March 26, 1999

Secretary
Federal Trade Commission
Room H-159
600 Pennsylvania Avenue
Washington, DC 20580

Re: "U. S. Perspectives on Consumer Protection in the Global Electronic Marketplace" Comment, P994312

Dear Secretary Clark:

On behalf of the Consumer Federation of America and the low income clients of the National Consumer Law Center, we submit the following comments on consumer protection in the global electronic market. We start this analysis with two basic premises:

• Consumer protections enacted for the "real marketplace" must be tailored to fit the "virtual marketplace."
• The global nature and the unique characteristics of electronic commerce also require new approaches to consumer protection.

Platform for Consumer Protections in Global Electronic Commerce:

Overview. Consumers must have effective consumer protections when shopping on the Internet. Advertisements should be truthful and provide complete information necessary to make an informed choice. Purchase decisions should be deliberate and documented. Products and services should be required to be as represented. Payment should be secure and consumers' risk of financial loss limited. If anything goes wrong, consumers should have recourse and opportunity for redress.

The goals for a consumer protection framework in global electronic commerce should be to foster justified consumer confidence, fair competition, and economic development around the world. Consumers expect at least the same level of protections in the virtual marketplace as they currently have in the real marketplace. Uniform and consistent rules help consumers learn their rights and responsibilities and reduce uncertainty. Unless and until consumers feel secure when shopping on the Internet, the global electronic marketplace will not reach its potential. If the scam artists and thieves are allowed to pollute electronic commerce, legitimate businesses and consumers will both be cheated. The global nature of electronic commerce requires a fundamental reexamination of national consumer protection laws and regulations to resolve jurisdictional questions.

It is much less costly to build in comprehensive and effective consumer protections at the dawn of electronic commerce than to retrofit after consumer confidence has been eroded. Effective and enforceable regulations should be established now. Self-regulation will not create an adequate degree of protection to foster consumer confidence and actually protect individuals from loss of money and privacy.

Low Income Perspective. We are particularly concerned that protections be crafted with the needs of low income consumers in mind. Protections provided to consumers must be universally accessible, retrievable, and useful to all consumers. The usefulness and applicability of consumer protections, especially authentication methods, should not be limited to those consumers who can afford them. Similarly, consumer protections should be universally enforceable, and not limited to enforcement only by those who have the financial means.

Coverage. We urge the Federal Trade Commission to view the electronic marketplace very broadly. E-commerce includes the Internet as an advertising medium and information source, as a shopping venue where items are purchased or contracted for, as a "mail-order" system where orders are placed or products and services actually delivered, as a payment system and as a venue for after-purchase consumer recourse. Shopping in the "real marketplace" also involves electronic commerce through online data collection via frequent shopper cards, payment by debit cards, and through stored-value cards. It is difficult to think of very many retail transactions without electronic features.

Jurisdiction and Venue. The global nature of the Internet raises issues of jurisdiction and venue for handling disputes. Whose laws apply to advertising, contract terms, or fraud? Where do consumers complain? We support applying the laws of the country in which the consumer lives to electronic purchases. The "law of the consumer's country" is included in the draft OECD Guidelines on consumer protection. The European Commission has proposed that the laws of the country of origin apply to consumer transactions. This is a dangerous proposal because it would force consumers to rely on unfamiliar consumer protections. Furthermore, this would provide unscrupulous merchants a significant financial incentive to locate their Internet Service Providers in the country with the weakest protections.

Harmonization. Effective consumer protections in global electronic commerce will require governments around the world to harmonize their existing consumer protection and redress arrangements. While harmonization of laws and standards is moving rapidly where business supports it, harmonization of consumer protections has lagged. Harmonization of consumer protection rules should receive the same level of attention as the integration of trade rules. An international body may be needed to assist in harmonizing national consumer protections. A World Consumer Protection Organization ("WCPO"), similar to the World Health Organization or the World Intellectual Property Organization, could be formed to ease the jurisdictional divide in electronic commerce. A WCPO, as proposed by James Love, Director of the Consumer Project on Technology, could facilitate treaties and harmonization efforts on e-commerce consumer protection issues.

Enforceable Regulation is Required, Not Self Regulation. The global electronic marketplace, by its very nature, makes effective consumer protection difficult. The consumer has no direct contact with the merchant and cannot easily verify the quality of the goods or the reliability of the vendor. Marketing messages can be personalized and instantaneous, enticing consumers to make impulse purchases. Protecting privacy and children is more difficult in the electronic market than in the real market.

While voluntary industry self-regulation is positive, experience in the on-line privacy debate over the last year demonstrates that industry's promise to adopt effective self-regulation has not worked. It is even less likely for global businesses to adopt and implement effective voluntary consumer protections. Consumer protections in global electronic commerce must be built on a firm foundation of enforceable laws and regulations in order to protect both consumers and ethical merchants. We should learn the lessons from long distance telephone slamming, payphone alternate operator overcharges, and 900 number scams.

CFA and NCLC view key consumer protection elements to include: Informed choice for consumers, safety, fair play, information disclosure, privacy, redress and enforcement. Necessary consumer protections are divided into the major functions for electronic commerce and listed in the logical sequence of the transaction. This platform is not exhaustive but illustrates the major protections needed by consumers.

Internet Commerce as an Advertising and Marketing Medium

• Enforceable national laws against fraudulent, unfair and deceptive advertising, marketing and sales practices, as well as data collection procedures.
• Require clear disclosure of commercial content of web sites, similar to labeling "infomercials."
• Require uniform labeling of web sites, including the name of business (if applicable) and individual person(s) responsible for maintaining web-site and information on how to reach electronically and in physical world.
• Prohibit unsolicited commercial e-mail.
• Provide consumer control over illegal or undesirable material sent via the Internet and develop easy to install rating and filtering systems for Internet content.

Internet Commerce as an Information Collection Devise (Privacy)

• Privacy protections, at a minimum, should require that fair information practices be followed, that consumers have control of personally identifiable information about themselves and their transactions, and that identifying information not be collected without permission of the customer. Technology that transmits an identifier as the consumer visits web sites or that collects personal data without consumer consent to the specific information being collected and the uses to which it will be put should be prohibited.
• All web sites should post their privacy policies including how to access information and how to correct mistakes.
• Theft of identity and unauthorized transactions must be effectively prevented and sternly punished. The Internet makes it cheap and easy to collect personal information and key identifiers. Effective authentication methods must be required to protect against fraudulent, unauthorized or erroneous transactions. Individuals must be effectively protected from the actions of a third party who uses the Internet to collect personal information and uses it to defraud.

Internet Commerce as an Information Disclosure Mechanism

• National laws and regulations requiring information disclosures (such as pre-sale disclosures of the cost of credit and leases) in the paper system must be effectively and appropriately applied to the electronic system.
• All disclosures must be provided in a manner in which they can be downloaded, saved and/or printed in a manner which self-proves their authenticity.
• All disclosures required -- both for general web-site and specific transactions -- must be accompanied by two dates -- the date when the web-site was last updated, and the date when information on the web-site becomes obsolete.

Internet Commerce as a Mail Order Mechanism

• National laws on delivery of ordered goods within specific time must be applied.
• Clear information on postage and packing charges, expected arrival date of the goods, and information on applicable import duties and taxation if the goods are shipped from another country should be required.

Internet Commerce as a Sales Venue

• Applicability: These rules should apply to:
  • All transactions between merchants and consumers, for personal household or family purposes.
  • All transactions between merchants and consumers, for business purposes where the consumer's property or money will be used to pay for or secure the transaction.
  • All transactions between consumers where the amount of goods or services equals or exceeds $100.
• General Rules:
  • Arbitration should not be required.
  • There should be a general prohibition against unfair, deceptive, fraudulent terms and activities.
• Required pre-transaction disclosures should include:
  • Terms and conditions of purchase (method of indicating assent, rules for return)
  • Price for goods, plus separately itemized taxes and costs of shipment.
  • Identity, address, licensing information of merchant
  • Extent and limitations of applicable warranties
  • Acceptable methods of payment
  • Description of and information on how to access dispute resolution mechanism -- including a) directly with merchant and b) with supervisory or regulatory agency
  • Basic information about consumer's rights of cancellation, including purchases in which the product is downloaded.
  • The applicable venue and jurisdiction for disputes in the courts arising out of the transaction.
  • Consumer protections for electronic transactions over $25
  • Consumer's acceptance of an online contract should only be valid with specific assent, which must be confirmed by a separate action by the consumer, such as a 3 click test. Before a contract can be executed, a final, clear summary of the transaction must be provided to the consumer and the consumer must indicate assent to its terms specifically.
  • Payment mechanisms should be limited to those that provide consumers a method of addressing errors in the billing. In other words, only transactions in which the payment mechanism covered by the billing rights protections of the Truth in Lending Act (for credit cards), or the procedures for resolving errors of the Electronic Funds Transfer Act (for debit cards and other electronic transactions, or similar (as yet unknown) laws to other payment mechanisms would be allowed.
  • Consumer protections for electronic transactions over $100
  • All rules applicable to electronic transactions over $25.
  • Copy of written contract must be provided (mailed) physically to consumer.
  • Consumer should have the right of cancellation of the contract for three days running from the latest of the following events: the receipt of the goods or the receipt of all required pre-transaction disclosures. Exceptions can be made where shipment costs exceed a certain amount, in which case another method of ensuring actual consumer agreement to the transaction can be required (such as the requirement of measurements and photographs of the goods) in which case the right of cancellation would only apply if the goods differed materially from the written and photographic description.
  • No splitting of contracts should be permitted to avoid the application of this part.
  • Authentication requirements for certain other transactions.
  • Applicable to all executory contracts (e.g. ongoing obligations on both parties), all contracts involving land, and transactions for more than $1,000.
  • All rules applicable to electronic transactions over $100.
  • Digital signatures or equivalent authentication technology in which an independent third party ascertains and guarantees that each party is as stated.
  • Venue and Jurisdiction
  • The venue for judicial actions arising from covered transactions and applicable law should be where the consumer resides.
  • In transactions where two or more parties are both consumers, the agreement between the parties governs.
  • Rights of Redress
• FTC or another federal agency must have:
  • Regulatory authority
  • Enforcement authority
  • The means of resolving disputes between consumers and merchants
  • State attorneys general should also have enforcement authority.
  • Private right of action with statutory penalties, actual damages and attorneys fees must also be provided.

Payment Mechanisms on the Internet

• Liability limits that now apply to credit cards in the United States must apply to international transactions and be extended to debit cards and to other digital payment systems. Consumer willingness to shop in the electronic market is very closely tied to the limits on liability provided by federal law.
• Truth in Lending Act and Electronic Funds Transfer Act liability limits must be applied to "electronic money" to be transmitted over the Internet.
• Payment method card numbers must be secure in transmission and in the possession of the merchant. This may require new international security and authentication mechanisms.
• Stored value cards must also be covered by special federal legal protections to gain widespread acceptance.

Additional Recommendations

• The United States should support adoption of effective OECD Consumer Protection Guidelines.
• An entity such as a World Consumer Protection Organization should be created to assist in harmonizing national consumer protection laws and methods of redress, and to monitor the development of consumer protection concerns in global electronic commerce.

Consumer Protection Laws

The following consumer protection laws and regulations should apply to advertising, marketing, transactions, and post purchase situations in the electronic market. This list is illustrative but not exhaustive:

• Truth in Lending Act
• Truth in Leasing Act
• Electronic Funds Transfer Act, amended to limit liability on debit cards
• Fair Credit Reporting Act
• Fair Debt Collection Practices Act and equivalent state laws
• Equal Credit Opportunity Act
• Telemarketing law
• Section 5 of the Federal Trade Commission Act
• Magnuson-Moss Act
• FTC Trade Rules and Regulations, including:
• Home Solicitations Sales Rule
• Funeral Rule
• Holder In Due Course
• Credit Practices Rule
• State Unfair and Deceptive Acts and Practices laws
• General principles of fraud
• State common law and statutory contract principles
• State usury ceilings and general state limitations on terms, fees, and interest
• Rates for credit
• State warranty laws, Article 2, Uniform Commercial Code
• State protections regarding security interest, Article 9, Uniform Commercial Code

FTC Workshop

The focus of the FTC workshop in June should be to a review of existing consumer protections and their application to global electronic commerce, a review of redress and enforcement mechanisms, and a status report on international e-commerce deliberations including adoption of the OECD consumer protection guidelines. Participants should include American consumer and privacy advocates, the Attorneys General, representatives of Consumers International and the Trans Atlantic Consumer Dialogue, OECD, the World Trade Organization, the United Nations Commission on International Trade Law, business and trade organizations, and legal and academic experts.

Consumer Federation of America and the National Consumer Law Center request an invitation to participate.

Sincerely,