BEFORE THE FEDERAL TRADE COMMISSION U.S. PERSPECTIVE ON CONSUMER PROTECTION IN THE GLOBAL ELECTRONIC MARKETPLACE Comment, P994312 COMMENTS OF THE NATIONAL ASSOCIATION OF The National Association of Consumer Agency Administrators (hereinafter referred to as "NACAA") respectfully submits the following comments in response to the Federal Trade Commission's Notice seeking comments regarding "U.S. Perspectives on Consumer Protection in the Global Marketplace." NACAA is a non-profit association representing 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 consumer complaint handling, consumer education, advising consumers and businesses about legal rights and responsibilities, and enforcing consumer laws and regulations. NACAA supports public agencies responsible for ensuring a fair and informed marketplace and representing the rights of consumers. NACAA member agencies receive complaints and inquiries from consumers about all sorts of consumer problems. As more and more consumers go to the market online, disputes between consumers and businesses will increase. Providing a framework for resolution of these disputes and guidelines for preventing miscommunication between vendor and consumer is vital. In today's electronic marketplace, the consumer is able to purchase items from an ever expanding menu. NACAA is pleased that the Federal Trade Commission has taken the initiative to review the laws, rules and guidelines protecting consumers venturing into the electronic marketplace. With the benefits of such a medium comes the increased opportunity to defraud consumers. NACAA strongly supports the Federal Trade Commission's plan to examine ways to protect consumers in online transactions with foreign businesses. In accord with its role in representing its member agencies and their role in protecting the rights of consumers and legitimate business interests, NACAA submits the following comments to the Federal Trade Commission. NEED FOR GUIDELINES GOVERNING THE ELECTRONIC MARKETPLACE NACAA generally supports the promulgation of guidelines for businesses and consumers of the countries participating in the Organization for Economic Cooperation and Development ("OECD"). Specifically, the discussion contained in the "Draft Explanatory Memorandum/Background Document Concerning the Guidelines for Consumer Protection in the Context of Electronic Commerce" prepared recently by the OECD offers an excellent beginning. Promulgation and adherence to such guidelines are vital steps toward establishing a level playing field where foreign vendors and consumers can interact with reasonable assurances that goods and services are sold and delivered fairly and honestly. Specifically, such guidelines would promote fair and truthful advertising of goods and services enabling consumers to compare price and quality. Certainly, promotion of fair competition is an important goal. Such competition is symptomatic of fair dealings between merchant and consumer. Deceptive and/or unfair tactics defeat the goal of fair competition. At the same time, use of such tactics tilts the balance of bargaining position between merchant and consumer. All merchants selling their goods and services online, and not just those within the member countries of the OECD, should adhere to universal guidelines protecting the online consumer. NACAA is all too familiar with advertising practices that do not clearly and conspicuously disclose applicable restrictions. It is simply a fact of life that merchants will not cease such deceptive practices unless they are subjected to consumer protection laws, i.e. the requirement to advertise in a truthful, non-misleading or non-deceptive manner. This basic tenet is vital to protect consumers and legitimate business in the electronic marketplace. Setting certain guidelines for electronic trade is important. As consumers grow accustomed to trade that crosses several boundaries, their welfare, and ultimately the stability of the medium, is dependent upon safeguards that prevent, or at least discourage, deceptive and/or unfair practices. The cry by merchants or, in the global setting, by governments, that guidelines are not needed must be considered in the context of the rapid growth of electronic commerce. There is no reason to suspect that online commerce will not present similar problems encountered on all trade mediums pre-dating the Internet. In fact, common sense suggests that transactions over such distances invite more difficulties. Common to all commerce between merchant and consumer is the risk that some merchants will attempt to: pass off their goods for that of another; confuse the consumer as to the source of the products; sell used products as new; misrepresent the quality of their products or the products of a competitor; or misrepresent the reason for price reductions. This list is certainly not inclusive. It is only representative of the countless ways merchants have found to deceive consumers. Now these same merchants have a new medium to exploit. NACAA urges the FTC to support the promulgation of guidelines consistent with the consumer protection laws enforced by the federal, state and local governmental authorities of the United States. IMPORTANT GOALS TO CONSIDER While NACAA generally supports the promulgation of guidelines regarding electronic commerce, NACAA urges the FTC to endeavor to complete the task of making the electronic marketplace safe for consumers. Obviously, consumer interests must be balanced with the goal of promoting commerce. Online commerce is in some ways unique. Consumer confidence is important in most industries and most mediums of commerce. However, consumer confidence is essential to all commerce online. Self regulation by an industry makes good business sense. However, self regulation is not enough. The guidelines should allow for state and local agencies and authorities to take enforcement actions against merchants engaging in unfair and deceptive practices. The guidelines should clearly support state and local authority arising from the consumer's resident jurisdiction to take the same sorts of actions currently taken against other businesses that engage in deceptive practices. This enforcement authority should be in addition to an individual consumer's private right of action. In short, foreign merchants marketing to U.S. citizens should not be out of reach from enforcement of unfair or deceptive acts or practices laws. Otherwise, merchants complying with proper standards with respect to consumer protection will be placed at a competitive disadvantage. Government involvement in the protection of consumers is critical because, in most cases, the merchants intent on deceiving consumers will be smart about potential violations. They will make sure that deceptive advertising conduct results in negligible monetary damages per consumer making private lawsuits too costly to pursue. A governmental entity, however, might take action for small individual injuries suffered by a large number of people. For example, a merchant undercuts other vendors in the advertised price only but later adds a hidden fee of $10.00 when charging the consumer's credit card. A private lawyer would be extremely hesitant to file a lawsuit for $10.00 in damages. Further, consumers are apt to be threatened or frustrated by the daunting task of pursuing merchants in distant lands. However, if merchants are required to comply with consumer protection laws applicable to the sovereign in which they market their goods, and engage in unfair or deceptive acts or practices, government action would be the appropriate remedy. Government enforcement action is critical for other reasons. Individual consumer lawsuits do not result in injunctions prohibiting repeated unfair or deceptive future conduct. Governmental actions traditionally yield injunctions which prohibit illegal future conduct. They also serve to provide restitution to consumers. The applicable law should be that most closely associated with the consumer. Alternatively, any choice of law provisions contained within the contractual relation between merchant and consumer must be clearly disclosed. The focus here will be on consumer awareness of the choice of law (& forum issue). The choice of law issue is a difficult one. It is important that the guidelines recognize that this medium allows participation of the uneducated as well as the educated consumer. Since these guidelines are global in nature, we can expect some resistance from jurisdictions more lenient toward business practices inherently placing the consumer at risk. Merchants should not be allowed to forum shop. Businesses should limit their marketing in jurisdictions where they find the laws to be consumer friendly. NACAA's critical point to the FTC is that there is no reason for foreign merchants to be outside the reach of federal, state and local consumer protection laws applied to other businesses. There must be some avenue for dispute resolution in which the consumer is on equal footing with the merchants, be they out of state or out of the country. APPROPRIATE DISCLOSURE OF TERMS AND CONDITIONS AFFECTING SALE There are certain conventions that are universal in their application to all interactions between merchant and consumer. Disclosure of the terms and conditions of the transaction must be made at an appropriate time. Such terms and conditions must be clear and conspicuous. To make informed decisions a consumer should know the identity and location of the seller. Does the seller propose a choice of law or forum? What is the seller's return policy? NACAA supports the application of truth in advertising laws to the electronic marketplace. Merchants should not be allowed to promote goods and services in such a manner that is prohibited by consumer protection laws. For example, merchants should not promote low prices for goods that are not fully functional without the purchase of other merchandise. The low price is not actually available to all consumers. Under principles of truth in advertising, the advertised price should include all necessary accessories, or the limitations of the product should be clearly and conspicuously disclosed. Another common practice is the promotion of a very low price for a certain product when in fact only a limited supply of the product is available. Merchants should not be allowed to sell more expensive products in place of the product luring the consumer deeper into the electronic web. Consumer laws define this practice as "bait and switch" because the merchant knows when it displays the advertisement that it will not be able to meet public demand and that the majority of consumers will be switched to a higher priced item. Such advertisements should at a bare minimum be required to indicate the restrictions and limitations that may apply. Standards concerning the print size and type are essential. Guidelines regarding the location of the message communicating applicable limitations are also important. We suggest the FTC consider guidelines effecting the accessibility of the terms and conditions that might apply. NACAA supports the requirement that consumers be provided full and complete information about the nature and type of all terms and conditions of the transaction before acceptance of the transaction can take place. PRIVACY ISSUES The privacy rights of the consumer must be protected. The obvious reasons attach. Identity theft is costly to consumers, merchants and the credit industry. Consumers pay for any good or service they purchase. They should not also be required to surrender their privacy. A consumer's personal data should be used in harmony with his or her expectations. The merchant's privacy policy should be part of the required disclosures. It should be clear and conspicuous and easy to access, read and understand. Industry self-regulation certainly is not the complete answer. A merchant should not be allowed to play the role of judge in a dispute in which it has an interest in conflict with the consumer. Merchants' apathetic approach to providing online notice of their privacy policies strongly suggests that protecting consumers' privacy is a low priority among online merchants. Consumers should have online access to their personal information. Depending how the information is used, inaccurate information could be devastating to the consumer's reputation and credit rating. Consumer should be able to access this information to correct errors. CONCLUSION NACAA appreciates the opportunity to provide these comments to the FTC to assist in the development of guidelines that will provide protection for consumers with respect to their transactions within the electronic marketplace. NACAA invites the FTC to contact our Association for further clarification of our position or to request that NACAA respond to any questions that the FTC may have regarding these Comments. RESPECTFULLY SUBMITTED, ______________________________________ |