Conflict of interest woes for consumers

The Direct Marketing Association of SA (DMASA), an umbrella body that looks after the interests of the entire sector, is the preferred entity to run a database meant to protect consumers from unwanted SMSes and e-mails.

However, the National Consumer Commission's (NCC's) preference to appoint the association to manage the national opt-out registry has been slammed, as the DMASA's mandate is to protect its members, and not consumers.

A national opt-out database, which will allow South Africans to pre-emptively block contact from marketers, including unwanted SMS and e-mail spam, is provided for in the Consumer Protection Act (CPA).

In terms of the new law, which came into effect in April, companies must assume they cannot communicate with consumers, unless they have written confirmation that people's information is not in the system.

According to an NCC general notice, signed by commissioner Mamodupi Mohlala, the regulatory body is considering appointing the DMASA to operate the registry. The NCC has invited comment from the public on its viewpoint.

Currently, the only such list is run by the DMASA, which requires its 398 members to cross-reference their marketing lists against the database. However, the association recently came under fire after contact details of the 39 000 people who signed up on the list were leaked.

Pieter Streicher, MD of BulkSMS.com, argues it will be a conflict of interest if the DMASA runs the registry. It is in the direct marketing industry's interests to have as few people as possible join the database, he explains.

BulkSMS has lodged an objection to the DMASA running the database, notes Streicher. He says the association's aims conflict with the very reason the database should be set up. “I don't think they should manage it.”

Consumers do not trust the association with their personal information, says Streicher. He argues this will lead to people not registering on the database, which will lessen the value of a national opt-out registry.

“Their [the DMASA's] track record in terms of how they deal with personal information is not great,” Streicher comments. As an example, he points to the fact that the DMASA used to e-mail its database to all its members, which led to it being leaked.

DMASA CEO Brian Mdluli argues there is no conflict of interest because the association was formed by responsible direct marketers to self-regulate the sector. The DMASA has about 398 members, which makes up the bulk of the industry.

However, Mdluli concedes the DMASA does promote the interests of the sector as a whole. He points out the association just spent R1.6 million on a new secure system, which has done away with the previous process of e-mailing the database to its members.

The “secure SSL-certified Web site” allows members and non-members to log in and upload the identity numbers of the consumers it wants to target in marketing communications. The tool is free to use for DMASA members, while non-members are charged R1, excluding VAT, for a duplicate record matched against the database.

Mdluli says the association will have to remodel how it can make the registry more inclusive to non-members. However, he points out the sector will have to carry the cost of the registry so that consumers do not pay for it through taxes. “If the direct marketer does not pay, who pays for it?”

According to the NCC's general notice, only three entities submitted written proposals. The DMASA's bid came in at a cost of R1 million and will not cost the NCC anything, as the investment is covered by annual fees paid by the association's members. The DMASA was established in 2005, and has been running a registry since 2006.

Legal firm Stephen Logan, which is a “database specialist” according to the general notice, came in at R1.05 million. However, says the notice, the firm does not have a technological framework to manage the registry.

Third bidder Deloitte will still have to develop a technological framework and did not provide an indication of costs. It “sought to propose a once-off setup fee... and, thereafter, a monthly fee for hosting and maintenance of the database,” says the notice.

Arthur Goldstuck, MD of World Wide Worx, says: “There isn't much choice in the matter. Even a flawed system is better than no option to start with.”

Based on the quality of replies, the DMASA seems like the best option as the organisation was the only one with a technological framework already in place, says Goldstuck. He points out that, as an industry body, part of its job is to police the sector.

Streicher argues the NCC should have issued a new tender to run the database if the quality of the proposals was not up to scratch.

There must be a time limit for how long the tender will run, as this will force the DMASA to prove itself, and allow time for a competitor to come up with a better system, says Goldstuck.

The short-listing will be a “wake-up call” for the association as it cannot afford to fail because it will have a national obligation, says Goldstuck.

There is no conflict of interest as long as the DMASA has the teeth to force marketers to cross-reference their databases with the national registry, notes Goldstuck. He says the DMASA needs to be able to penalise companies that do not comply with the law.

In terms of the CPA, the company running the database will have to ensure full compliance with the law. The information in the registry will also belong to the NCC and cannot be used by the entity that wins the bid.

The general notice indicates the company cannot benefit financially from running the registry. It will also have to implement a process to validate companies that wish to market directly to consumers.

The firm that handles the administration of the registry also has to put security measures in place, and co-operate with the commission. If the contract comes to an end, it will have to hand over any information it collected to the NCC.

Once the DMASA becomes a statutory body, it will have the power of the NCC behind it, says Mdluli. He explains that the association deals with complaints on a daily basis, but does not hunt down irresponsible marketers who abuse consumers' rights.

Interested parties have until next Friday to lodge written submissions.