct at its source.

Another set of consumer-centred policy approaches aim to minimise detriment, including relatively minor but pervasive non-financial detriment, by allowing consumers to opt-out of any interaction with door-to-door sales agents. Existing and potential opt-out mechanisms include Do Not Knock and other No Canvassing signs and stickers; excluded zones such as the UK’s No Cold Calling Zones, and No Contact lists and registers.

While Do Not Knock stickers now have unambiguous legal status, CUAC is not convinced that they represent the most efficient and effective opt-out mechanism for consumers. At the Federal level, the possible introduction of a Do Not Knock Register – similar to the Do Not Call Registers already in place in Australia and around the world – has recently been debated but, at the time of writing, seemed unlikely to go ahead. This is disappointing. The immense popularity of Australia’s Do Not Call Register shows that consumers are strongly supportive of initiatives that allow them to avoid intrusive marketing practices. A Do Not Knock register would provide a very simple mechanism for doing so, and would efficiently and appropriately allocate costs to retailers rather than consumer groups and government.



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