Select Committee on European Union Written Evidence

Memorandum by the Consumers' Association


1.1  Consumers' Association (CA) welcomes this opportunity to submit evidence to the Sub-Committee's inquiry into the development and co-ordination of policy in the European Union as it relates to e-commerce. CA has considerable knowledge about the experience of consumers online via its research into consumer behaviour and through its Internet arm Which? Online[10], one of the UK's top ten Internet service providers. CA is also a member of BEUC[11], the umbrella body for European organisations, and the e-commerce working group of the EU/US Trans-Atlantic Consumer Dialogue (TACD[12]), which develops policies to advance the consumer interest and acts as a partial counterweight to the Trans-Atlantic Business Dialogue.

  1.2  It is CA's view that the electronic marketplace potentially offers many important benefits to consumers, particularly in terms of choice, convenience, and competition in retailing, and efficient delivery of public services. Barriers to market entry are lower in an online environment, allowing suppliers to set up more easily and, increasingly, offering consumers an opportunity to by-pass restrictive distribution systems in retailing that have tended to keep prices high. Search costs for some consumers are also lower on the Net compared to the high street, and may fall further with the emergence of intermediaries who undertake to search for the best deal on behalf of an individual consumer. In this way the growth of electronic commerce may well increase competitive pressure in retailing, with attendant benefits in terms of prices, quality and choice. By enabling easier communication between consumers, the online market may begin to erode the traditional power imbalance between suppliers and consumers, who traditionally have been diffuse and difficult to organise collectively.

  1.3  However, these potential benefits are certainly not secured, and will only be fully realised if a proper public policy framework is in place to ensure consumer confidence and trust in electronic trade. It is equally important that any policy framework also takes into account the potential effects, both negative and positive, of the growth of e-commerce on existing market and social structures. E-commerce is likely to change patterns and methods of consumption, with the increased ability for targeting (and excluding consumers) via techniques like data mining. These developments will test traditional regulatory and consumer protection structures. These wider effects need to be considered in order to avoid the growth of a "digital divide" between those well served by, and able to exploit, the opportunities offered by e-commerce and those who are not.

  1.4  We believe that the experience of UK consumers can help shape the development of such a policy framework within Europe. E-commerce is developing at a rapid rate in the UK. There has been significant growth in Internet shopping over the last 12 months, in 1999 one in 10 UK Internet users regularly shopped online compared with one in 50 in 1998.[13] This is due in part to the "Freeserve effect", ie the introduction of "free" internet access together with a variety of low tariff options for online time. It would be a mistake however to limit the examination of electronic commerce just to Internet transactions via a PC. The UK is among the first European countries to launch interactive digital TV services and this could add considerably, or even outstrip Internet commerce in the long-term. Third generation mobile phones also herald the growth of so called m-commerce. The different ways of shopping electronically raise slightly different concerns and possibility give rise to slightly different solutions. It is important that although not necessarily the same solution is applied to each service, the outcome for consumers is comparable. This inquiry is therefore timely as its findings can help influence the development of an appropriate European framework to facilitate the growth of e-commerce while ensuring consumers can enjoy the benefits.

2.  What needs to be done to create confidence and to stimulate e-commerce?

2.1  In order to create confidence measures need to be taken both by business and Governments, to address the main consumer concerns about shopping on line. Access privacy, security and redress.

  2.2  Which? Online commissions annual market research into Internet usage among the British public and into attitudes towards the Internet and e-commerce in general. Conducting the survey annually enables us to establish benchmarks against which we can measure how consumer perceptions, attitudes and intentions are changing as the Internet continues to grow and develop. The latest survey indicates that consumer confidence about shopping online is growing and increases with length of time using the Internet. Over half of longer term users have tried shopping online.

  2.3  However this should not be overstated. Education/research remains the most common activity on the Internet closely followed by e-mail. Fears and misconceptions about using the Net abound, even in the case of users. There has been little change since last year's survey in public perception of the threats posed by the Internet. Over half of respondents also said that they were concerned about fraud and nearly a third felt that national security was under threat. Internet users were much more likely to be concerned about fraud than non-users (69 per cent versus 46 per cent). Just over half of consumers (Internet users and non-users) believe that the Internet facilitates fraudulent practices. The most widely held concern, however, was in relation to content of material transmitted over the Net—57 per cent believed that the Net provided easy access to pornographic material.

  2.4  Further research has indicated that there is some basis for these concerns. A recent international sweep of Internet sites by the Federal Trade Commission of the USA and international partners found nearly 2000 sites perpetrating Internet scams, mainly of the get rich quick variety, rather than credit card fraud. We have yet to find a case of credit card fraud based on interception of card details used while purchasing an item in the UK, but are aware that some cases have been reported in the US. For many consumers the most likely problems they will face (if they have one) are lack of clear information about cost, poor fulfilment and difficulty obtaining refunds or some other means of redress. These problems have been highlighted in a number of "mystery shopping surveys" carried out by consumer organisations[14] both within the European Union and outside.

  2.5  These concerns point in part to a need for greater consumer education about e-commerce. They also indicate the importance of measures to build greater consumer confidence and trust in the online world.


  2.6  In July 1999 CA developed the Which? Web Trader scheme in order to boost consumer confidence about shopping online. It is now the biggest such scheme in the UK with over 500 traders ranging from small companies to more well known brands like and Go. A full list of traders is available at the website.[15]

  2.7  A trader displaying the Which? Web Trader logo on their website agrees to follow the Which? Code of Practice, which is designed to encourage high standards amongst traders and ensure consumers are treated fairly. A consumer can see (by clicking on the logo) the standards the trader is adhering to as well as a list of other traders participating in the scheme.

  2.8  The following are some of the key provisions:

    —  The full price of the product including taxes and packaging costs has to be shown.

    —  The site must be secure for sending personal information.

    —  The requirements of all UK consumer protection laws must be met.

    —  The site has to display correspondence address as well as e-mail, fax and phone numbers.

    —  Terms of any contract must be made clear.

    —  Refunds must be given if goods are faulty and must be delivered within 30 days of agreeing to the refund.

    —  The trader must use effective complaints handling system—the requirements of which are specified.

    —  Data protection law must be complied with and consumers must be given the option to refuse marketing material.

    —  Users must be invited to comment on their experiences on the Which? Online forum.

    —  CA also offers a guarantee against credit card fraud. If a consumer loses out because someone misuses their card we will reimburse the first 50 pounds of their loss. The credit holder must repay the rest.

  2.9  CA carries out checks to ensure that the companies applying to join the scheme are genuine and the site itself is vetted for compliance. There is an on going monitoring programme to ensure adherence to the code. Complaints about traders are either resolved through discussions between CA and the trader, activity on the Which? Online forums. Or, if the breach is sufficiently serious, then a trader is thrown out of the scheme.

  2.10  The intention is that it is a developing code and over the next two years it should provide valuable information about how schemes can work in practice and will inform the development of other schemes. The Code is currently being amended to take into account the introduction of the new Data Protection Act and will reflect the Distance Selling Directive when implemented. Most importantly in order to deal with such problems as non-delivery of goods or difficulty in obtaining refunds, CA is developing an alternative dispute resolution mechanism which will be accessible, affordable, fast, consumer-friendly and binding on the company concerned.


  2.11  The scheme was initially conceived as a domestic scheme for UK users. However a number of our European sister organisations have adopted the webtrader scheme in their member states. The scheme has now received funding from the European Commission Enterprise Directorate-General for the development of a webtrader scheme in seven European countries (UK, Holland, Portugal, Italy, Spain, France and Belgium). The funding also offers the possibility for independent organisations of the other eight EU countries to participate in the project in order to cover all 15 Member States. The primary purpose in each of these schemes is still to address to domestic concerns. However it is clear with the growth of e-commerce the likelihood of cross border disputes will increase. In order to address this concern the funding requires the establishment by December 2000 of a cross border alternative dispute resolution mechanism, a virtual arbitration committee with representatives from business and consumers.


  2.12  CA is a founder member, together with the Alliance for Electronic business,[16] of Trust UK[17]. Launched in February 2000 it is a self regulatory approval body for online codes of practice (like Which? WebTrader) and lays down a number of minimum core principles which must be included in any e-code of practice seeking approval. An approved site will include the TrustUK "hallmark" on its site or incorporated into its own hallmark. The purpose of the scheme is to avoid the problems faced in the offline world of a proliferation of meaningless codes of practice and hallmarks which gave false reassurance to consumers that the trader was following certain standards and that there were effective sanctions for non-compliance. The TrustUK hallmark should reassure consumers that the code of practice used on that site has been independently assessed and monitored. The approval committee is independent from the founder members.

  2.13  Meaningless Codes, which give false reassurance, undermine the positive value of such schemes. CA believes that the European Commission needs to consider how this problem can be avoided in the single market.


  2.14  Another major finding from our survey is that, although falling, the proportion of non-users who do not expect to get connected is still over half. This suggests that almost 20 million British adults currently have no intention of ever going online. The most common reason for not getting connected is still the belief that the Internet is not relevant to their needs followed by cost. Over 55 year olds are less likely to be deterred by cost or ignorance of technology than simply by a feeling of being "too old". The Internet is only one of many new communication technologies from which older Britons are becoming excluded, such as mobile phones and cable, satellite and digital television ie all the proposed platforms for the delivery of e-commerce. Although subsequent generations can be expected to be more familiar with technology in the medium term, with a growth in the older population within Europe, policy makers should explore this issue. It is also a challenge for business, as this finding applied across all income levels. One in six 55s said they would go online if they knew more about it. This is a chance for industry to focus on educating these "third agers" and on making the Internet more relevant to the needs of older people. An increasingly powerful group economically, the industry is currently not doing enough to get them online.

3.  Does the European Commission's draft Action Plan "e-Europe: An Information Society for all" offer a realistic means of promoting e-commerce in the EU?

3.1  CA believes that the Action Plan is a good starting point for the promotion of e-commerce. However we consider that it has taken too narrow a view of some of the barriers to access to e-commerce for many consumers. These will need to be addressed if e-commerce is to become a mass-market activity. Although understandable as its primary focus is Europe, we also consider that it does not adequately take into account the fact that the Internet is global and that EU consumers will purchase from non-EU sites. The EU needs to develop a clear strategy for how its policies will be effective in, and have an effect, on the global market.


  3.2  The issue of access is multifaceted. At its most basic it means removing the barriers to providing e-commerce for e-commerce providers and broad-based policies to encourage general consumer confidence. These are necessary to allow the creation of a market and are the areas that both the UK Government and the EU Commission draft plan are currently concentrating on. To turn e-commerce into mass-market medium however will require both service providers and policy makers to address measures to allow all consumers to have access to online transacting. The UK and EU Commission are piloting various initiatives to provide such access for example kiosks in shopping malls.

  3.3  For these policies to be successful however they need to start from an understanding of the other barriers to access for consumers be it age, education or location. There needs to be greater research into, and the results fed into policymaking, of the way in which consumers actually use the Internet. This is particularly the case for vulnerable consumers and consumers in remote areas. We are already seeing some evidence of a "digital divide". Four fifths of Internet users are ABC1s[18]. This has changed little from last year's survey, Suggesting that accessing the Internet remains a pursuit favoured by the more affluent. More than three out of four Internet users are working, reflecting both the importance of the office as a site of access and the higher disposable income of people in employment.

  3.4  Although to some extent this would be expected at this stage of the development in the market the gap between workers and non-workers is widening. Among the general population, those in employment are now nearly three times as likely to be connected to the Internet than those not in employment (32 per cent versus 11 per cent). Last year's survey found that they were only twice as likely.

  3.5  The increased use by more affluent consumers also has potentially wider effects on market structures and access in the terrestrial world. Depending on the effects of the Pareto rule (the economic rule of thumb that traders acquire 80 per cent of their profits from 20 per cent of their customers). If significant numbers of this 20 per cent switch to primarily purchasing certain products online, for example the rise in home shopping, this could lead to the closure of local retail outlets increasing the access difficulties of the already disadvantaged consumer.

  3.6  However the effect of this change is uncertain. As the Welsh Consumer Council noted in its recent report[19] Internet shopping could have a beneficial effect for consumers living in rural areas and by extension for other European consumers living in remote areas. "In mid Wales for example many local shops and supermarkets have closed leaving inhabitants with many miles to drive to the nearest supermarket. Public transport is often poor in these areas and having to rely on private transport has reduced the ability of low-income families to gain access to many basic services. The ability to order groceries online could potentially help overcome this problem. However at present the only UK-wide shopping service via the Internet will only deliver to customers who live within 10 miles of a high street store, in many cases failing to reach the people who have most need of the service."

3.7  The plan also refers to the promotion of remote health facilities. CA considers that such facilities could offer benefits to consumers. However in an e-commerce environment other aspects of Health need to be addressed. The growth of online pharmacies can present both benefits in enabling access to facilities but also challenges traditional approaches to patient welfare such as requirements on advice and the conditions for sale of certain drugs.

  3.8  CA believes that the EU should be considering these wider implications as e-commerce grows. As well as undertaking research into how consumers actually use the Internet, the Commission should seek to sponsor joint projects between business and communities, for example with local authorities and/or post offices to coordinate deliveries in rural areas.


  3.9  Further consideration needs to be given to the privacy issues raised by the Internet. The Commission approach to date has focused on data protection aspects. CA supports the EU position, reflected in the Data Protection Directive 1995, that a consumer's data should be safeguarded through binding legislation. We remain concerned that the current "Safe Harbor" proposals from the US which would allow information to be passed to US companies voluntarily agreeing to abide by data protection safeguards lacks enforcement teeth and potentially puts EU consumers data at risk.

  3.10  The collection of data is not new, but the amount of data required to purchase online is greater than when shopping terrestrially. Shopping with cash in the terrestrial world is anonymous. Shopping online requires registration of location and identification as well as credit card details. This information can be manipulated more easily with the growth in technologies like data mining and smart cards. Studies[20] have indicated public concern with the accumulation of personal data via smart cards and its subsequent manipulation and a lack of public understanding of how their data can be used. If the Commission wished to pursue its policy of using smart cards it will also have to address this issue. A balance will need to be struck between obtaining any benefits from personalized information while giving consumers sufficient control. We support calls for the development of a policy framework that gives consumers the right to remain anonymous wherever possible and the right to control the use of personnel data collected as part of transactions.


  3.11  Security of transactions is a concern for both consumers and business. We support the Commission proposals for the recognition of digital signatures. We also support the proposal for a voluntary licensing regime for providers of cryptography services, which will reassure consumers and businesses about the integrity of organisations providing such services and the nature of the technologies, used. This should engender greater consumer confidence in transacting electronically and contribute to the long-term growth of e-commerce. Provided that the licensing schemes are properly monitored and enforced.


  3.12  As distance sales increase with the growth of electronic commerce, so will consumer disputes. Consumer confidence in cross border e-commerce will depend on how secure they feel about obtaining redress if something goes wrong. This does not just mean monetary compensation but also ease of returns policy and assistance. Failure to address this concern will risk the development of a single market online, as consumers will continue to buy from traders within their own member state. At present cross-border transactions account for only seven per cent of consumer e-commerce[21] online.

3.13  CA believes that the Commission should adopt a variety of approaches to deal with this problem. The objective should be try to avoid the need for redress by championing and signposting good practice together with the reassurance that if something does go wrong it can be resolved in a transparent, quick, effective and inexpensive way.

  3.14  CA broadly supports Commission Byrne's recent call[22] for a joint effort by all stakeholders to ensure a coherent approach to tackling consumer mistrust. He set out three core elements:

Best business practice

  Fostering a market environment that rewards best business practice so that most transactions are trouble free eg stimulating the development of trustmarks and codes of conduct. CA particularly supports the need to consider the use of credit cards as a form of raising consumer confidence.

  Credit cards are currently the most common payment method used by consumers online and will likely continue to be a popular method of payment in electronic commerce, even as other options such as electronic wallets and digital cash become available. Credit cards are popular among consumers for various reasons, including interest-free credit and special benefits such as travel rewards and insurance coverage, as well as mere convenience[23].

  While it is important that appropriate security measures are put in place to avoid credit card fraud, credit cards can also provide a form of security for consumers transacting online. Due to the ability of credit card issuers to "charge back" the merchant and refund the cardholder in the event of disputed charges. This is a tremendously powerful tool of consumer redress, unique to financial intermediaries—in particular, credit card issuers. No other body is in a position to effect consumer redress in such an efficient and effective manner. Credit card chargebacks will therefore be an important part of the framework needed to build consumer trust and confidence in this new medium[24].

  Under S75 of the UK Consumer Credit Act credit card providers are liable to card holders in relation to the non-performance or unsatisfactory performance of goods and services with a value of over £100. This right does not apply across the EU nor is it clear whether all cardholders will honour it in an online environment. CA believes that the Commission should explore the costs and benefits of subjecting all EU credit card holders to such liability online. Examination should also be given to other mechanisms for example, voluntary guarantees by companies, to provide consumers with greater reassurance for the majority of current credit card purchases made online, which are under this value.

Settling out of Court

The development of a range of alternative dispute resolution mechanisms and the network to link existing national ADR schemes (the European Extrajudicial Network EEJ-Net). Linking up exiting ADR schemes is a first step in the development of a comprehensive redress system. However the existing systems were not developed for online disputes. CA is at the forefront of trying to develop such systems. Online ADR presents opportunities for ease of complaint by "click-through" complaint systems and resolution via "virtual" tribunals. It also presents challenges. The online complaints environment is currently primarily text-based and people have difficulties in resolving disputes purely in writing. Any system must allow consumers to be fairly represented. We are still considering whether the country of origin approach Commissioner Byrne suggests for ADR systems provides consumers with quick efficient dispute resolution.

Court as a Last Resort

  CA believes that consumers have a fundamental right to obtain legal redress if things go wrong, in case alternative out-of-court procedures are not available or have failed. In order to ensure consumer confidence consumers must be given the ability to sue in their home courts. CA supports Commissioner Byrne's call for the adoption of the Regulation on the Brussels Convention that gives consumers such a right. This right would in practice only be relevant for cases with a value in litigation of 2000 Euro, which is why the other measures, must also be pursued. Although this amount is currently above the value of many consumer transactions, as e-commerce takes off high value items are being purchased such as cars.

  CA also consider that the Commission should negotiate multilateral conventions establishing consumer protection regimes applicable online and on other cross-border commercial activities.

4.  Will Codes of Conduct and Co-regulation Provide Sufficient Protection? Is there a Case for Intervention by National Governments and the EU?

  4.1  CA supports the principle of effective self-regulation for certain aspects of e-commerce for `example' trust providers and codes of conduct. We believe such schemes have an important part to play in the development of e-commerce. Given the rapid development of the market and technologies legislation can become rapidly out of date and such in schemes provide flexibility while lowering the administrative burden on companies. However, effective self-regulation requires that there are effective sanctions and redress mechanism. The Commission could usefully promote guidelines for the operation of such schemes.

  4.2  The Commission will have to retain legislative powers to deal with rogue traders who either decide not to join a scheme or who are not deterred by the scheme's sanctions. The Commission should explore the further development of co-regulation where it sets the policy framework, and industry and/or consumer groups provide the detail, with a legislative fall back to secure the key policy components in the event that self regulation fails. In this respect we support the Commissions decisions to draw up a recommendation on guidelines for co-regulation.

  4.3  Depending on the outcome of further research into the issues, intervention may be necessary to secure an equivalent level of protection in the online environment for key aspects of consumer protection, for example in relation to the sale of certain health or food products. It may also be necessary to extend the provisions of the advanced television standards directive (which mandates fair, reasonable and non-discriminatory access to conditional access technology used to encrypt digital television) to interactive transactions to ensure service providers can access consumers via digital television.


  5.1  CA is concerned that there appears to be no real coordination of either the Commission's approach to e-commerce policy questions or the sponsorship of various e-commerce programmes. We hope that the transfer of overarching responsibility for the development and co-ordination of e-commerce policy to DG INFSO will address this concern. It is important that the Commission seeks input from all stakeholders and that consumer issues infuse policy making in all directorates and is not just left to DG SANCO.

  5.2  To assist that aim CA believes that the Commission should review the effectiveness of consumer representation. At the EU level there is no formal consumer representation in key areas for e-commerce, telecoms, broadcasting and financial services. The Commission's Consumer Committee's activities in these areas are limited. It is also important that consumer participation in the standards-making process ine-commerce is increased, otherwise the outcome of standards-making is likely to be determined by manufacturing interest.

  5.3  DG INFSO will also need to co-ordinate the Commission's approach to e-commerce outside the EU.

April 2000

10 Back

11   Bureau European des Unions de Consommateurs ( Back

12 Back

13   Which? Online annual Internet survey, are you being served?-The Growth of an E-nation, Back

14   eg Consumers@Shopping. An international comparative study of electronic shopping -Consumers international 1999. available at Back

15 Back

16   The Alliance for Electronic Business comprises the following organisations: the Direct Marketing Association (UK) Ltd, the Confederation of British Industry, the Computer Services and Software Association, the Federation of Electrical Industries and the e-centre UK. Back

17 Back

18   Which?Online survey ibid. Back

19   Shopping on the Internet 2000-the consumer and the Internet. Back

20   On the cards: privacy, identity and trust in the age of smart technologies, Perry six and Ivan Briscoe, Demos, 1996. Back

21   Outline of Commissioner Byrne's intervention at 13.4.2000 Consumer Council. Back

22   ibid. Back

23   Pippa Lawson-review of chargebacks-2000. Back

24   Pippa Lawson bid. Back

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