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South Australian Computer Industry Association
E-Commerce
Trade Practices Issues arising from the rapid growth of E-Commerce
Outcomes from the SOCAP Computer Summit
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12 May 1999
Mr Allan Asher
Deputy Chairman
Australian Competition & Consumer Commission
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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.
However, the development of Internet commerce also brings with it certain
competition and consumer protection concerns. In addition, the international
nature of some Internet commerce transactions can make consumers
susceptible to difficulties unique to cross border transactions.
Today I want to discuss those electronic commerce issues, as well as touch on
customer satisfaction in the computer industry as a whole and discuss the
outcomes of the recent Computer Industry summit held in Melbourne at the end
of March.
THE ACCC
The current regulatory framework for consumer protection in electronic
commerce is comprised of federal and state/territory consumer protection
legislation and some self regulatory initiatives.
The Australian Competition and Consumer Commission is the agency
responsible for the enforcement of consumer protection laws in Australia at the
federal level.
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THE TRADE PRACTICES ACT
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.
At the International level, many consumer protection enforcement agencies
internationally have similar legislation in place to regulate market conduct. This
legislation applies in the particular country to protect that country’s consumers.
E-COMMERCE ISSUES
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 growth of on-line commerce is part of a wider growth in global commerce.
The emergence of the ‘global market place’ raises jurisdictional problems for
consumers and national consumer protection agencies alike.
The development of e-commerce as a means whereby consumers transact
across borders has thrown up new challenges for consumer affairs agencies.
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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.
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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:

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;

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;

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

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
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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.
In recent years the Commission has increasingly found itself in the position of
trying to deal with complaints by Australian consumers about products and
services which they have purchased directly from other countries. The
Commission has also had to deal with complaints by overseas consumers about
products and services they have purchased by direct selling techniques from
Australia. These complaints have raised a series of enforcement challenges for
the Commission and have driven the ACCC to investigate new ways of enforcing
consumer protection legislation. They have also led to us working in closer
collaboration with our overseas counterpart agencies who are experiencing
similar challenges. In some instances we have been able to provide a measure
of redress for consumers, in others we have not had the jurisdictional reach or
remedies needed.
These circumstances have led the Commission, together with overseas
agencies, to consider how best we can protect the interests of consumers in the
increasingly global marketplace. We are learning how we can improve our
enforcement techniques and improve cooperation levels with overseas consumer
protection agencies, how we can encourage ethical traders to take selfregulatory action to ensure that the interests of consumers are protected and
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how consumers themselves can avoid the ever growing number of international
scams targeted at them.
Strategies for addressing consumer protection issues
Alternative mechanisms for consumer protection will be required, in addition to
legal remedies, if consumers are to operate safely within the global market place.
The following initiatives are essential to the development of a satisfactory
framework for consumer protection for Internet commerce.
Coordinated law enforcement and compliance strategies
Cooperation by enforcement agencies is vital at both the national and the
international levels, and can allow for the sharing of enforcement techniques and
information, cooperation in investigatory and enforcement actions, and a united
approach to the development of consumer protection strategies for Internet
Commerce.
International cooperation can be achieved through international networks of
consumer protection agencies, like the OECD Committee on Consumer Policy,
the International Marketing Supervision Network (IMSN), and the International
Society of Consumer and Competition Officials (ISCCO).
In fact, the OECD is currently working on and debating the Guidelines on
Consumer Protection in Electronic Commerce. The Guidelines state that
governments, businesses, and consumers should work together to ensure that
equivalent protection for electronic consumer transactions is applied by reviewing
and adapting laws and practices, if necessary, to address the special
circumstances of electronic commerce.
Improved enforcement and compliance strategies
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The quickly evolving, technical nature of problems found associated with Internet
commerce requires enforcement agencies like the ACCC to take new
approaches and maintain new tools in order to enhance consumer welfare.
Cooperative action between enforcement agencies needs to allow the
development of enforcement tools and processes such as:

Information sharing systems

Joint enforcement action

Reciprocal enforcability of orders; and

Statutory powers to obtain temporary funds freezing and/or cease and desist
orders, pending court review.
Industry based solutions
Both domestically and globally, an important element of any overall solution to
the consumer protection problems associated with Internet commerce should
involve industry associations and their members seeking appropriate remedies
rather than waiting for a regulatory response from government.
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.
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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.
The retail supply of personal computers, peripheral devices and software in
Australia is a multi-billion dollar industry. It is characterised by the importation of
almost all of its products and the ceaseless distribution of new technologies. It
services all levels of computing, from multi-million dollar corporate and
government accounts, the small business sector, through to home and personal
consumers. The industry is also highly fragmented, and is characterised by both
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direct and indirect methods of sales and distribution. Sales are conducted
through general merchandise sellers, value added resellers, fax/phone/online
resellers, PC stores and PC superstores. The industry is characterised by the
core elements of fierce competition, low profit margins and consumer
inexperience. The financial pressures of competition and low profit margins on a
business have led to retailers being involved in more than one form of
disreputable trading behaviour.
Over the past few years the industry has been the subject of an increasing
number of consumer complaints. Specifically, the NSW Fair Trading Advisory
Council identified a massive 264% increase in the levels of complaints in New
South Wales about the computer retail sector in the 1997/98 financial year. This
unprecedented level of complaints precipitated the inquiry by the Advisory
Council into personal computers, peripheral devices and software, the results of
which are damming on any interpretation.
The Inquiry found that the nature of consumer complaints generally fall into two
broad categories:
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.
It appears that the most frequently occurring consumer problems relate to
delivery, defective products, warranties and complaint resolution. However,
problems arising from the poor supply of information, advertising and methods of
payment have also contributed to the high levels of consumer detriment and
financial loss.
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One of the main reasons why consumers experience these problems is their
general lack of familiarity with computer products. Whilst many consumers of
personal computers, peripheral devices and software are highly computer
literate, this is not true of the vast majority of consumers. Not surprisingly, many
traders seize on this vulnerability.
The Fair Trading Advisory Council Inquiry found that problems arising as a result
of methods of payment required by retailers are a significant source of consumer
grievances, particularly in the context of retailers taking deposits or prepayments, usually in the form of cash, to then either close before supplying the
ordered goods, or refusing a refund once a problem with the purchase
developed.
Other practices by suppliers which the Inquiry found to be unfair to consumers,
and indeed about which the ACCC has received numerous complaints include:

the supply of goods with less than their quoted componentry or capacity;

the selling of second hand and reconditioned products as new;

misleading advertising;

the avoidance of warranty obligations; and

the failure to establish complaint handling mechanisms.
Retailers’ supply of information
It is less than pleasing that fierce competition in the industry and low profit
margins create an environment in which intentionally dishonest practices are
nurtured. Parliament has, however, recognised in the Trade Practices Act, that
the promotion of competition may result in such a situation and, as such, has
attempted to counter this problem by the enactment of consumer protection
provisions which are designed to ensure that traders do not gain a competitive
advantage from the provision of misinformation to consumers.
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From the complaints received by the ACCC, it appears that misleading
advertising is a significant contributor to consumer angst. Such tactics include
two price advertising and other forms of misrepresentation as to price;
misrepresentations as to the value, grade, compatibility or use of both hardware
and software; misrepresentations as to the availability of spare parts and repair
facilities; and non-disclosure of important, and often qualifying, conditions of
offers.
The Fair Trading Inquiry found that prevalent forms of intentional misleading
advertising for computer products include:

products marked down in price which have never been sold at a higher price;

advertising of products ‘at cost price’ when they have been marked up;

advertising of reconditioned and second hand products as new;

false representations of a PC’s capacity, componentry and manufacturer;

false description of monitor size;

offers of free extras which have actually been included in the price;

retailers’ claims that only they can supply custom-built units;

false representations about the age of a computer; and

promises of software but only shareware is provided.
Warranty rights
In addition, countless consumers have complained bitterly that their warranty
rights do not exist in the manner as they were led to believe. The Inquiry found
that many advertisements for warranties are intentionally overstated to attract
and mislead potential consumers, and that problems arise when consumers seek
to enforce their warranty and are informed that their warranty does not cover
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what they expected. The Inquiry noted that a staggering 54% of consumers
surveyed did not have their warranty honoured by the retailer.
Complaints handling
Another common cause of consumer grievance relates to how retailers handle
consumer complaints. The Inquiry has identified the following common
problems:

being refused a refund, even when assured of one at the time of purchase;

traders reneging on promises to provide money back guarantees;

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;

general low level of service provided;

excessive time taken for repair;

refusal to repair goods under warranty;

being charged for repairs under warranty;

repairs under warranty being done using second-hand components;

repair parts not being available within a reasonable time after purchase;

failure to address customer complaint; and

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.
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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 industrywide 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
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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:

terms and conditions of supply;

delivery dates;

guarantees and warranties;

pre-payment protection;

advisory service for customers;

retail incentive schemes;

advertising;

education of members and employees about fair trading practices;

selling practices;

Y2K product compliance;

complaints and dispute procedures;

sanctions;

monitoring; and

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
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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:

Establish a national working party to assess the feasibility of developing a
Code of Conduct foe the industry covering

-
standards of practice
-
Compliance
-
Complaint handling mechanisms;
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;

PC user groups should be involved in addressing the issues and positing
solutions

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;

All concerned should take not of the Computer Users Bill of Rights developed
by Dr Claire-Marie Karat;

The industry must grow up, as have other industries, and face its consumer
responsibilities;

Self- regulatory bodies are appropriate at this stage, as long as there is
transparency and an appropriate Code of Conduct;

There should be a system of Quality Endorsements for technology products;

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;

Resellers generally require far greater education, skilling and training than is
currently the case;

Industry participants should develop customer service charters, which should
be in plain language, and should include clear and practical remedies;

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;

Urgent work should be undertaken to develop a standard warranty document;

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;

The Australian Securities and Investment Commission (ASIC) should give
higher priority to preventing the continual re-emergence of ‘phoenix’ traders.
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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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