Sylvan, Louise --- "E-commerce & consumer protection" [2000] ALRCRefJl 9; (2000) 76 Australian Law Reform Commission Reform Journal 44

---

Reform Issue 76 Autumn 2000

This article appeared on pages 44 - 47 of the original journal.

E-commerce & consumer protection

By Louise Sylvan*

E-commerce is great. It’s convenient for the consumer; it’s often the easiest way to shop around to get value for money; the new modes of shopping, like reverse auctions,¹ give consumers much more power in the marketplace; and it can save a lot of time for most people while still empowering them as consumers.

But, it may be hazardous to your wallet!

With all the hype surrounding e-commerce or shopping on the Internet, too little attention is given to the consumer problems that are starting to emerge. The most significant study to date – a monitored global shopping exercise – was conducted by Consumers International² and published in September 1999.

The Consumers International study was seminal in demonstrating that it was not yet time for consumers or governments to be complacent about e-commerce. Shoppers from 11 consumer organisations around the world purchased more than 150 product items³ from web sites in 17 different countries and recorded a range of aspects relating to each of the transactions. Most of the goods were then returned to also test the refunds and returns experience with web traders.

Before summarising some of the results from the study, it’s useful to consider exactly what the legal situation is, in terms of consumer rights, for someone shopping on a web-site.

Do consumers have rights on the web?

If the consumer is shopping in his or her own country, the laws of the land protect them and their situation is, for all important considerations, unchanged. The only difference is in the means of carrying out the purchase, which has no material effect on the consumer protections available.⁴

If a consumer is shopping outside their own country, however, their normal protections, which are based fundamentally within the laws of their nation state, no longer exist in any effective way. So if an Australian is shopping in one of the states of the United States, for example, do Australian consumer laws protect that Australian? Although there will probably be much legal argument before the issue is entirely resolved, the initial answer seems to be probably not. E-traders are claiming that the applicable law is that of their jurisdiction and not the consumer’s. While the consumer movement would obviously disagree with that, more and more traders are adding to the fine print of the contracts on their web-sites that, in the event of a dispute, it’s their law that counts. So it would appear that consumers probably would need to rely on the consumer protection laws of the state in which they are shopping. The problem this creates is that the practicalities of enforcing their rights are almost impossible to achieve. What consumer would want to learn the laws of each jurisdiction they’re shopping in so that they could enforce their rights? For that matter, what consumer is likely to travel to the courts or tribunals of another country, even if they’ve become familiar with that law, to resolve a dispute about a product that is likely to have cost less than the return airfare? The consumer, therefore, is left relying on the goodwill of web traders to act appropriately when a problem arises.

Many e-traders have excellent policies in regard to customer service problems and most consumers have been happy with purchasing from web-sites as a result. But in addition to whether or not the trader will be consumer friendly in a dispute, there are other issues (some of them legal) that arise for consumers who are e-shopping. These include protection of privacy; how secure information will be, for instance, when providing your credit card number; having clear information about the price of products including delivery costs as well as any relevant information on warranties or refund policies; understanding what legal jurisdiction does apply in the event of a dispute; and so on. Are the e-traders up to handling all this?

^{Here’s a few summary statistics from the Consumers International study:}

• More than 25 per cent of traders gave no address or telephone number anywhere on their site to establish a ‘physical’ presence for the consumer (or for that matter a place to serve a legal notice if it came to that).

• 24 per cent of transactions did not have clarity about total price - mainly a lack of explanation about delivery charges, which for overseas orders can be substantial.

• 73 per cent of traders failed to give crucial contract terms like guarantees/warranties or exchange and refund information. Nor were these necessarily included when the product was delivered.

• 90 per cent of sites did not mention which country’s law applied to the transaction.

• Only 14 per cent of sites said personal information wouldn’t be passed on to third parties and only 16 per cent explained their use of cookies.

• Only 32 per cent gave information on how to complain if there was a problem.

• 61 per cent made it clear whether the consumer was buying from a secure site.

In terms of building confidence for consumers wary of e-commerce, this scorecard doesn’t look particularly good. The best performance from e-traders came in the area of ensuring security of the information being provided by the consumer. The rest of the results are shockingly poor. When you add the following results, the performance of e-commerce retailers obviously needs a lot of improvement:

• 11 per cent of items ordered never arrived.

• In two cases, customers have waited for more than five months to get their money back after returning the products.

The latter instances are clear areas of serious non-performance where a consumer would be seeking redress from a tribunal or small claims court system.

Self-regulation the answer?

Despite these types of results, which show that a higher level of problem exists in business-to-consumer electronic commerce than was previously thought, most of the business lobbies argue that it’s too early for government intervention to address emerging problems – that it’s obviously in the interests of traders to ‘do the right thing’ by the consumer because it’s in their business interests to do so. The argument is that the ‘marketplace’ will resolve these growing problems in e-commerce and what the marketplace can’t solve should be resolved by businesses themselves through voluntary self-regulation.

Will business eventually get these things right on their own? More than 100 years of experience with forms of consumer protection law would suggest not.

_{In the absence of a legal framework, markets very rarely perform effectively on matters that are not strictly market transactions – in other words, matters that involve consumer or human rights. If markets were designed to deal with these things, there would never have been any need for consumer protection laws. These laws came into being because societies found that the unequal power between traders and consumers in negotiating contracts led to too many undesirable outcomes for their citizens. Thus laws about refunds and returns, truth in advertising, unconscionable conduct and so on came to pass because business was writing contracts to protect itself and limit the rights of the consumer. Clearly, business doesn’t just ‘do the right thing’ in a market transaction; business does the right thing by consumers within the context of certain standards set by societies through their governments. Nothing changes that equation – nor do consumer rights disappear – simply because the transaction and contract is in cyberspace. But, in effect, the current outcome for consumers shopping in cyberspace is that their rights have virtually disappeared since it’s debatable that they can reasonably enforce a breach of those rights.}

The trust that consumers have in the marketplace has been built up, at least within developed economies, by the underpinning of a ‘level playing field’ of consumer protection and fair trading laws. This gives confidence to consumers (and often to small businesses) that they will either be treated fairly or have the opportunity to seek redress easily. Self-regulatory codes of compliance and behaviour are excellent devices for helping industry members attain good practice, but they are generally only successful within an overall legal framework which sets the benchmarks. In this new world of e-commerce, the framework of benchmarks isn’t actually gone, but has become virtually unusable by consumers.

OECD guidelines

To help address this, while still acknowledging the business preference for no ‘heavy-handed’ government involvement (in other words, no enforceable law), the Organisation for Economic Co-operation and Development (OECD) created a set of agreed voluntary Guidelines for Electronic Commerce.⁵ The guidelines were negotiated and agreed by the governmental consumer protection agencies of the main developed nations with the addition of business and consumer representatives. The guidelines are useful in themselves and seek to set voluntary standards for a number of the problems that were illustrated by the Consumers International study; these include giving physical addresses and contact numbers, being clear about pricing, and so on. The compromises in the OECD negotiation were substantial, however, for example, the guidelines are silent on such critical issues as the inappropriateness of ‘jurisdictions of convenience’, which may prove to be an immense problem for consumers;⁶ nor do they speak to matters such as whether the consumer should at least have the ability to pursue redress in their own forum (for example, a tribunal or court in their own country) even if the applicable law is that of the trader. Nevertheless, the guidelines will go some way to setting a global framework of acceptable behaviour by businesses and that is a good start.

Until consumers can be assured of getting redress if things go wrong, irrespective of where in the world they may be shopping, many will still be wary of trading off their consumer rights for the convenience of e-shopping. A global shopping mall actually needs global consumer protection and redress mechanisms. At the moment, we have the development of one side of this equation without the other – the supply of goods and services to consumers through e-commerce is taking place globally, but the resolving of disputes about goods and services isn’t. Sorting out consumer disputes in a global way implies three interrelated strategies:

• a reasonable level of global harmonisation of certain key consumer protection laws;

• vastly increased bilateral agreements for enforcement activity to reduce the worst web trader abuses as well as fraud; and

• given the efficiencies of the technology, a functioning global electronic consumer redress system, agreed to and supported by the nation states, to deal with disputes that cannot be resolved at the industry level through self-regulation. Many people believe that such a system, run by a world consumer agency, is essential.

There is no doubt that the Internet, as a space that disregards states’ territorial boundaries, raises tough questions about how to handle consumer protection. The fundamental question is, what entity stands as the equivalent of the state to act on behalf of ‘netizens’? The only answer seems to be a multilateral arrangement that can function not only on behalf of the supply side of the market in encouraging trade liberalisation, as for example the World Trade Organisation does; but one that functions on the demand side of the market in ensuring that consumers can exercise their market power and enforce their rights. Without this, e-commerce problems will continue to grow, with many of them remaining unsatisfactorily resolved.

*Louise Sylvan is Chief Executive of the Australian Consumers’ Association and Vice-President of Consumers International.

She represented the global consumer movement in the negotiation of the international OECD Guidelines on Electronic Commerce.

Endnotes

1. At a reverse auction the consumer indicates precisely the product they want to buy and often the price they want to pay. Sellers ‘shop around’ looking for consumers whose product specifications and price they are willing to meet.

2. Consumers International is the global federation of consumer organisations worldwide. The Australian Consumers’ Association (CHOICE) is a founding member. Full details of the study, entitled Consumers@shopping, are at <http://www.consumersinternational.org> .

3. Interestingly, just finding sites to buy from was the first problem in the study – too many sites are not real e-commerce sites at all, just poor extensions of a company’s marketing arm. Sometimes it took a long time before successfully finding somebody to buy from – the ordinary consumer might well have given up.

4. There are some minor differences between the Australian states in terms of the Fair Trading Acts, which mirror Part V of the Trade Practices Act. It is also necessary for the states to ensure that a consumer in Perth, for example, can pursue redress even if they bought a product from a web-site based in Melbourne. The Ministerial Council on Consumer Affairs is currently addressing this matter. There is another critical issue concerning risk allocation under the law specifically in regard to electronic authentication. There are proposals, for example, which would shift the risk (in other words who bears the cost) of a forged digital signature completely to the consumer or small business enterprise. For more details on this issue see: in Australia, the web site of the federal Attorney General, <http://www.law.gov.au/ecommerce/> and in the US, <http://www.badsoftware.com> .

5. The OECD guidelines can be found at <http://www.oecd.org> .

6. A jurisdiction of convenience could be exemplified by a company establishing itself legally in a country that has no consumer protection laws. Consumers shopping with such a company would have no rights they could attempt to enforce in the event of receiving a defective good, for example. While it may seem unlikely that jurisdictions of convenience would be used just to avoid consumer protection law, such practices already exist in the shipping industry, for example, to limit legal liabilities. Already, a number of web companies have successfully lobbied to limit taxation on web-sites on the basis that they can easily move themselves to an alternative jurisdiction to avoid such taxation. Should this practice become commonplace, a side effect may be a significant increase in e-commerce based in jurisdictions without appropriate consumer protection law.