August 30, 2019

Ontario Proposes Changes to Direct Selling Rules under the Consumer Protection Act

On June 12, 2019, Ontario’s Ministry of Government and Consumer Services (the “Ministry”) proposed further amendments to the province’s direct-selling regime, as governed by the Consumer Protection Act (Ontario) (the “Act”). In its consultation paper, “The Consumer Protection Act: Direct Selling in Consumers’ Homes” (the “Consultation Paper”), the Ministry is seeking input on amendments that are aimed at:

  • reducing barriers for direct-sales businesses that provide products and services when the consumer has initiated contact;
  • leveling the playing field by increasing consumer protections to deter non-compliant businesses in this sector; and
  • strengthening enforcement powers required to target businesses that cause harm to consumers.

In March 2018, the Ministry introduced a variety of new rules (the “2018 Rules”) to regulate unsolicited door-to-door sales for numerous types of products and services, including air conditioners, air cleaners, air purifiers, duct-cleaning services, furnaces, water heaters and treatment devices, water filters, and HVAC services (collectively, the “Restricted Products” and/or “Restricted Services”). These rules included restrictions on when a salesperson attending at a potential consumer’s home could offer or sell these Restricted Products and Services to the consumer, depending on the manner in which contact between the salesperson and the potential consumer was initiated.

With the 2018 Rules having now been in effect for just over a year, and drawing on the experiences of business and consumers alike, the Consultation Paper is aimed at fine-tuning the 2018 Rules to maximize consumer protection while ensuring business can continue to efficiently conduct their affairs. In particular, the Consultation Paper highlights the concern that, despite the introduction of the 2018 Rules, many businesses continue to employ high-pressure sales practices, misrepresentation, and non-compliant contracts to sell Restricted Products and Services door-to-door. Inversely, it notes that many businesses that comply with the 2018 Rules face substantial barriers to legitimately carrying out their business.

The key changes proposed by the Consultation Paper to address these concerns include:

Simplifying Consumer-Initiated Transactions for Restricted Products or Services

Currently, for a business to sell or contract for one of the Restricted Products or Services at a consumer’s home, the consumer must have initiated contact with the business and invited the representative to attend at their home for that specific purpose (unless a written contract is already in place between the parties).

Businesses have indicated that these restrictions are overbroad, especially in situations where a potential consumer requests a business’ representative attend at their home for a purpose other than entering into a new contract. The Consultation Paper provides an example of a business representative called to repair a Restricted Product such as a furnace, discovering that the furnace in question is in need of replacement, but being unable to offer for sale a new furnace to the consumer as a result of the representative not being contacted specifically for the purpose of selling a new furnace.

To address this issue, the Consultation Paper proposes amending the Act to allow businesses to solicit consumers or enter into new contracts for any Restricted Product or Service at the consumer’s home so long as: (i) the consumer has contacted the business and invited a business representative to attend at their home, and (ii) one of the following conditions has been met:

  • the consumer has invited the business representative to their home to enter into a contract for a Restricted Product or Service;
  • the representative is attending at the consumer’s home as part of an ongoing consumer agreement related to a Restricted Product or Service;
  • the consumer has invited the representative to their home to enter into a consumer agreement for the servicing of a Restricted Product; or
  • a person authorized to do so by statute has prohibited or restricted the use of a Restricted Product by tagging, sealing or other means.

It is worth noting that any contract formed in contravention of the proposed rules would be void, and the consumer will be permitted to retain the products and services without obligation.

Easing Restrictions on Businesses Entering into Business-Initiated Commercial Relationships

Current direct-sales rules prohibit businesses from cold-calling a potential costumer to sell or offer a contract for a Restricted Product or Service unless a pre-existing written contract for a Restricted Product or Service is already in place between the business and the consumer.

Industry members have indicated that these rules are overly restrictive, as a business is prevented from entering into an agreement for a Restricted Product or Service with a consumer as a result of not having a pre-existing contractual agreement to provide a Restricted Product or Service with that consumer, even though the business may otherwise have a pre-existing business relationship of other sorts with that consumer.

The Consultation Paper proposes that businesses with a pre-existing business relationship with a consumer, even if there is no written agreement in place between the parties for a Restricted Product or Service, be able to contact and offer to consumers Restricted Products and Services without advance consent from the consumer. Such pre-existing business relationships could be grounded in the presence of a previous written contract that is no longer in effect, previous work orders or purchaser orders between the parties, or other records indicating proof of payment.

Expanding Rescission Rights when a Business has Engaged in an Unfair Practices, and Amending Notice Requirements upon Assignment of the Contract

Currently, if a business has represented its products or services in a false, misleading, or deceptive fashion, the deceived consumer must provide the business with a notice indicating that it intends to rescind the agreement within one year of the effective date of the contract.

The Consultation Paper proposes that consumers who have been misled or deceived instead be provided up to one year from the date they discover the unfair practice to rescind the contract, rather than having one year from the effective date of the contract to rescind, as is the case right now. This change would ensure that deceived consumers will be permitted to rescind contacts that have been misrepresented to them, regardless of whether the unfair practice was apparent within one year following the date of the contract or not.

Moreover, the Consultation Paper proposes to amend the Act to require the service provider to provide the consumer with notice should the service provider intend to assign its contract to another entity.

Strengthening Enforcement Mechanisms

The Consultation Paper also proposes a variety of amendments to the Act aimed at ensuring that sufficient enforcement mechanisms exist to discourage and punish improper business practices. The key changes proposed include:

  • expanding the mandate and authority of those charged with enforcing the Act to ensure they have the powers necessary to compel businesses to comply with the Act;
  • requiring businesses to ensure that, upon cancellation by a consumer of a service contract that is subject to the Act, all ancillary and related agreements consumers were formerly subject to (such as financing arrangements or registered security interests relating to the primary contract) are also fully terminated; and
  • amending the Act to allow for Administrative Monetary Penalties (AMPs) to be imposed on parties that contravene the provisions of the Act.

It is important that businesses engaged in direct sales and marketing campaigns understand the regulatory environment affecting their sales processes. Sotos LLP provides counsel to many businesses engaged in direct sales to consumers through all forms of direct and indirect marketing and channels of distribution.