|March 28, 2000
Re: Alternative Dispute Resolution for Consumer Transactions in the Borderless Online Marketplace
Consumer Federation of America(1) and the National Consumer Law Center(2) appreciate this opportunity to provide our views on alternative dispute resolution for online transactions. Consumer Federation of America also requests to be a participant in the FTC's workshop on ADR systems.
CFA and NCLC have actively participated in FTC workshops on electronic commerce and online privacy. Our goal is to provide an equivalent level of consumer protection for online transactions to that provided to consumers in their local markets. Due to the global nature of the Internet, there are additional challenges to overcome to meet that goal. The lack of an effective means to resolve complaints and achieve redress when the consumer and the merchant are continents apart is a major barrier to consumer confidence. A natural consequence is the tendency for consumers to gravitate towards brand-name companies to the loss of small and medium-sized enterprises.
The need for easy-to-use dispute resolution systems is born out by the findings of Consumers International's survey of electronic commerce. As described in CI's report(3) "Consumers @ shopping," consumers experience many types of problems, such as non-delivery of goods or difficulty in obtaining refunds. The credit card protections provided to American consumers under the 1975 Fair Credit Billing Act serve as one means of resolving some problems. If a consumer reports a problem with a purchase within the 60-day period following the billing date, the bank must investigate and respond within a one-month period. While the dispute is under investigation, the consumer does not pay the disputed amount or the finance charge. The OECD Consumer Policy Committee is currently studying credit card chargeback protections.
Attention to ADR systems and the chargeback study should not distract attention from other issues that must be resolved, such as jurisdiction. ADR systems are necessary but not sufficient to ensure consumer confidence in online commerce. Consumers must be able to access the legal system when laws are violated.
As stated in the Trans Atlantic Consumer Dialogue resolution on Alternate Dispute Resolutions, alternative dispute resolution (ADR) can be very helpful to both parties in electronic transactions, especially in cross-border complaints. ADR systems that are easily accessible, fair, and provide swift resolution of individual problems will help foster confidence in e-commerce. They will also benefit governments, consumers and businesses by mitigating the need to involve more formal systems of adjudication. Governments should consider legislation that would authorize and promote ADR systems that meet certain standards but that do not prevent consumers or those representing consumers' interests from using other avenues of recourse. Companies engaged in e-commerce should help develop and support such systems.
ADR systems can provide benefits to consumers. Links to ADR systems can be provided by governments, consumer organizations, businesses and others to make it easy for consumers to find and reach them. Complaints and responses can be submitted online.
ADR can be faster than the traditional legal process. Some issues that might not be considered relevant in a court may be important to the parties to air and discuss. ADR can provide that opportunity. Courts or other legal fora may offer limited options for resolving disputes. ADR can be more flexible and creative in finding solutions that satisfy the parties. The ADR process may be perceived as treating the parties more equitably and fairly than a formal legal process. The cost of ADR can be significantly less than that of formal legal action. ADR systems can help to resolve disputes between individuals that might not be appropriate for other avenues of redress. Resolving disputes through ADR reduces the number of cases that must be heard by courts or other adjudication systems or that would go unresolved.
On the other hand, there are possible negative impacts of ADR systems that must be overcome. Vendors may attempt to require consumers to use ADR mechanisms whether they wish to or not. If one or both parties are bound by the decision, their ability to seek legal redress if they are not satisfied may be restricted or blocked altogether. CFA and NCLC oppose the use of binding mandatory arbitration for consumer transactions both off-line and on-line.
Other consequences of resolving disputes through ADR can have negative implications. If complaints are not brought to legal authorities or enforcers of codes of conduct, they may be unaware of problems that merit their attention. Differences in language, cultures, and expertise in specific subjects may make it difficult for the parties to understand each other, and may lead to unfair results. If ADR systems lack adequate independence, the parties may not be treated equitably and decisions may be biased. If costs are assessed to support the operation of ADR systems, they may be prohibitively high for consumers or small businesses. If parties fail to comply with decisions and there is no practical means of enforcement, the ADR process may be an exercise in futility.
TACD and CFA resolutions hold that ADR systems to resolve consumer complaints in the context of e-commerce should be based on the following principles.
CFA and NCLC urge the Federal Trade Commission to select workshop participants in a balanced manner. Participants representing consumer organizations, state and local consumer protection agencies and Attorneys General, and organizations that handle complaints for consumers should be represented on an equal basis with businesses and trade associations.
Thank you for this opportunity to comment on alternate dispute resolution systems.
Jean Ann Fox
1. Consumer Federation of America is a nonprofit association of some 260 pro-consumer groups, with a combined membership of 50 million people. CFA was founded in 1968 to advance consumers' interests through advocacy and education. CFA's address is 1424 16th Street NW, Suite 604, Washington, DC 20036.
2. The National Consumer Law Center is a nonprofit organization specializing in consumer issues on behalf of low-income people. We work with thousands of legal services, government and private attorneys, as well as community groups and organizations, from all states who represent low-income and elderly individuals on consumer issues. NCLC's Washington office is located at 1629 K Street, Suite 600, Washington, DC 20006.
3. Consumers International, "Consumers @ shopping: An International Comparative Study of Electronic Commerce," September 1999