COUNCIL OF BETTER BUSINESS BUREAUS, INC. April 30, 1999 Secretary
Dear Mr. Secretary: This comment is submitted on behalf of the Council of Better Business Bureaus, Inc. (CBBB) and its online subsidiary, BBBOnLine, Inc. I respectfully request to participate in the June 8-9, 1999 Commission workshop. Background CBBB is the national organization representing its 133 member Better Business Bureaus throughout the United States, with their more than 270,000 local business members, and approximately 320 leading-edge national corporate members that support Better Business Bureau and national self-regulation activities through their membership in the CBBB. CBBB's mission is to promote the highest ethical relationship between businesses and the public through self-regulation, consumer and business education, and service excellence. BBBOnLine is a subsidiary corporation of CBBB, with its own Board of Directors representing leading technology, consumer product, marketing and content provider companies with a strong interest in the success of e-commerce. BBBOnLine was created in 1995 to help fulfill CBBB's mission in the online marketplace, and thereby to build consumer trust and confidence in the vast and constantly evolving Internet. Jurisdiction and Choice of Law We applaud the Commission's efforts to explore the many issues and needs surrounding the growth of e-commerce and its implications for both the business and consumer sectors. The questions to be addressed with respect to jurisdiction, choice of law, and effective enforcement of protections against fraud and deception are important in light of the boundary-less nature of the medium. How these questions are resolved will directly affect the cost of doing business and the degree of consumer confidence in participating in online transactions, especially as online commerce expands quickly, as it is doing, beyond the United States. Importance of Self-Regulation We believe the Commission properly identified self-regulation activities and opportunities as an area needing development and exploration by government and by the private sector. In our judgment, an effective legal framework for global e-commerce is unlikely to be developed successfully unless significant self-regulation measures are designed and incorporated into that framework. There are three reasons for this. First, our experience domestically is that consumers do not utilize their rights to judicial redress for most problems they encounter in the marketplace. There are many reasons for this: the high cost of litigation; the inaccessibility of attorneys; the frequent small dollar value to high emotional and convenience value disputes; varying education levels; fear; and the weakness of their strictly "legal" positions and remedies compared to the perceived harms or inconveniences suffered. These barriers, and others uniquely attributable to international transactions, surely are all increased significantly with respect to disputes arising cross borders. Effective out-of-court remedies that are accessible, fair and cost efficient are needed. In the United States, these are provided by the private sector through a variety of techniques, such as third party dispute settlement mechanisms (e.g., the BBB), sophisticated internal company-administered consumer service and complaint resolution procedures, and, in some jurisdictions, government-sponsored mediation programs. Small claims court procedures where they exist also provide effective redress where traditional court remedies are ineffective or under utilized, and government enforcement in cases of substantial law violations and significant consumer injury can be helpful. Globally, the consumer needs are likely to be at least as great, while the non-judicial remedies are, overall, less available at the present time. In short, while it is important to encourage businesses and consumers to participate in e-commerce through the development of governmental rules and procedures that provide predictability and fairness, it is equally important to recognize early on the limitations of these rules as effective redress mechanisms for most consumers. Second, a crucial need not resolved at all by jurisdiction and choice of law rules is a convenient way for consumers to find reliable companies with which to do business. A dominant characteristic of the online market is the low entry barriers for new competitors. Some of these new competitors do, indeed, take liberties with the legal rules and essential honesty. Many others, however, put consumers at risk not because of any intent to commit fraud or deception, but because of their inexperience and misjudgments about what it takes to advertise accurately, deliver on promises made, and fulfill orders as promised and on a timely basis. The array of information available online is overwhelming. It is difficult, at best, for most consumers to figure out whom they should trust. "Classy" looking web sites are inexpensive to produce, a positive factor ensuring ease of market entry. However, absent the cues available in the physical marketplace (the physical store environment, the relationship with store personnel, the type of media placements for advertising, the touch and feel of the merchandise, etc.), consumers need help in sorting through the information to make informed and reasonable choices. Choice of law and jurisdictional rules do not even attempt to address this need. Looking to these very same considerations, Secretary Daley recently observed in his April 23, 1999 speech to the Amdahl's Good Government Series in California that "consumers want to know they are dealing with a reputable company. Never having heard of the company, or buying from it before--they are skeptical." Third, solving cross border jurisdictional and enforcement-related issues, while important, will not by itself make a significant dent in the need for consumers and business to have some standardization in minimum consumer protections. Without minimum standards, choice of law and jurisdictional rules that otherwise appear reasonable may fail to gain widespread acceptance in the public sector and consumer communities. A reasonable fear that a "lowest common denominator" legal framework might prevail could impede support for otherwise reasonable proposals. Again, Secretary Daley summed it up nicely in his recent California speech:
At the same time, we have learned much in our own "federal laboratory" about the costs and burdens that sometimes result from widely varying consumer protection regimes. Lemon laws, retail advertising and environmental protections are three examples of legislative approaches that differ substantially from jurisdiction to jurisdiction. Multi-jurisdictional companies incur increased compliance costs as a result, a problem that can only increase substantially as the number of competing jurisdictions expands exponentially in the global market. Uniform minimum standards of truthful advertising and fair business practices are needed, therefore, so consumers will have confidence in the new medium, and so businesses can achieve compliance at reasonable cost. These minimum standards are possible to devise through governmental treaties, although our domestic experience in our own federal structure suggests this would be extremely difficult. Minimum standards are very possible to achieve through voluntary private sector efforts, especially if governments working cooperatively provide incentives for those efforts. Better Business Bureau Self-Regulation Experience The Better Business Bureau system, through activities of the BBBs in local communities, national activities through CBBB, and online activities through BBBOnLine, have long addressed each of the three priority needs identified above. First, the BBB system is one of the largest, if not the largest, provider of informal consumer dispute settlement services in the nation. It has handled approximately two million cases in our mediation and arbitration programs since the early 1980's, not to mention the millions of informal complaint-handling cases undertaken in its history. Our mediation and arbitration programs are free to consumers, and offer widely recognized models of speed, convenience, due process, flexibility and competence. The cases, in industries as diverse as the automobile industry, home improvement, manufactured housing, technology, and national advertising, are decided using techniques peculiarly applicable to the situation, including equity-based decisions, and application of legal principles. Trained subject matter professionals and trained volunteers, as appropriate, are used with much success. Second, the BBB system's most widely recognized function is to assist consumers finding companies in which they can place their trust. To begin with, BBB members must meet minimum membership requirements that speak to truthful advertising and good faith resolution of consumer complaints, among other things. In a very recent development designed to assist consumers in finding companies that meet our standards, BBB members may now, at Bureau option, display a member logo and identify themselves as members in their advertising. All BBBs assist consumers in pre-purchase research by providing "reliability reports" on members and non-members alike, describing the business' marketplace record. These reports are now online in many Bureaus through the CBBB's web site (http://www.bbb.org) or through independently operated sites identified at the CBBB site (e.g., http://www.bosbbb.org [Boston BBB]). Finally, CBBB and the BBB system operate two widely recognized "seal" programs-- BBBOnLine's "reliability" program, designed to identify companies adhering to BBB marketplace standards, and now the largest "seal" program on the internet with more than 2,800 participants, and our recently implemented online privacy program [http://www.bbbonline.org]. Both are intended to assist consumers in finding companies that meet our high standards in the applicable areas. Third, the BBB system has a long and distinguished tradition in working with the business community to set or administer uniform standards of fair advertising and business practice. Our renowned BBB Code of Advertising is followed by the retail industry and has formed the basis for numerous local government advertising codes as well as the important Commission Guides to Deceptive Pricing. Our national advertising program, administered by CBBB's National Advertising Division (NAD) in alliance with the three major advertising trade associations (AAF, ANA, AAAA), has been called by Chairman Pitofsky the best example of self-regulation he has seen. The CBBB's Children's Advertising Review Unit (CARU) has been a leader in setting advertising standards applicable to the unique needs and cognitive abilities of children, and, like NAD, enjoys an outstanding level of voluntary compliance by industry. The CBBB's Philanthropic Advisory Service (PAS) applies our experience in business self-regulation to the charitable community, setting and implementing at national and local levels widely-observed fund raising, governance and accountability standards for soliciting organizations. Finally, in response to substantial interest, encouragement and support from the business community and government leaders, CARU (with respect to children) and BBBOnLine (with respect to adults and children) have established and implemented two complementary programs to assure that individual privacy is protected in online transactions. Together, these programs set rigorous, but practical disclosure, choice, security and access standards, and incorporate a verification and dispute resolution program of high quality. BBB standard-setting activities work for two essential reasons. They are developed and implemented "by" industry, and are not done "to" industry. They are examples of self-regulation at its best. In addition, our business members and supporters understand that the BBB self-regulation programs will not serve them if they do not serve their customers. Consequently, while our standards and implementation activities are practical and reasonable from a business perspective, they are fair and responsive to consumers. Better Business Bureau Global Reach The BBB system is poised to assist the Commission and the business community in finding self-regulation opportunities and solutions for global commerce. The BBB is already "international." Through a licensing arrangement with the Canadian Council of Better Business Bureaus, there are 15 Better Business Bureaus in Canada using similar methods of operation and standards as in the United States. Our commitment to the online marketplace through BBBOnLine necessarily entails a global reach and perspective. The online privacy program is already global to some extent, in that its coverage extends to companies throughout the world so long as their web sites or online services are marketed in part to United States residents. And, the CBBB is presently embarked on an international trademark registration program to register its "famous mark" in countries as diverse as Mexico, Russia, Great Britain, Japan and other Far East nations, Costa Rica, and the European Union. Our vision is to extend our self-regulation message either through existing or new program services that we would administer directly, or through appropriate partnerships with other organizations, businesses and governments. For example, at its last meeting the BBBOnLine Board approved the start of a project that would develop, in conjunction with the CBBB and the BBB system, guidelines for fair business practices and advertising online. This will be an inclusive endeavor, with input sought from the affected business community, government and consumer groups. The result of this work will be voluntary standards that we would expect to be followed throughout the online community, much as the BBB Code of Advertising, CARU children's advertising guidelines, and PAS charity accountability standards provide a framework for the private sector in those subject areas. We very much appreciate the generous encouragement of Secretary Daley, who noted in the recent speech cited earlier that this BBBOnLine/CBBB effort was underway, and observed that "it is important work that should be put on a fast track" and that "others may want to join." If we were to leave the Commission with a single message, it would be that creative measures are needed to provide effective incentives for global self-regulation. Perhaps the "safe harbor" approach taken in the Children's Online Privacy Protection Act and in Department of Commerce-European Union privacy negotiations would work. Other approaches may also be developed. We recognize that much more research is needed, and efforts such as the Commission's to illuminate the issues are likely to be of great benefit to those of us seeking to serve the global community in ways that are likely to make a difference and succeed. We are learning here, as are our consumer, business and public sector colleagues who will participate at the upcoming workshop. We believe that innovation, flexibility and experimentation will be needed. Sincerely, Steven J. Cole |