Speech by Chief Executive on CONSUMER RIGHTS AND ELECTRONIC COMMERCE

CONSUMER RIGHTS AND ELECTRONIC COMMERCE
by Mrs. Pamela W. S. Chan
President, Consumers International, and
Chief Executive, Consumer Council, Hong Kong SAR, China

The attitude and concerns of consumers, particularly related to electronic commerce and data privacy, are reflected through the latest international survey covering different countries. This session will discuss how such concerns could be alleviated through international co-operation and a proposed bill of rights for consumers.

INTRODUCTION

The global Internet network has tremendous potential to bring economic, social and cultural benefits to consumers all over the world. Because it will facilitate and expand the flow of communication between people and from place to place, people promoting e-commerce claim that Internet can bring enhanced educational and employment opportunities, cheaper goods and greater choice of services. E-commerce has the potential to revolutionize the manner in which we engage in commerce domestically and across international borders. It is clear that electronic commerce holds great promise for the future, and that the prospects for business growth are immense.

However, unlike a traditional shopping experience, there is limited scope for Internet shoppers to browse, or enjoy the time honored practice of 'just looking' and maintaining a degree of privacy in terms of not identifying themselves. Imagine shopping at your local shopping mall and:

• with every store you go into, each item you look at is recorded by sales people for future use;
• before you are allowed to examine some products you are required to provide detailed personal information on your credit card, email address and mailing address;
• you answer an innocent question or 'quiz' about hobbies or interests and you are subsequently bombarded with advertising material; and
• you visit a store that says it is a florist, and looks like a florist, but the flowers you order for delivery across the world to a relative do not arrive, and the store has vanished from the mall with your money, and no trace of where it has gone.

These are just a few of the issues that confront us when entering the world of electronic commerce. The technology provides the convenience of a 24 hours shopping opportunity and a vast array of choices from outlets all over the world, with a click of button. However, consumers are not afforded the same level of protection in the virtual market as they have enjoyed in the real marketplace through national consumer protection laws. Rights which for a long time, we have been fighting for and in many circumstances have achieved.

Moreover, the Internet is an environment that is challenging the jurisdictional boundaries of national consumer protection and privacy laws and the effectiveness of national enforcement agencies. Without international cooperation, and coordinated global oversight, it will be hard for any individual agencies to preserve consumer rights in their jurisdictions.

Research evidence on e-commerce usage and business conduct is limited at this stage. Consumers International [1] , took the initiative in late 1998 and early 1999 to find out what is happening now in the real world of electronic commerce - what consumers are being promised in terms of information disclosure, returns policy and security of transactions, and rights to privacy.

CONSUMERS INTERNATIONAL INTERNET SHOPPING PROJECT

12 consumer organizations around the world took part in a project of "mystery shopping" over the Internet [2] . The project team ordered more than 151 items from 17 countries/territories and returned most of them.

The study found:

• One in 10 items never arrived.
• Two buyers, from the United Kingdom and Hong Kong have waited over five months for refunds.
• Almost half - 44% of the products ordered arrived without receipts.
• 73% of traders failed to give crucial contract terms.
• Over 25% gave no address or telephone number.
• 24% were unclear about the total cost of the item that was ordered.

Information Disclosure

Some web sites visited did not provide adequate information when it came to terms and conditions of making a purchase:

• For 40% of sites information on terms and conditions governing the purchase were absent.
• In 29% of cases consumers had to actively search for the conditions in order to locate them.
• Only 27% of cases provided that information before the purchase was finalized.

Some information on web sites was confusing, making it difficult to distinguish general product information from terms and conditions, or distinguishing subjective advertising claims from objective empirically based research information; whereas in the real world, such a distinction would be relatively easier to make.

Security of transaction

As for security of transactions:

• 61% of sites from which goods were purchased claimed they were 'secure' sites;
• 44% of that total supplied additional information on the type of security system provided.
• Some sites claimed that they provided a SET payment option, but they actually did not. ("Secured Electronic Transactions" - SET whereby additional security could be offered to consumers).

Generally, banks claim that consumers will not be liable for any "proved" credit card fraud. Moreover, some sites indicated that they would reimburse consumers the US$50 that could be charged in the event of credit card fraud. However, it is still unclear whether the charge-back policy of card issuers and the legal protection offered on consumer liabilities will cover fraudulent transactions on the Internet in many countries.

Returns Policy

Information on a site's returns policy was also a problem:

• Only 24% of the study participants found that a returns policy was included in the transaction.
• 67% of cases specified restrictions.
• 21% of the CI study participants experienced a problem with the refund.
• In one case, a site claimed goods could be returned, but when tested on this, the request for return went unanswered.
• Some companies even charged a restocking fee for any item returned.

Privacy policy

• Few sites, locally or overseas, mentioned anything about having a privacy policy. For example, whether shoppers could prevent having their names placed on a site's mailing list or from having their details passed on to other retailers. Only 25% of US sites, for example, had a simple tick box for placing names on a mailing list, while overall only 17% of the total sites surveyed provided that option.
• Some sites actually encouraged the disclosure of personal information by offering discounts for filling out surveys or gathering information in the guise of post-purchase satisfaction surveys.
• Many sites did not provide information about such matters as delivery policy and handling costs in advance, but only provided the information until after consumers had submitted their personal information, such as credit card number, email address and mailing address.
• In one case, it was only after the order had been submitted, including the release of credit card information, that it was found the company did not ship the product to the purchasers' country.

CONSUMER RIGHTS

Consumer confidence is critical to the success of electronic commerce. Without at least the same level of protection in the virtual marketplace as we currently have in the real marketplace, it will be difficult to achieve the win/win outcome that is necessary to realize the full potential of electronic commerce. Various "click on" type contracts used in web pages today are often one-sided measures that unfairly limit consumer rights in a wide range of areas. These not only infringe on privacy but related areas such as the rights to benefit from exceptions and limitations of copyright, the right to criticize products, the right to offer competing products, the right to seek redress for defective products or service, and many other important consumer rights. Policy makers should be wary of measures that permit sellers to enforce unreasonable contract terms. And what else should be done?

Protection from fraud

Consumers must be protected from "rogues'" offers, use of personal data for illegal or fraudulent purposes. Government has a clear responsibility in providing for such safeguards.

The right to information

Internet traders should provide consumers with accurate basic information to enable them to make informed purchasing decisions.

Information on the offer

It is in the interests of business, as well as consumers that adequate information on the offer is provided. For example:

• The geographic supply area, duration and validity of the offer.
• The price and currency of the purchase including all relevant costs, such as costs of delivery, postage and handling, insurance and customer taxes and duties.
• Any safety or care warnings required by relevant national laws as well as instructions for proper use.
• For offers targeted to other than the suppliers' home country, additional duties and taxes, or an easily accessible source where the consumer can get the information.

Information on the terms and conditions

The contract should also contain information on the terms and conditions of a purchase. Such as:

• the terms of payment, including a clear description of the procedure;
• the liability of the supplier for fraudulent use of consumers' personal data provided by them online;
• terms of delivery including the time period of delivery;
• guarantees, warranties or other provisions relating to after-sales service;
• any cooling-off period;
• complaint procedure, conditions related to return, exchange, cancellation, or refund policy; and last but not least
• a clear statement of the trader's privacy policy

Identity of the supplier

Authentication of the supplier is also a crucial issue. Identifying information should be given on the supplier, such as the name of the company, geographic address of the company, phone, fax and e-mail numbers, and any relevant registration or license number. Such information may be a necessary pre-condition to file claims in legal proceedings in some countries.

The right to security of transactions

Security will always be a critical issue in Internet shopping, while commercial imperatives will encourage business to discover ways to tackle the problem, there is a role for government to consider what regulatory provisions need to be introduced to govern the evolution of transaction security so that basic consumer rights enjoyed in more traditional shopping environments are not subverted by commercial imperatives. Concerns with the use of credit cards need to be addressed.

Currently, credit card companies place the onus on consumers to prove fraudulent use of their credit accounts.

In view of the ease by which fraudulent transactions can be made, by simply using information that can be obtained from a hard copy imprint of a card, or a previous transaction that might have been made, current credit card policy is simply not sufficient to generate the level of consumer comfort that electronic commerce needs to realize its full potential.

It is a characteristic of this shopping environment that transactions processes, and security safeguards are being created and coordinated by a small number of global market players. It is important therefore that governments match this concentration of market power by coordinating with each other to introduce regulatory provisions underpinning the means by which transaction security will evolve. Universally accepted digital signatures, or similar authentication procedures must be constructed.

Returns and redress

Consumers should have the right to rescind a contract where the terms are in breach of the basic rules of contract. There should also be a right to a means of redress where consumers' rights have been infringed.

Returns

As is often the case with trading in traditional market places, companies will make refunds where a customer is dissatisfied with a choice. However, a returns policy should not simply be viewed as a favor bestowed by a trader, or another variable that can be adjusted to suit a company's bottom line, or its competitive position in the market. Sites should have a clear policy on returns which can be read before the goods are ordered, and should include information on procedure for returning goods as well as all costs likely to be incurred.

Information on the applicable law and jurisdiction

Consumers should have a basic right to seek redress in terms of unmerchantable quality, where goods do not fit the description given, and where goods are not fit for the purpose intended. Consumers in their own jurisdictions will generally have information available to them on where to obtain redress against unfair trading conduct. Consumers on the Internet must also have available to them, information on applicable laws, or self regulatory schemes that provide redress, in addition to information on jurisdiction and procedures for redress.

The extent to which this information can be made available would vary, depending on the complexity of the mechanisms that exist in the particular jurisdiction, and how difficult or easy it would be to include adequate information on a trader's website. Ideally, the applicable law for transactions should be the one of the country of the consumer and that the consumer should have recourse in his/her own jurisdiction. At the very least though, I think that a clear statement should be made as to what jurisdiction's laws would apply, in the same way that this information is provided in many written contracts. An easy way for traders to provide more detailed information to their customers, on consumer redress, would be to have a 'hot link' through to the appropriate national consumer organization.

Privacy

As noted above, unlike a traditional shopping experience, there is limited scope for Internet shoppers to browse, or enjoy the time honored practice of 'just looking' whilst maintaining a degree of privacy in terms of not identifying themselves.

It is unacceptable for traders to only make information on a product available on condition that personal information is provided. It is a fundamental right that consumers are given appropriate information on which they can base their decision as to whether they wish to proceed with a transaction, before the other party to the contract enjoys an advantage in terms of access to the means by which payment is made.

Such acts have impinged on privacy. Governments must conduct research now on the potential for abuse in the way Internet transactions are carried out, to preserve the privacy rights that exist under current legislation.

There are conflicts between privacy and certain technologies that protect copyrighted materials by embedding a device in the material enabling a licensor to identify a user. Privacy is a social good and society should avoid mechanisms that protect copyright at the expense of unreasonably intruding on personal privacy, particularly when less intrusive mechanisms are technologically feasible.

Moreover, There ought to be a limit to the extent where the companies can make use of customer profiling to intrude on the consumer's privacy. The following safeguards are necessary:

• Compulsory data collection should be limited to information that is necessary and reasonable for the transaction.
• The consumer must be told what information is being collected and why, and how it will be used.
• There should be a named individual within the company responsible for data protection, and consumers should be informed of this.
• Consumers must have the right to refuse further communication from the company or associated companies and must be clearly told how to exercise that right.
• Consumers must have the right to review and correct any information held about them.
• Consent to passing of data to third parties should be actively sought from the consumer, rather than being a negative default.

Consumers International's Privacy Project

To advance the work on privacy, CI is currently working on a project to look into what happens to consumers' personal information when they use the Internet, whether for browsing, researching leisure activities, or buying goods and services.

We hope that by undertaking the privacy project an outcome will be to help CI draw up a benchmark for good practice in privacy protection and enable it to estimate what percentage of sites live up to an acceptable standard.

AN INTERNATIONAL APPROACH

The rights I have detailed above, or I should say the 'wish list' is not something beyond the realm of legitimate expectation.

In the same way that we are facing a global phenomenon, the rights of consumers need a solution that matches the global characteristics of the marketplace.

The OECD is currently finalizing guidelines on consumer protection in electronic commerce that will cover many of the issues I have noted above. It is inevitable that member states will begin to use these guidelines as a model, particularly with regard to the presentation of an offer, and the establishment of a dispute resolution process. Governments of all countries should have a program for reviewing and adapting all key consumer protection legislation in addition to adopting best practice guidelines, such as those developed at an international level.

However, while the OECD guidelines are a good initiative, they are limited in scope, and there is a need for a wider international approach to the issues. Particularly in terms of reviewing how countries adopt the model guideline and promoting changes to the guidelines.

Global consumer rights

It is important through international cooperation, to draw up minimum standards in electronic commerce, including:

• the basic format of an electronic contract;
• effective complaint mechanisms;
• limits on consumer liability;
• the control of exemptions clauses;
• safeguards for the privacy of individuals;
• recourse at least to the laws and courts of a consumer's home country; and
• cooperation among governments in support of legal redress.

A Global Approach

If consumers are to take full advantage of this new technology, they must feel confident about receiving a consistent standard of consumer protection wherever they shop.

As adherence to many aspects of best practice guidelines is voluntary, consumers need a way of recognizing sites which offer high standards of consumer protection with ease, wherever in the world those shops are based. The development of an internationally recognized certification or labeling scheme, which indicates that shops meet agreed minimum standards on a range of key issues, would go a long way to offering this international reassurance.

As online consumers experience many types of problems, such as non-delivery of goods or obstruction in obtaining refunds, there is a need for a third-party redress mechanism which offers a further channel to the consumer once deadlock has been reached with the retailer. Such a mechanism needs to cover all companies selling goods to consumers on the Internet. It needs to be accessible, affordable, fast and consumer friendly; binding on the company concerned; and supported by national governments in order to give it teeth wherever the consumer shops.

Ultimately, for electronic commerce to fulfill its global promise, there will have to be consistent global rules. The model law promulgated by the UN Commission on International Trade Law, efforts of the WTO, APEC and OECD as well as the EU in examining the issue of e-commerce are appreciated. However, it would be beneficial to consumer welfare if one single forum emerges in some future date to ensure a harmonized approach in addressing the core issues confronting not only consumers, but government and business. The Transatlantic Consumer Dialogue (TACD) has urged the development of an International Convention on Privacy Protection in April 1999.

CI envisages that the key tasks for an international body should include:

• oversee national reviews and spread best practice in policy making on such matters as technological standards and privacy.
• ensure a harmonized approach to dispute resolution and facilitate international cooperation in law enforcement.
• protect consumer interests by passing information between jurisdictions about fraud.

An International Precedent

Reference can be made to what occurred in the intellectual property arena, and the existence of the World Industrial Property Organization, a world wide organization that looks at complicated business transaction issues.

World-wide pressure was brought to bear for new laws in that area, with astonishing speed, that met with equally speedy government responses. And this was in an area of some of the most complex laws that exist. There are noticeable differences in the approaches that are taken when addressing matters that affect business interests as compared to those that affect consumer interests. I do not believe that this is acceptable, and I trust that many people here, as consumers, will share my concern.

At the very least, many of the concerns ought to be addressed as soon as possible to ensure that electronic commerce evolves as quickly and efficiently as possible. If consumers and traders are not comfortable with using the new marketplace they will not use it.

CONCLUSION

What I have outlined, in terms of basic consumer rights, and a coordinated global response, should not be disregarded simply as matters that it would be nice to have, but are too impractical at this stage. These matters are not just consumer rights, they are fundamental to the guaranteed success of electronic commerce.

We must grasp the opportunity now, rather than wait for the system to sort itself out. It will not, it will only create more problems.

We have the opportunity to become proactive in our global regulatory initiatives and match the dynamism and initiative shown by those who are developing the technology to make this form of global trading possible.

We should take the opportunity now.

Remarks

1. Consumers International is a federation of 245 consumer organizations in 111 countries/territories.

2. 12 members organizations from Australia, Belgium, Germany, Greece, Hong Kong, Japan, Norway, Spain, Sweden, the United Kingdom and the United States.