|March 19, 1999
Dear Secretary Clark:
On behalf of the National Consumers League, America's pioneer consumer organization, I am submitting comments on consumer protection in the marketplace of the future, the global electronic marketplace. NCL was founded one hundred years ago to advocate for consumers and workers. Though the marketplace has evolved since 1899 and continues to change, the basic consumer issues remain the same: informed choice; fair dealing; and practical recourse for disputes. It is with those principles in mind that we make the following observations.
Need to Define Electronic Commerce
Before one can discuss how consumers should be protected in electronic commerce, it is essential to define the term. Is it the means by which goods and services are offered to consumers? Is it the means by which consumers convey their desire to purchase? Is it the means by which consumers pay for their purchases? Does it include all electronic methods of payment and communication?
While it is often used as a synonym for online transactions in which someone purchases goods or services through a web site by providing a credit card number for payment, the term electronic commerce could conceivably include situations where the consumer:
The term electronic commerce could also apply to situations that have no relation to the Internet, such as when a consumer:
Thus, one key question for public policy makers is whether consumers' rights and recourse should vary depending on which electronic mediums are involved and how they were used. Generally, we believe that electronic commerce should be construed broadly, though there may be aspects of online transactions that would merit special consumer protections. For the purposes of these comments, however, we will focus primarily on transactions that are actually consummated online, which we will refer to as "global online commerce."
Basic Consumer Issues
In response to the Federal Trade Commission's request for comments, we anticipate that lawyers and academics will provide detailed answers to the legal questions that were posed. From the perspective of consumers, we believe that there are several basic issues that must be addressed in the context of global online commerce.
Consumers need to know who they are dealing with, where the sellers are located, and exactly what they are offering. It is important for consumers to have this information in order to make informed purchasing decisions and to follow up on transactions if problems arise. In offering goods or services through the Internet or via online services, marketers should provide clear, easy-to-understand and easy-to-read information about:
2. Contractual Process
Because of the long-distance nature of online transactions, it is important for agreements to purchase to be made in a manner that ensures that consumers understand the process, affirm their buying decisions, and retain documentation of the transactions. Procedures for making purchases should include:
3. Post-Contractual Issues
As in any distance selling transaction, consumers must have practical means of following up if problems arise. After the purchase is made, the seller should:
Conflicts of Law
One of the most difficult issues in transactions between buyers located in one country and businesses located in another is what laws apply, those of the consumers' or the sellers' jurisdictions. In an ideal world, consumer protection and requirements for business conduct would be harmonized. Though this is not the case at present, we believe that harmonization should be explored by governments and organizations that advocate for consumers' interests. Harmonization need not necessarily be the same as uniformity, but rather could be a way of providing similar or equivalent protections while still allowing flexibility for special conditions or considerations within individual jurisdictions.
Unlike commercial transactions between businesses that have similar levels of expertise and sophistication, consumers are not in a position to make informed decisions about whether to be bound to the laws of a foreign jurisdiction instead of their own, or whether to agree to binding arbitration that would preclude their ability to turn to normal avenues of legal recourse.
Therefore, we believe that the laws of the consumer's jurisdiction should apply in online transactions with companies in other countries. We recognize the difficulties that this may pose for businesses; it is an issue that has already confronted companies in the United States in connection with telemarketing across state lines.
For example, some states have requirements for licensing or registration of telemarketers. Some have requirements for written agreements and cooling off periods for certain telemarketing transactions. States also have differing advertising regulations and disclosure requirements that apply to goods or services that are offered by telephone or other media. The federal Telemarketing Sales rule and other federal rules and statutes that may apply to telephone transactions do not generally preempt state provisions, as long as they do not conflict, recognizing that state and local jurisdictions have the right, even the obligation, to protect their constituents from fraud, deception, misrepresentation and other unfair practices. This multilayered and disparate legal scheme has not resulted in the demise of the telemarketing industry.
Obviously, it is more complicated to comply with different legal requirements when they are multiplied by the number of countries around the globe. We will offer further thoughts on how this challenge might be addressed later in these comments.
Enforcing the Law
Another conflict of law issue is how judgements rendered in one jurisdiction may be enforced against a business in another. Again, this is a problem that has arisen in telemarketing fraud and with which both state and federal law enforcement agencies must grapple.
The solution lies in better cooperation between the governments of different countries. This will be imperative in protecting consumers in cross-border online transactions.
Electronic Payment Systems
We believe that one of the most important keys to the growth of global online commerce is access to electronic payment methods. Currently, differences in currencies, the slowness and unreliability of mail service, and lack of access to sophisticated technology on the part of both buyers and sellers create obstacles to cross-border commerce. Global online commerce will rely on the ability of consumers to make payments online.
It is interesting to note that at the National Consumers League's Internet Fraud Watch, a program that was launched in 1996 to give consumers advice about online solicitations and relay their reports of suspected Internet fraud to law enforcement agencies, most of the transactions about which we hear were consummated offline. In fact, in 1998 of the payments that consumers reported making in connection with fraudulent Internet or online promotions, only 8.3 percent were by credit card. The vast majority of payments were made by non-electronic means (42 percent were by check, nearly 40 percent by money order). Fewer payments were made by electronic means other than credit cards than by cash sent by mail to the seller (1.8% by cash as compared to .4 percent by debit card).
In the top category for Internet fraud in 1998, online auctions, many of the sales appear to be made by private individuals, who are unable to participate in the electronic payment systems. Some of the auction companies are providing payment alternatives, such as escrow services to which consumers can make payment by credit card. These measures are being taken mainly to enhance consumer protection because of the legal rights that consumers have under Regulation Z to dispute the charges if the goods or services are never delivered or were misrepresented -- the most common complaints in online auction transactions.
It is the consumer's chargeback rights that offer the best protection against fraud and abuse in Internet-related purchases, as it does in purchases through other mediums such as telemarketing. Therefore, we believe that it is important to ensure that online merchants can accept credit card payments whenever possible, as long as:
We are also concerned about debit cards, smart cards and other forms of electronic payment that do not necessarily provide consumers with the same legal dispute rights as credit cards. A survey conducted for the National Consumers League in July of 1998 showed that consumers did not understand the difference between debit and credit cards. Three out of four respondents said that if they used a debit card to buy a product or service and never received it or felt that it was misrepresented, they had the right to dispute the debit. That is not the case under U.S. law, though the major credit card associations who offer debit cards through their member banks tell us that in practice disputes are currently handled in the same way regardless of whether the purchase was made with a debit or credit card.
Consumers also do not have the same legal protections for lost or stolen debit or smart cards as they do for credit cards. To give consumers confidence in online transactions, especially with companies in other countries, we believe that it will be imperative to provide similar legal protections no matter whether payments are made by credit card, debit card, smart card, cybercash or other forms of electronic payment that may be developed, and no matter where the merchant is located.
Another impediment to global online commerce is the concern that many consumers have about the use of their personal information. In a June 1998 survey sponsored by Privacy & American Business and Price Waterhouse, LLP, 87 percent of computer users said they were concerned about privacy, with 56 percent "very concerned." Computer users not yet online expressed much lower levels of confidence than 'Net users about whether companies that do business online would use their personal information in a proper manner, 40 percent as compared to 53 percent. And only 25 percent of consumers who were not yet computer users were confident about the use of their personal information by online merchants. In every category, the majority of respondents felt that it was important for business web sites to post privacy policies online.
While this is a subject that many online marketers in the United States are currently seeking to address, it will also be important for companies in other countries to handle consumers' personal information appropriately and disclose their privacy policies if global online commerce is to thrive.
Regulation and Self Regulation
The National Consumers League applauds self-regulatory efforts such as the BBBOnLine program and the codes of conduct developed by trade groups such as the Direct Marketing Association because they encourage good business conduct and reduce the potential for fraud and abuse. They can also help consumers authenticate the merchants with whom they are considering doing business. Furthermore, such programs can provide alternative methods of dispute resolution.
However, self-regulatory schemes can never substitute for an appropriate legal framework of consumer protection and redress because they are voluntary. Not all businesses participate in them, and some participants fail to comply with the standards that they have pledged to uphold.
We believe that international self-regulatory programs that would authenticate merchants, encourage best practices for global online commerce, and provide practical alternative dispute resolution for consumers should be encouraged. In designing such programs, input should be sought from government agencies and nonprofit organizations that represent consumers' interests.
At the same time, there will continue to be strong roles for governments to play in setting legal standards for conduct and resolving consumer complaints. It will be important for governments of different countries to work together to develop similar legal standards to the extent possible and to create cooperative mechanisms for consumer redress.
Consumer and Business Education
It is vital to educate both consumers and businesses about their rights and responsibilities in global online commerce. This is especially true because the very nature of the Internet makes it easier for even the smallest companies to offer their goods or services to consumers anywhere in the world.
Consumers need to know how to shop wisely and safely online, and how to recognize the danger signs of fraud. They also need to how to assert their rights if they have problems with online transactions.
Businesses need to be educated about the need for truthful and complete online advertising, prompt delivery of goods or services, privacy protection and other security issues, and how to resolve complaints.
Governments of different countries should work together and with others -- consumer groups, non-governmental organizations, the media, and the business community -- to promote public education about global online commerce. Internet and online service providers should be included in the global education efforts. While the Internet is an obvious tool for public education, other more "low-tech" mediums must be used as well so that the information is conveyed to as wide an audience as possible, even to consumers and businesses who are not yet on the 'Net.
Educational efforts will have to take into consideration the need to reach out to the public in multiple languages and different age groups and cultures.
Development of the Global Electronic Marketplace
In closing, we would like to emphasize the key elements that will spur the development of the global electronic marketplace:
We appreciate this opportunity to share our thoughts on this important issue and look forward to working with the Commission and other interested parties on this matter.
Linda F. Golodner, President