INDU Committee Report

In accordance with its Order of Reference of Thursday, February 24, 2000, your Committee has considered the subject matter of Bill C-229, An Act to amend the Canada Post Corporation Act (letter that cannot be transmitted by post), and agreed on Thursday, April 6, 2000, to report as follows:

Bill C-229 received first reading in the House of Commons on 18 October 1999. The purpose of the bill was to authorize Canada Post not to deliver contests and other games of chance where the prize is conditional on the participant’s prior payment of a certain amount. In addition, the bill would have set up a registry of government logos which could be used on the cover of a letter only by government departments.

Pursuant to a motion of the House of Commons on 24 February 2000, Bill C-229 was withdrawn, and the subject matter of the bill was referred to this Committee which held hearings between March 21, 2000 and March 30, 2000. Following its careful consideration of all oral and written submissions, the Committee here presents its recommendations and findings as to the response necessary to combat deceptive mailings.

The Committee would like to take this opportunity to acknowledge and compliment Karen Redman M..P., for her dedication in advancing this subject matter and giving the Committee the opportunity to review this serious problem.

CHAPTER 2: CONTESTS AND GAMES OF CHANCE

Bill C-229 addressed the transmission by Canada Post of deceptive and fraudulent contests and other games of chance. In a typical scheme, the perpetrators deceptively represent to a person that he or she has won a significant prize. The participant must then call a 1-900 number to claim the prize or obtain information on how to do so. Since 1-900 service is a pay-per-use service, the participant is charged for this call. The amount of the charge varies but is typically approximately $25. Subsequently, the participant discovers that the prize is an item of little or no value.

The Committee heard that unsuspecting Canadians lose several million dollars per year through telemarketing and related scams. The precise figures are difficult to ascertain since many victims are too embarrassed to report their experience. The Committee feels that these activities are particularly egregious since they prey on the most vulnerable in our society, particularly seniors, who are least able to suffer financial loss.

At present, there appears to be no federal legislation dealing specifically with use of the mail system to deliver contests or other games of chance where prizes are conditional on the participant’s prior payment of a certain amount. The Competition Act¹ does contain provisions dealing with deceptive marketing, however, and the 1999 amendments to the Act added a new provision that deals with telemarketing.² This section is part of the misleading representations and deceptive marketing practices provisions of the Act. Among other restrictions, a person who engages in telemarketing is prohibited from conducting or purporting to conduct a contest, lottery or game of chance, skill or mixed chance and skill where the delivery of a prize is conditional on the prior payment of any amount by the participant. Not surprisingly, the provision applies only when a person is engaged in telemarketing. The Competition Bureau has interpreted the phrase "interactive telephone communications" as meaning live voice communications between two or more persons. According to this interpretation, the provision would not cover fax communications, Internet communications, or a customer’s interaction with automated pre-recorded messages. Thus, it would probably be applicable to a situation where a person receives a scratch and win card in the mail and then proceeds to have a live conversation with a person or persons conducting a contest of the type under discussion. The interpretation would not, however, seem to cover such contests when other means of communications are used.

These other means of communication are still subject to the general provisions concerning misleading representations in the Competition Act³. In certain situations, these provisions may apply to a scratch and win contest delivered by mail⁴ but they do not specifically prohibit the delivery by mail of contests or other games of chance where delivery of the prize is conditional on the participant’s prior payment of an amount.⁵

Provisions of the Criminal Code⁶ may also be applicable; for example, section 206(1)(f) states that persons are guilty of an indictable offence if they dispose of any goods, wares or merchandise by any game of chance or any game of mixed chance and skill in which the contestant or competitor pays money or other valuable consideration. Where alternative means of entry into the contests are available, the contest is not illegal, however, since the purchase requirement has been removed. In addition, section 381 of the Criminal Code prohibits the use of "the mails for the purpose of transmitting or delivering letters or circulars concerning schemes devised or intended to deceive or defraud the public, or for the purpose of obtaining money under false pretences."

Other provisions of the Competition Act or the Criminal Code may be applicable, depending on the particular facts of the case. None of the provisions would appear specifically to prohibit the delivery by mail of contests or other games of chance where the delivery of the prize is conditional on the prior payment of an amount by the participant.

This Committee is determined to strengthen consumer-related legislation and recognizes that the government has a duty to combat misleading contests that are produced with an intent to defraud the public. Bill C-229 would have prohibited Canada Post from transmitting a piece of mail that was not in envelope where, in its opinion, such mail was an invitation to participate in a contest, lottery or game of chance, skill or mixed chance and skill and where it stated that the delivery of a prize or other benefit to a participant was, or was represented to be, conditional on the prior payment of any amount. While the Committee supports the general principles of Bill C-229, it shares many of the concerns raised by the Competition Bureau with respect to this bill.

Our first concern is that the bill would have dealt only with the delivery of such contests by Canada Post, which agency, we learned, is responsible for delivering only 20% of all unaddressed advertising material in Canada. It is clear that the bill would not have covered other means of delivery such as newspapers and private distributors. In addition, the Committee notes that a person could have easily circumvented the bill by placing contests and games of chance in an envelope. Thus, the Committee would welcome more comprehensive legislation that addresses the substantive nature of the problem of deceptive and fraudulent mail. Such legislation must deal with all means of delivery, should include items placed in envelopes, and should include a specific prohibition relating to deceptive contests with the elements of the offence clearly set out.

The Committee is also concerned that the bill would have placed the onus on the wrong party. Rather than prohibiting Canada Post from delivering certain pieces of mail, we feel that the responsibility should have been placed on those circulating them. Since these contests and other games of chance are harmful, the perpetrator of such an offence should be subject to criminal liability.

The Committee is of the opinion that the legislation should contain the following elements: the possibility of an interim injunction against the perpetrator of such an offence and also against third-party service providers; a provision deeming charges relating to 1-900 service to be prior payment; and, availability of a due diligence defence.

To ensure that the amendments would not hinder legitimate marketing activities, the Committee would like a more formal and broad consultative process to be held with stakeholders to prevent the amendments from having any unforeseen consequences.

During our hearings, the Committee was alerted to existence of Private Member’s Bill C-438 which addresses the issue of misleading contests and games of chance in a more comprehensive manner than did C-229. The purpose of Bill C-438, which mirrors the new telemarketing provision added to the Competition Act in 1999, is to prohibit the delivery, by mail or through any other system of delivery, of printed material giving the general impression that the recipient has won a prize conditional on the payment of a sum of money or specific telephone charges. This bill addresses many of the concerns we raised with respect to Bill C-229 but the Committee would suggest the following change. As drafted, Bill C-438 would be applicable to "printed material" to be delivered by mail or through any other system of delivery. The Committee is concerned that the use of the phrase "printed material" could exclude delivery by Internet or other technology advanced systems of delivery. Therefore, we would recommend that any future amendments include the Internet and other technology advanced systems of delivery. Since the Competition Act is a law of general application, we feel that the amendment must be made to apply to all possible systems of delivery. In addition, the Committee is still concerned that there be broader consultations to ensure that the bill would not impact on legitimate marketing activities.

Thus, the Committee would recommend that the Competition Act be amended to deal with deceptive and fraudulent mailings. These amendments should mirror the recent provision added to the Act dealing with deceptive telemarketing. The Committee notes that such amendments are generally supported and does not see why they cannot proceed quickly.

The Committee does not feel that it is appropriate to impose criminal liability on third-party service providers who, in certain cases, are required by legislation to provide the service. As previously stated, the onus should rather be on the perpetrator of the offence, on those responsible for circulating these cards. This does not mean, however, that third-party service providers have no role to play with respect to combatting this activity.

Telephone companies regulated as common carriers under the Telecommunications Act⁷ operate the 1-900 numbers often associated with scratch and win game cards. Their services are generally subject to Canadian Radio-television and Telecommunications Commission ("CRTC") approved tariffs. The Committee heard that their services must be provided on equivalent terms and conditions to all, with any restriction on access approved by the CRTC. Thus, the CRTC approves the rates, terms and conditions for the provision of 1-900 service, including both the network connectivity charges and the management fee charges for billing and collection of service provider charges. The Committee heard that the provision of the 1-900 service is subject to a number of restrictions and requirements designed to minimize exposure to fraud.⁸ If a person is in breach of the terms and conditions set out in the tariff or other agreement, the carrier can revoke a service. The Committee realizes that these companies work under a legislative framework that, at times, can make it difficult or impossible for them to refuse service. The Committee would urge telephone companies to file an application with the CRTC for further restrictions on the provision of 1-900 service that would allow a telephone company to refuse to bill and collect for caller charges associated with games of chance conducted for profit. Bell Canada stated to the Committee that it intended to do this. Such action would certainly make it easier to refuse 1-900 service when it is appropriate. While prohibiting the conduct through legislation would not guarantee that it would stop, removing the tools needed to commit such deception is extremely effective. The Committee would ask that telephone companies remain vigilant with respect to these types of schemes.

As Canada Post processes millions of pieces of mail each day, it would be a monumental task for it to inspect every piece to ensure it did not contravene any possible provision dealing with contests and games of chance. Questions of censorship and privacy also arise, for which the Committee has not heard detailed evidence. For example, if the delivery agent were criminally liable for delivering such items, would it be obligated to open mail in order to avoid liability? It must be remembered that such a provision would apply to all delivery agents including local private distributors that are sometimes operated by small companies or individuals.

One issue relating to Canada Post does concern this Committee, however. This is the use of Priority Post to collect money from victims and deliver it to the parties conducting fraudulent activities. The Committee heard that Priority Post is widely used by perpetrators because it is the only courier company that will not return the package to the sender before its delivery, where the sender has realized that he or she has been defrauded. It is important to note that Canada Post does not actually refuse these requests but rather is prohibited from detaining mail by the Canada Post Corporation Act,⁹ which upholds the principle of the sanctity of the mail. No distinction is made in the Act between the different services offered by Canada Post so that Canada Post is not free to arbitrarily seize and detain mail sent by Priority Post. The Act does provide an avenue whereby the Minister responsible for Canada Post can issue orders prohibiting Canada Post from delivering mail to a specified person.¹⁰ Thus, a balance seems to have been struck in the Act between the sanctity of the mail and the prevention of illegal activities. Where the Minister has reasonable grounds to believe that persons are committing an offence by mail, the Minister can make an interim order prohibiting the delivery of mail addressed to that person. The mail may then be detained or returned to the sender. The provisions of the Act set out a process for challenging an interim prohibitory order and set out when such an order becomes a final prohibitory order. The Committee is obviously concerned about the practical aspects of such a process and whether or not an order could be obtained within the time it would take to deliver a piece of mail by Priority Post. If not, the person who had made the original complaint might not benefit, although others who had sent similar packages after the order was in place would be protected.

Thus, the Committee does not feel that it would appropriate at this time to recommend changes to the Canada Post Corporation Act. The Committee is concerned not to upset the balance found in the Act between preserving the sanctity of the mail and the prevention of illegal activities. The Committee feels strongly that this situation must be rectified but is satisfied that the solution may already be found in the Act. The use of interim prohibition orders appears to provide a proper balance between the protection of the consumer and the rights to privacy and sanctity of the mail.

The Committee urges Canada Post and Phonebusters, two organizations who are members of the Deceptive Telemarketing Prevention Forum, to overcome what appears to be a lack of co-operation or communication. In particular, we would ask that Canada Post set up a process that would allow the quick implementation of an interim prohibitory order after being contacted by Phonebusters. This organization should be given information on who to contact, what information to provide, etc. In addition, the Committee would urge that Canada Post establish the proper internal process to deal with such complaints made directly to them.

Finally, the Committee requests that these two organizations keep statistics on the success rate of the use of interim prohibitory orders and table these with the Committee within six months. Using these statistics, the Committee may determine whether or not the interim prohibitory orders are an acceptable solution, depending on whether they properly protect consumer interests. At that time, the Committee may feel obligated to recommend amendments to the Canada Post Corporation Act that would allow the return of a package to the sender, particularly with respect to Priority Post. The Committee refuses to accept a situation whereby unethical and criminal individuals should be in a position to use Canada Post and its legislation in order to commit fraud on unsuspecting consumers.

The Committee agrees with the testimony heard that education and raising public awareness is the most effective long term strategy for combatting this type of fraud. While prohibiting an activity is an important first step, other approaches must be pursued. The Committee notes the existence of the Deceptive Telemarketing Prevention Forum, which was created in 1996 when the Competition Bureau decided to join forces with other organizations and businesses that were also interested in preventing fraud. The Forum, which consists of members from government, the private sector and not-for profit organizations, has launched a major public awareness campaign with the slogan "Stop Phone Fraud – It’s a Trap." Posters and pamphlets have been prepared and the Forum has released a series of radio and television public service announcements. We congratulate the organizations involved in these campaigns, some of whom appeared before this Committee. We would urge all organizations to continue these campaigns.

The content of any publicity campaign should be left to those who have expertise in this area but the Committee would like to see the following points addressed:

• that consumers be made better aware that the 1-900 service is a pay-per-use service;
• that consumers be informed of the possibility of a "charge back" when they reasonably dispute a charge on their phone bill relating to 1-900 service; and,
• that the public be better informed of the work done by Phonebusters and how that organization can be contacted.

As stated above, Bill C-229 did not deal only with contests and games of chance. It would also have established a registry of government logos and prohibited the use of registered logos on the cover of a letter by anyone other than by government departments. The purpose of the bill was to target misleading or fraudulent use of government logos, on the grounds that the presence of a government logo or a similar logo would "legitimize" what was being transmitted. While the Committee shares the concerns that government logos should not be used by persons other than the government, it is not prepared to make recommendations for the following reasons.

First, the witnesses who appeared before the Committee on the subject matter of Bill C-229 were much more concerned with the problems to do with contests and games of chance than with the misuse of government logos. Thus, the Committee was not provided with evidence that this latter problem was widespread in Canada.

Second, the Committee stresses that there is already a legal means of protecting such identifying marks. The Canadian Trademarks Office, which is part of the Canadian Intellectual Property Office at Industry Canada, maintains a registry of all official marks, including those of the government of Canada. The owner of a registered trademark may institute proceedings to prevent others from infringing this exclusive right. Thus, government logos are already legally protected and their unauthorized and misleading use is already contrary to the Trademarks Act. It is also possible that the misleading representation provisions of the Competition Act would extend to the misleading use of government logos. The Committee does believe that it is important for the government actively to protect government symbols and the ownership rights of the government against trademark infringement. We urge the Federal Identity Program and government departments to be more vigilant in their protection of government symbols.

Pursuant to Standing Order 109, the Committee requests that the government table a comprehensive response to this Report within one hundred and fifty (150) days.

A copy of the relevant Minutes of Proceedings (meetings No.31, 32, 37 and 39 of the 2nd Session of the 36^th Parliament) is tabled.

Respectfully submitted,

SUSAN WHELAN, M.P.
Chair

The Bloc Québécois MPs who sit on the Standing Committee on Industry wish to point out that they also consider it important to protect consumers from misleading soliciting and sales practices. However, Bill C-229, which has been considered in principle, is quite limited in scope and raises many questions, particularly concerning legal means of protecting consumers.

The BQ is very dissatisfied with this Industry Committee report, which barely refers to the provinces' role in protecting consumers. At best, for example in Recommendation 1, it considers the provinces as just some of many stakeholders; however, the provinces are the first line of intervention in consumer protection. We need not remind the Committee that it is the provinces that have jurisdiction to legislate in this field; Quebec's Consumer Protection Act is an eloquent example.

The BQ is concerned about the ever more widespread trend toward using the Competition Act for purposes other than those for which it was originally passed. The Competition Act was designed to guarantee fair trade practices, and is not necessarily the best tool for guaranteeing consumer protection.

With ostensibly noble aims, the federal government is interfering more and more frequently in areas of provincial jurisdiction. The BQ considers that the provinces, which have jurisdiction to act in this field, are in the best position to protect consumers in matters of contracts, civil law, and lotteries and races. The federal government and the other members of the Committee have largely ignored this point. This centralizing trend is harmful to Quebec. What about Quebec's distinct character, which Liberal MPs are so proud of having recognized? It has no place in this government's workaday operations.

The BQ wishes to emphasize that the interests of Quebec consumers would be poorly served if there were two pieces of legislation in the same field, with different monitoring mechanisms and different remedies. Any legislation designed to protect consumers adequately must be effective and straightforward.

The BQ also wants to issue a warning about the last recommendation, concerning nation-wide advertising campaigns: the BQ is apprehensive that the federal government will turn these campaigns from genuine information tools into propaganda tools.

In conclusion, the BQ asks the federal government to discuss with the provinces the problem raised by Karen Redman, MP for Kitchener Centre: whether the provinces consider federal intervention necessary, and possibly look into whether their area of jurisdiction is too limited to protect consumers well.