E-commerce Trade Practices Issues arising from the rapid growth of e-commerce

Mr Allan Asher

Australian Competition & Consumer Commission

INTRODUCTION

Internet commerce can provide considerable benefits to consumers, in terms of improvements in transaction convenience, choice, range and even price. For businesses, Internet commerce is attractive because it offers access to a global market, has low start up and operating costs, has few regulatory burdens, and provides cheap and efficient marketing and distribution mediums.

Among other legislation, the ACCC administers the primary piece of consumer protection legislation in Australia – the Trade Practices Act 1974. The objective of the Act, as set out in the legislation, is to enhance the welfare of Australians through the promotion of competition and fair trading and providing for a consumer protection framework. It contains a range of provisions aimed at protecting consumers and corporations that qualify as consumers.

A general statement of the application of the Trade Practices Act is that what is a breach ‘off’ the Internet remains a breach ‘on’ the Internet. Indeed, matters such as pyramid selling schemes become far more serious when perpetrated on the Internet, as the operators are able to directly access millions of consumers worldwide. Previously these approaches were limited by the cost of postage and stationary.

Electronic commerce, including Internet transactions, is fast becoming and will quite possibly become the principal means by which consumers transact their business. Already, consumers purchase goods and services via the Internet, and mechanisms such as EFTPOS are a way of life. While these new methods of consumer transactions can offer many benefits to consumers in terms of accessibility, choice, price and convenience, they will only achieve their full potential if consumers have confidence in them

The development of e-commerce as a means whereby consumers transact across borders has thrown up new challenges for consumer affairs agencies. Unless we rise to meet the challenge, a growing black hole in the traditional basic protection consumers expect will emerge. Consumer affairs agencies will need to develop new paradigms to ensure that consumers can transact on the global market with real confidence. To do nothing will mean that a potential for increased consumer welfare will be dissipated.

Consumer affairs agencies can no longer indulge in a “beggar thy neighbour” approach. If a fraudulent Internet trader is domiciled in Country A and commits fraud, misleading conduct or sharp practices on citizens of Country B, then the consumer affairs agency or agencies in Country B should have the expectation that the consumer affairs agency in Country A take appropriate remedial action, such as stopping the behaviour, securing compensation for consumers, and, if appropriate, seeking penalties. If this situation was reversed, then similar expectations would arise.

Internet Sweep Days

I must say that I am already heartened by the co-operative approach taken by consumer affairs agencies through such initiatives as the International Marketing Supervision Network and the annual international Internet sweep days that the ACCC have conducted to date.

The sweep days involved more than 70 agencies from 30 countries “sweeping” the Internet for get-rich-quick schemes, miracle cures and other health products. Those websites that offered the targeted activity were sent educational email messages telling them about the existence of relevant consumer protection legislation and how to comply. The sites were then revisited one month later, with the result that approximately one quarter had been removed or amended in order to comply with the relevant legislation.

With the advent of the Internet, fraud, misleading conduct and scams know no boundaries. These sweep days have not only shown that consumer affairs agencies can work co-operatively towards reducing scam operators, but also that they are responsible for setting the groundwork for an effective network.

The ACCC has also set up a slam a scam facility on its homepage, so that consumers can ‘dob in’ scam sites. We are also planning to conduct another sweep day this year.

CONSUMER PROTECTION ISSUES

As is the case in any consumer market, from time to time things can go wrong in global commerce transactions, and consumers who buy services or goods on the Internet and other global mechanisms are confronting the following type of consumer protection issues:

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  After sales difficulties, such as failure to supply the goods or services after payment has been made, problems with the delivery of goods, unsatisfactory goods or services, or goods or services that present health or safety risks;
  
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  Information deficiencies, such as the inability of the consumer to find out basic information about the product or service, and the trader,on which to make informed decisions;
  
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  Fraud and unethical conduct, such as identity deception, false advertising, receiving payment without intending to supply , and scams like pyramid seeling schemes, and some work from home or investment schemes; and
  
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  Problems with privacy issues.
  

The potential for problems also exists when consumers make payments over the Internet, including loss, errors and unauthorised transactions. A critical issue in undertaking on-line transactions is the security of payment details such as credit card numbers and bank account details.

There are also consumer protection issues associated with domain naming and the protection of intellectual property on the Internet. In fact, for only a few hundred dollars, an unrelated body can own the domain name of an entity that has spent considerable time and money to develop its reputation in the traditional market place.
ENFORCEMENT ACTIONS BY THE ACCC
I believe that regulatory agencies like the ACCC must react quickly and effectively in the formulation of new enforcement strategies for the global market place.

As the national competition and consumer protection regulator for Australia, the Australian Competition and Consumer Commission has a keen interest in how consumers will be protected in the new global marketplace.

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  Information sharing systems
  
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  Joint enforcement action
  
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  Reciprocal enforcability of orders; and
  
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  Statutory powers to obtain temporary funds freezing and/or cease and desist orders, pending court review.
  

At the corporate level, industry associations are well placed to oversee and encourage the adoption of both national and International industry-based consumer protection mechanisms, such as codes of conduct, consumer issues committees, certification/accreditation schemes and industry level dispute resolution schemes.

It also makes sense to target consumer protection mechanisms at other industry participants that have an association with, and may inadvertently assist fraudulent and unethical traders. For instance, regulatory or self regulatory efforts may best be directed at Internet service providers, credit card and other finance and payments systems industry members, and international delivery services.
Regulation of on-line commerce
The rapid development of new marketing methods, such as the Internet, has led some national and state governments to introduce legislation to protect consumers. An example is the recent Californian Assembly Bill, which expanded regulations applying to the sale and lease of goods, so that they applied equally to Internet commerce. In addition to the problems associated with the extraterritorial reach of domestic consumer protection laws, the special features of the new world of global comerce, in terms of size, speed and anonymity, largely render conventional domestic consumer protection measures inadequate from a practical point of view. As an alternative, national governments can contribute to the creation of International norms or rules for consumer protection, while also encouraging the industry itself to undertake self regulatory efforts
COMPUTERS AND CUSTOMER SERVICE – THE RECENT COMPUTER SUMMIT IN MELBOURNE
Turning to the computer retailing industry, there was the recent computer summit in Melbourne which addressed the issue of computers and customer service and satisfaction.

This summit was the culmination of an alarming level of consumer dissatisfaction with computer sales and service. It is an area of rapidly growing concern, for not only the ACCC, but other consumer affairs agencies as well.

1. 
   non-delivery of pre-paid or partly paid equipment; and
   
2. 
   poor computer product performance and service delivery.
   

Indeed the ACCC has, in the last year, been inundated by more than 300 complaints of a similar nature. This compares dramatically with the 20 or so complaints we received in the preceding year.

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  the supply of goods with less than their quoted componentry or capacity;
  
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  the selling of second hand and reconditioned products as new;
  
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  misleading advertising;
  
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  the avoidance of warranty obligations; and
  
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  the failure to establish complaint handling mechanisms.
  

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  products marked down in price which have never been sold at a higher price;
  
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  advertising of products ‘at cost price’ when they have been marked up;
  
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  advertising of reconditioned and second hand products as new;
  
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  false representations of a PC’s capacity, componentry and manufacturer;
  
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  false description of monitor size;
  
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  offers of free extras which have actually been included in the price;
  
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  retailers’ claims that only they can supply custom-built units;
  
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  false representations about the age of a computer; and
  
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  promises of software but only shareware is provided.
  

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  being refused a refund, even when assured of one at the time of purchase;
  
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  traders reneging on promises to provide money back guarantees;
  
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  technical support not being readily available, telephone assistance not provided due to consumers being put on hold for excessive periods of time, despite claims it would be provided;
  
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  general low level of service provided;
  
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  excessive time taken for repair;
  
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  refusal to repair goods under warranty;
  
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  being charged for repairs under warranty;
  
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  repairs under warranty being done using second-hand components;
  
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  repair parts not being available within a reasonable time after purchase;
  
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  failure to address customer complaint; and
  
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  traders not having any formal complaint mechanisms in place.
  

It is obvious from the number of complaints now being made that many computer retailers do not have adequate complaint resolution procedures in place.

Current legislative protection

Current State and Commonwealth legislation adequately addresses most issues within the computer retail industry. For example, the Trade Practices Act prohibits the making of false representations as to quality, price and use.

However, there are a number of obstacles which may prevent appropriate investigations, sanctions being enforced, and protection or redress for consumers. Specifically, obtaining redress for misrepresentations can prove costly and, in a wide range of cases, practically impossible to prove that a representation is false. Expert evidence, tests and court proceedings are time consuming and expensive for both the ACCC and private litigants.
The ACCC is of the view that strengthening the existing provisions of the TPA may go some way towards assisting litigants in seeking redress. For example, the ACCC has suggested that section 51A of the Trade Practices Act, which provides a defence to an allegation of the making of a misrepresentation on grounds of a reasonable expectation as to a future event, should be amended to require a person who has made representations about certain matters to substantiate those representations. The Inquiry supported this submission.
Rectifying the problems
A recent survey conducted by Brian Sweeney & Associates has revealed that approximately 90% of consumers surveyed believed there should be greater industry regulation. These are industry-wide problems, so we need an industry-wide solution. Unfortunately the ACCC does not have the resources to pursue every complaint made by disgruntled customers, but this does not mean that we can sit back and do nothing. The ACCC is charged with ensuring that consumers are given a fair deal - this can be achieved by such means as enforcement and/or education - the two are by no means mutually exclusive.
What options, then, are open to the industry and enforcement bodies? As I mentioned previously, enforcement action may not always be appropriate, particularly in an industry where insolvency is rife, often defeating the purpose of the action. A more sensible approach is to prescribe minimum standards of conduct for the industry as a whole. These standards must apply to small and large players alike.
At the corporate level, organisations can seek to become ’quality traders’ by adopting means such as compliance programs, customer charters and complaints handling systems.

Whatever the form of the code, it is imperative that it contain core rules setting standards of business practice that would protect the financial interests of consumers. The Fair Trading Inquiry has devised a list of pertinent inclusions covering:

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  terms and conditions of supply;
  
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  delivery dates;
  
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  guarantees and warranties;
  
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  pre-payment protection;
  
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  advisory service for customers;
  
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  retail incentive schemes;
  
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  advertising;
  
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  education of members and employees about fair trading practices;
  
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  selling practices;
  
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  Y2K product compliance;
  
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  complaints and dispute procedures;
  
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  sanctions;
  
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  monitoring; and
  
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  review.
  

It is absolutely essential that a code administration body be set up to administer the scheme to ensure it delivers real benefits for the Australian public.

Summary
To summarise, the phenomenal rise in consumer complaints against computer retailers can no longer go unactioned by both enforcement agencies and the industry. There is mounting pressure on bodies such as the ACCC to adopt some form of heavy handed regulation. Whilst the ACCC favours are more cooperative approach to regulation, it will be forced to abandon such a strategy if the industry does not concede that problems exist and continues to refuse to act in its customers’ best interests. Ideally, the industry could achieve a more consumer responsive focus through market sensitive means such as a code of conduct, and individual firms can strive to attain ‘quality trader’ status through the effective adoption of service charters, complaints handling mechanisms and compliance programs. The industry must recognise that it must take responsibility for the problems encountered by consumers and weed out any ‘cowboys’ ruining the good reputation of a solid industry. The Commission is ready, willing and able to work with those companies wishing to comply with the law. However, the Commission is equally ready, willing and able to work against those who don’t.
The outcomes of the summit
The SOCAP Computer Summit held in Melbourne on 30-31 March addressed a number of the issues I have just raised. SOCAP have collated the suggestions made by the various presenters and audience participants to come up with the following list of recommended actions for the computer industry:

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  Establish a national working party to assess the feasibility of developing a Code of Conduct foe the industry covering
  

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  standards of practice
  
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  Compliance
  
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  Complaint handling mechanisms;
  

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  Large computer vendors should work with consumer affairs agencies to develop better reseller practices;
  
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  Education of consumers and the industry on consumer issues is vital;
  
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  PC user groups should be involved in addressing the issues and positing solutions
  
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  Whilst it is recognised that there are many components of the industry, and that the majority of problems emanate from some resellers, they are not confined to this group, and the reputable resellers and large companies and suppliers need to set the example and the standards;
  
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  All concerned should take not of the Computer Users Bill of Rights developed by Dr Claire-Marie Karat;
  
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  The industry must grow up, as have other industries, and face its consumer responsibilities;
  
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  Self- regulatory bodies are appropriate at this stage, as long as there is transparency and an appropriate Code of Conduct;
  
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  There should be a system of Quality Endorsements for technology products;
  
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  Thorough consideration should be given by all parties to the NSW Fair Trading Advisory Council’s recommendations arising from its Inquiry into the Retail Supply of Personal Computers, Peripheral Devices and Software;
  
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  Resellers generally require far greater education, skilling and training than is currently the case;
  
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  Industry participants should develop customer service charters, which should be in plain language, and should include clear and practical remedies;
  
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  Vendors and resellers should identify first time consumers and then offer something extra in identifying their actual needs, and to explain the operation of the technology chosen;
  
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  Urgent work should be undertaken to develop a standard warranty document;
  
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  Federal, State and Territory consumer affairs agencies should take action to prosecute those responsible for the grossly falsely and misleading advertising increasingly appearing in the print media;
  
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  The Australian Securities and Investment Commission (ASIC) should give higher priority to preventing the continual re-emergence of ‘phoenix’ traders.
  

There will also be a follow up meeting to discuss these outcomes at the end of May.

Conclusion
The issues involved in electronic commerce and the computer are complex, diverse and continually evolving. The recent summit came up with a lot ‘food for thought’ as well as some practical answers. I urge the industry to support these outcomes. Australians are enthusiastic users of technology and have a right to expect high standards in this industry.
It is the ACCC’s hope that, in protecting consumers and ethical on-line businesses and network operators, the Commission will have a close and constructive relationship with the on-line industry in Australia and internationally. After all, it is in the industry’s best interest to impose order and protect its consumers as much as it is the ACCC’s responsibility.

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