The National Association of Consumer Agency Administrators (hereinafter referred to as "NACAA") respectfully submits the following comments in response to the International Trade Administration, Department of Commerce and Federal Trade Commission’s Notice Requesting Public Comment. NACAA represents over 165 consumer agencies at all levels of government in the United States and several other countries. Member agencies provide direct constituent services, such as advising consumers and businesses about legal rights and responsibilities and enforcing consumer laws and regulations. In accord with its role in representing its member agencies and their role in protecting the interests of consumers and legitimate business interests, NACAA submits the following comments.

Background

NACAA recognizes that a fundamental change has occurred in commerce, spurred by the growth of the Internet. While NACAA does not desire to thwart this growth in e-commerce, it also recognizes that individual consumers are at a distinct disadvantage in transacting business over the Internet. It is unfortunately not unusual for a consumer to be misled by a website, or for a consumer to fail to see less prominent disclosures on a site, and end up with a product or service that is not what he or she wanted, or worse, that never arrives at all. It is imperative that a consumer-friendly, and fair process develop to resolve these disputes. If this occurs, ADR could offer an inexpensive, simple and speedy method of settling problems on the Internet. While on-line alternative dispute resolution (ADR) shows much promise as a resolution mechanism, it is not without significant potential pitfalls and drawbacks. Consequently, NACAA offers these comments and concerns about the development of ADR for online disputes.

Method

The most essential point that NACAA would like to stress is that any ADR provided to resolve consumer disputes on the Internet, must involve choice. This means first and foremost that binding arbitration is unacceptable. An ADR mechanism must include the right to appeal and should not prejudice consumers’ rights to seek further redress in other trial or administrative forums. This approach ultimately favors online businesses as well as consumers. If binding arbitration becomes the norm for Internet disputes, consumers will arguably be less willing to foray into this venue for their purchasing, knowing that their remedies are limited.

Informed choice

Another important element to the future success of the Internet is that consumers must believe that it is a trustworthy forum. They must have confidence that they understand the Internet landscape and that they are aware of the consequences of choosing to buy on-line. Therefore, consumers should have to actively choose participation in ADR (opt-in) rather than having it as a hidden consequence of transacting business on line. Shopping online is a choice. It should not be discouraged by restrictive means of complaint resolution.

In the context of online ADR, part of the development of consumer trust must also come from complete and full disclosure of the advantages and disadvantages of ADR. Specifically, there should be disclosures concerning the rights and remedies that a consumer loses by submitting to ADR, as well as the potential advantages. Consumers should be in the position to make an informed choice. An individual can then decide how to balance elements such as the speed or logistical considerations that might favor ADR against the more complete evidentiary disclosures that might favor litigation.

Trust would also spring from a simple yet thorough description of the process itself. Consumers must understand, in advance of the choice, the applicable timelines, rules of evidence, appeal rights, enforcement mechanisms, rights to choose a mediator etc. This transparency of procedure will also aid in the ADR process itself, by helping to guide the expectations of the parties.

Fairness

It is essential that any ADR mechanisms be fair to both parties. A primary threshold issue of fairness concerns cost. ADR must be either free or low-cost to consumers. If the monetary bar is raised too high to provide access to the average consumer, it will leave most people with no recourse when they are scammed online. Second, an ADR system should include a review mechanism to ensure that rulings are fair. A review body would in essence provide a quality assurance evaluation that would look at both procedures and outcomes. This review body should consider creating a public database of resolutions, listed by company, to aid consumers and businesses in their preparation for their own ADR session. Third, the mediators employed by the system must be independent, in fact and in appearance. Fourth, there should be a balance in legal representation at the hearings/sessions. If one side has counsel, the other side should have the option of obtaining free or low-cost counsel as well. Even though the proceeding would most likely occur through electronic means, it is important to maintain a balance of power between the parties. Fifth, procedures should be developed to ensure that any communications or offers made during the ADR process do not prejudice any subsequent litigation or proceedings.

Enforcement

In order for an ADR procedure to be ultimately successful it must include meaningful enforcement mechanisms. NACAA recognizes the difficulty of enforcement, particularly with cross-border disputes. However, enforcement mechanisms that should be considered include government action, as well as loss of licensing, when applicable.

Additionally, the ADR system should not become an end-run around government enforcement action. The system should provide for the sharing of data, complaints and resolutions with government consumer protection agencies. Government agencies should not be precluded from taking action when patterns of abuse or fraud become apparent. This sharing of information would potentially aid the ADR system as well as the government agencies by removing the "bad actors" from e-commerce as well as by sending a message to other scam artists that fraud on the Internet will be prosecuted.

Charge-Backs (No-frills ADR)

Charge backs on credit cards operate today as a type of "no-frills" ADR. Although there is no formal mediation or arbitration, consumers dissatisfied with a transaction can seek recourse through their credit card company. Regardless of the type of ADR system that ultimately develops to handle Internet disputes, it is imperative that charge-back protections apply to all on-line transactions, regardless of the geographic distance or amount of the transaction. These protections can provide the cornerstone of both "no-frills" ADR (simple charge-backs for online purchases) as well as a more formal ADR proceeding. The current protections under the Truth in Lending, Regulation Z, must be strengthened to conform to this relatively new venue, and should also be made more transparent, so that consumers fully understand their charge-back rights.

Dated this 21st day of March, 2000

Respectfully Submitted,

_________________________________
Wendy J. Weinberg
Executive Director, NACAA