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,
one of the UK's top ten Internet service providers. CA is also
a member of BEUC,
the umbrella body for European organisations, and the e-commerce
working group of the EU/US Trans-Atlantic Consumer Dialogue (TACD),
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.
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
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 Net57 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
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 lastminute.com and Go. A full list of traders is available
at the website.
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
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
Refunds must be given if goods are
faulty and must be delivered within 30 days of agreeing to the
The trader must use effective complaints
handling systemthe requirements of which are specified.
Data protection law must be complied
with and consumers must be given the option to refuse marketing
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
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,
of Trust UK.
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.
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
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
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
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
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
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
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.
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 intermediariesin 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.
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
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
CA also consider that the Commission should
negotiate multilateral conventions establishing consumer protection
regimes applicable online and on other cross-border commercial
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
5.3 DG INFSO will also need to co-ordinate
the Commission's approach to e-commerce outside the EU.
10 www.which.net. Back
Bureau European des Unions de Consommateurs (www.beuc.org). Back
Which? Online annual Internet survey, are you being served?-The
Growth of an E-nation, www.which.net/upfront/survey.htm. Back
eg Consumers@Shopping. An international comparative study
of electronic shopping -Consumers international 1999. available
at www.consumersinternational.org. Back
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
Which?Online survey ibid. Back
Shopping on the Internet 2000-the consumer and the Internet. Back
On the cards: privacy, identity and trust in the age of
smart technologies, Perry six and Ivan Briscoe, Demos, 1996. Back
Outline of Commissioner Byrne's intervention at 13.4.2000
Consumer Council. Back
Pippa Lawson-review of chargebacks-2000. Back
Pippa Lawson bid. Back