Recommendation

The Commerce Committee has examined the Fair Trading (Soliciting on Behalf of Charities) Amendment Bill, and recommends that it be passed with the amendments shown.

Introduction

The purpose of the bill is to increase the transparency and public accountability of third-party businesses that collect funds on behalf of registered charities. There is concern that a disproportionate percentage of donated money may be retained by the third-party collectors to cover “costs”, and that the members of the public making the donations are not aware of this.

To address this concern, the bill as introduced proposes amendments to the unfair practices part of the Fair Trading Act 1986 (section 26)¹ that would require disclosure by collectors, in particular by providing that when a third-party collector retains more than 20 percent of the funds raised, this fact must be disclosed to the public. The bill also provides that where the retained portion is greater than 50 percent, the percentage portion must be disclosed proactively.

We recognise that the issue the bill seeks to address has caused some public concern. However, the current Fair Trading Act’s provisions regarding unfair practices provide for prohibitions on conduct, but they do not include positive provisions, such as the disclosure requirement that the bill proposes. While excessive retention of monies could be made a prohibited conduct, quite specific requirements would be needed regarding the conveying of the necessary information to consumers.

We also considered amendments to the bill to provide for disclosure in a consumer information standard regulation, under section 27(1) of the Fair Trading Act, rather than requiring disclosure under section 26 (unfair practices) of the Act.

Section 27(1) of the Fair Trading Act provides for the making of regulations to prescribe the content of information about particular goods or services, or the form or manner in which it is required to be disclosed, in a consumer information standard. We understand that under this provision, information could be required about third parties retaining a percentage of funds donated to charities. However, section 27(1) would not allow disclosure about third party collectors as the definition of “services” excludes contracts for the performance of work such as those between charities and third party collectors.

We received submissions from some large and reputable charities who submitted against the bill. Others agreed that some regulation was appropriate, but thought that the provisions in the bill were not workable. For example some charitable organisations spend up front to attract long-term regular donors, with the up-front cost being a smaller proportion of the donations over time.

We concluded that the complexities involved could not be dealt with in primary legislation and there is no simple universal solution. We have therefore recommended instead a regulation-making power enabling the Governor-General to make regulations, by Order in Council, on the recommendation of the Minister of Consumer Affairs to address concerns in this area.

In the light of this, we recommend amending clause 4 to delete proposed new sections 26A, 26B, and 26C, and to insert new section 28(A) to provide for regulations to be made relating to fund-raisers making requests for charitable purposes. The member in charge of the bill supports these amendments.

Regulations covering fund-raisers making requests for charitable purposes

New subsection 28A(1) would enable the Governor-General, by Order in Council and on ministerial recommendation, to make regulations relating to fund-raisers making requests for charitable purposes. Regulations could be made prescribing requirements for disclosure of information about the fund-raiser, the charitable organisation, and the relationship between the parties; the financial benefits the fund-raiser or any person other than the charity will or may receive (directly or indirectly) as a result of making requests; and the amount of any donation included in the price of goods or services.

Regulations could also be made under this subsection prescribing the manner of disclosure, and how the financial benefit must be calculated and expressed; and specifying any financial benefit that the fund-raiser would not be required to disclose.

New subsection 28A(2) would require the Minister, before making a recommendation under this section, to consult those who might be affected, to give them the opportunity to comment, and to consider any comments.

New subsection 28A(3) provides that a failure to comply with subsection (2) does not affect the validity of any Order in Council made under new section 28A.

New subsection 28A(4) provides that a person to whom the regulations apply cannot accept funds for a charitable organisation unless they comply with regulations made under new section 28A.

New subsection 28A(5) defines the terms used in new section 28A. We are conscious that the aim of this bill is to control professional third-party businesses that collect on behalf of charities, not the charities themselves or those who volunteer to collect for them. Accordingly, the definition of “fund-raiser” would include a person who, in business, makes requests for charitable purposes and that person’s employer or principal; it would not include the charitable organisation concerned, or an employee of that organisation, or a volunteer (a person who does not expect or receive any financial benefit for his or her fund-raising activities).

The definitions in new subsection 28A(5) also make it clear that the charitable organisations covered by this bill would include not only charitable entities or any other person whose purpose or predominant purpose is charitable, but also a person or organisation that represents itself as a charitable organisation.

Consumer law review

We are advised that there is likely to be significant amendment of the Fair Trading Act resulting from the review of consumer law that the Government is undertaking. Consideration of whether to require disclosure by collectors would fit within the wider context of the part of the review looking at possible additional best practice enforcement tools for consumer protection and promoting business competition.

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