Re: U.S. Perspectives on Consumer Protection in the Global Electronic Marketplace

Dear Secretary:

American Express Travel Related Services Company, Inc. ("American Express") appreciates the opportunity to follow up on the productive discussions that took place during the Commission's workshop on June 8 and 9 on consumer protection in the global electronic marketplace with additional comments about existing private sector frameworks for dispute resolution.

Participants in the workshop widely acknowledged that essential ingredients to nourish the growth of global e-commerce include stability and predictability. Consumers must feel confident that they will have access to an efficient, effective and affordable means to resolve a disputed online transaction. Most participants also concluded that worldwide harmonization and enforcement of consumer protection laws is at best a long term, probably elusive goal, and that private sector efforts, including the adoption of consistent standards and guidelines, represents the best opportunity for rendering e-commerce stable and predictable in the near term.

The credit card industry in many ways presents a model of how such a private sector system operates today. Online shoppers often prefer to use credit cards to pay for their purchases, knowing that they have a baseline of protection in the event a dispute arises. The value of a trusted brand such as American Express, based in part on the policies and procedures we have developed to resolve customer disputes worldwide, is magnified in the anonymous, borderless world of cyberspace.

American Express operates a global general purpose credit and charge card network which performs functions essential to the acceptance by merchants of cards issued by the network issuers. These functions include systems and procedures to authorize and settle card transactions. As a card issuer, American Express has developed consistent policies worldwide for handling customer disputes, which are grounded in our merchant contracts and the core consumer billing error protections established by the Fair Credit Billing Act ("Act").

The Act prescribes a procedure for dispute resolution that protects the consumer against the consequences of fraud and generally balances consumer, issuer, and merchant interests and obligations. Specifically, when a consumer raises a billing error dispute with the credit card issuer, it must be acknowledged, and the issuer is obligated to conduct a reasonable investigation of the inquiry, resolve the inquiry, communicate the results to the consumer and adjust the account (if appropriate) within two full billing cycles (but not more than 90 days.)

By contract, American Express imposes certain requirements upon merchants to enable us to fulfill our obligation to conduct a "reasonable" investigation of a disputed transaction within the time established by law. The contract specifies the circumstances under which the merchant may be charged back for the amount of a disputed transaction, including failure to provide us with timely and sufficient information about the transaction. American Express provides its merchants with additional materials explaining the chargeback process, reasons that chargebacks are done and how they can be minimized.

Broadly defined, a chargeback is a financial deduction from a merchant's account, usually resulting from a cardmember dispute of a charge. A chargeback may result from a number of situations, including an unauthorized charge, or a claim that the cardmember did not receive the goods or services or that they were defective or were not as described.

While U.S. law requires us to institute these practices, as a card issuer, we have adopted a policy of applying them consistently outside the U.S. as well. If a cardmember outside the U.S. is afforded more protection under local law, we of course comply with that law.

Within this overarching policy, we are implementing special rules to deal with Internet charges:

• We will charge back a merchant selling goods delivered physically (e.g., clothing, books), if the goods are not shipped to the cardmember's billing address and signed for by the cardmember or an authorized representative, and the cardmember disputes the charge because the goods were not received or the charge was unauthorized. This rule was adapted from a similar rule regarding mail and telephone orders.

• We will immediately charge back a merchant selling goods or services delivered electronically (e.g., software, images) if a cardmember disputes the charge (for example, claiming it was unauthorized). There are several sound business and policy reasons underlying this rule: processing an inquiry is costly and not justified by the usually small dollar amount of these transactions. In addition, an immediate chargeback for these types of purchases provides an incentive for the merchant to exercise greater care in authorizing such transactions.

Our policy also states that we will not enter into a contract with specified categories of merchants, such as online gambling establishments or those engaged in an illegal business. This policy, which applies worldwide, is intended to manage our exposure to high-risk businesses as well as to protect our online customers.

In addition, we strongly encourage online merchants to display the following information on their websites:

• Accurate description of goods and services
• Type of currency in which the transaction is conducted
• E-mail address and phone number for customer service inquiries/disputes
• Merchant return/refund policy
• Description of delivery policy (e.g., no COD)
• Description of security measures used to safeguard transaction data
• Statement of known export restrictions, tariffs
• Country in which the merchant is domiciled
• A privacy statement regarding the type of personal information the merchant collects and how it is used, as well as how to decline having information used for marketing purposes.

American Express recently instituted an online guarantee to assure our cardmembers that they will not be held responsible for unauthorized charges online when they use the American Express Card. We have also undertaken an advertising campaign to advise them of the guarantee and remind them of the other benefits available to U.S. cardmembers, such as the Purchase Protection Plan (which provides excess coverage against accidental damage and theft for 90 days from the date of purchase) and the Buyer's Assurance Plan (which extends the terms of the original manufacturer's warranty for an additional year).

Finally, in 1998 we posted a comprehensive Internet Customer Privacy Statement on our website (www.americanexpress.com) which is accessible through a link at the bottom of each page. This statement describes our online information collection and use practices, and provides users with an online form which they can use to set, review or change their e-mail marketing preferences.

Why has American Express taken these steps? In brief, providing quality, consistent service to our cardmembers worldwide in the dispute resolution process - offline and now online - makes good business sense. It furthers our reputation for customer service, which is integral to our brand. It enhances the trust our customers place in us and in the merchants who accept the Card, which benefits our merchants as well by driving business to their establishments and websites.

The Commission has asked whether current laws are sufficient to protect the consumer shopping online. Like the majority of participants at the workshop, we would answer in the negative, but we would add that robust self-regulation is ultimately more flexible in accommodating technological innovation and responding to consumer needs. Lack of, or inconsistent, international laws provide an inadequate means for consumers to obtain redress in a global marketplace. We see strong market forces and industry leadership propelling the implementation of meaningful standards - for example, for merchant disclosure of key purchasing information - and simple, consistent and effective consumer remedies, such as the dispute resolution process American Express has implemented worldwide.

Because a patchwork of laws, current or new, will not form an effective consumer safety net for global e-commerce, the credit card industry must be a leader in the effort to promote consumer confidence in the Internet through a market-driven approach encompassing the interests of the consumer, the merchant, and the payment services providers.

First, American Express and other industry members are well positioned to educate their customers, whether consumers or merchants, in how to conduct a safe and mutually beneficial online shopping experience. Consumers who know what to look for before making a purchase and how to review the disclosures provided by an online merchant will be prepared to protect themselves; issuers can help by advising them of the key pieces of information they should look for. For example, in 1996 we published a brochure for consumers with tips on how they can protect themselves when shopping online. The brochure has gone through several publications and is now titled Shop Safely Online. (The text is available at www.americanexpress.com/corp/consumerinfo/cybershop). It is co-sponsored by the Consumer Information Center, Call for Action, Inc. and the Direct Marketing Association, with information assistance from the FTC. We also maintain an online resource for our merchants at www.americanexpress.com/merchant, which has a page describing our policies and procedures and explaining how a chargeback operates.

In addition to educating customers, issuers should provide for consistent worldwide procedures at a self-regulatory level for resolving consumer complaints, including the establishment of reasonable timeframes for the resolution of billing disputes.

Finally, merchants should provide information on their websites sufficient to allow the consumer to make an informed decision about purchasing at that site. Issuers should educate merchants about the importance of doing so, as well as of providing adequate privacy disclosures.

We are very appreciative that the FTC has provided the opportunity through its workshop for a diverse group of industry representatives to present their views, ask questions, respond to proposals and share best practices. As Jodie Bernstein, Director of the Bureau of Consumer Protection, noted in the closing session, 1) everyone benefits from disclosures, and 2) there is a need to develop a set of internationally agreed upon core principles to guide commerce on the Internet. The disclosures that American Express expects of its online merchants (noted above) may provide useful insight into this principle development process, since this type of information will help to minimize misunderstandings between consumers and merchants.

American Express also encourages all parties in these consumer protection discussions to consider a range of mechanisms which will provide consumers with viable alternatives for dispute resolution. Appropriate options will vary from those suitable for small disagreements to those more suitable for harmful frauds. Given limited public resources and the pressing need for near-term solutions, there is a role for self-regulation, alternative dispute resolution and cooperation among nations to resolve this broad range of consumer protection needs.

A strong code of good practices or consumer protection principles will provide guidance in the marketplace, and, coupled with an effective consumer education effort, enable consumers to shop online with confidence. An industry code should be the first effort since it is in the interest of all to make the Internet a safe place to conduct business, while the more complex legal issues (which court has jurisdiction to resolve a given dispute? which country's laws apply?) are being resolved among governments.

Ultimately, whether the Internet continues to fulfill its economic promise depends largely on how responsibly the private sector responds to its challenges as well as embraces its opportunities. Although the Internet is evolving at lightening speed, for electronic commerce to continue growing at its current pace, consumer trust in this new shopping medium must be gained and sustained. Quality service that is responsive to customer needs is the base upon which consumer confidence and the success of e-commerce will be built. At American Express, we will be looking for innovative ways to use this medium to enhance our customer service and will be encouraging our merchants to do the same.

Thank you for the opportunity to present American Express' views.

Very truly yours,

Sally Cowan
Group Counsel