ANALYSIS AND STRATEGIES FOR THE MINISTRY OF CONSUMER AFFAIRS

The issues raised that the Ministry will work on fall into four broad categories: Consumer Protection Security of electronic payment systems Privacy Access In discussing these issues, the paper deliberately avoids detailed references to specific products and services that make up the electronic marketplace. Consumer protection, security, privacy and access issues arise in respect to Internet and telephone technology, Internet payment systems, smartcards, credit cards and debit cards, etc. Therefore the paper seeks to focus on the generic issues that will arise and looks at the broad strategies that will be required to deal with them. The detail will come as specific plans are developed to action the strategies identified.   Consumer protection issues Dealing with consumer protection issues is possibly the most significant area for the Ministry, given its role. This involves the development of appropriate consumer protection mechanisms for consumers taking part in the electronic marketplace. At a domestic level not much changes. Current laws and self regulatory frameworks in New Zealand tend to apply regardless of the way consumers relate to businesses. The real challenge is in the increased amount of cross border trade. The most significant consumer protection issues are interrelated and are set out below.   Misleading and Deceptive Practices and False Representations Issues How can misleading and deceptive practices, and false representations be prevented in electronic marketing and selling? What standards should prevail in terms of advertising practices, and how should they be enforced (if at all)? How can the consumer protection provisions of the Fair Trading Act (or their equivalent overseas) be enforced in a simple and low cost way for New Zealand consumers? Analysis The Fair Trading Act 1986 prohibits false, misleading and deceptive practices. It relates to goods and services supplied in New Zealand and extends to engaging in conduct by persons either resident, or carrying on business, in New Zealand (where that conduct relates to activity within New Zealand). The Act therefore covers businesses operating inside the country, and may cover businesses outside the country if a consumer in New Zealand acts on information sent electronically from overseas. However, enforcement is a practical problem. Even if an overseas based company is prosecuted and penalised, or subject to orders to stop contravening behaviour, this may not be able to be enforced. Where an overseas company selling in New Zealand is also breaching similar legislation in its own country, action may be possible by enforcement agencies in that country. This will require the development of networks, understandings and arrangements with agencies in those countries. It may also be dependant on law being the same or similar. In addition to this approach, codes of practice can be used to set standards of behaviour in this area. It would be possible for code participants to agree to standards that exceed the law in their own country. Thus codes could be used to develop international standards based on the best available legislation. Strategies for action Promote the creation of, and compliance with, codes and other self-regulatory initiatives internationally and across markets, with reference to the OECD principles for distant selling codes - when completed. For markets or industries where associations do not exist, their development will be encouraged. For industries too small to warrant associations, or for businesses which do not wish to be members of industry associations, broad-based business associations could be set up. Seal of approval schemes could be run, similar to the Better Business Bureaux in the USA.   Network with international industry and agency market regulators to promote the adoption of codes, standards or seals so that consumers can identify the safest businesses to deal with.   Ensure all self regulatory mechanisms are adapted to include electronic commerce issues, where appropriate.   Consider the possibility of the appointment of trans-national Ombudsman schemes to oversee the operation of multi-national industries.   Through discussion and advice overseas, promote the consumer protections and safeguards operating in New Zealand (which are in turn often based on good quality international approaches) as minimum operating principles and practices for other countries. If overseas domestic legislation mirrors that of New Zealand, this will enhance the possibility that overseas based businesses will operate to similar standards that consumers in New Zealand enjoy.   Work effectively with the International Market Supervision Network, and the network of agencies in Australia and New Zealand, to further develop co-operative procedures for pursuing breaches of consumer legislation.   Evaluate the possibility of each country’s enforcement agency prosecuting domestic traders breaching domestic consumer laws, but while operating outside the home country.   Develop education strategies to highlight the need for cross border consumers to take care, and where possible deal with businesses who are members of codes, etc.   Develop and enhance agency publicised scam alerts, including co-operation with Australia, and a scam alert code of practice. Redress Issues Under what circumstances can New Zealand tribunals and courts hear claims relating to traders operating from outside New Zealand? What consideration should be given to effects of differing judicial interpretations, and the application of common and civil law, in different countries? Could alternative international redress systems offer remedies to consumers which are speedy, cheap and effective? Analysis As above, the Fair Trading Act provides for action against overseas based traders doing business in New Zealand. However, even if orders are made by a New Zealand tribunal or court, enforcing those orders overseas may not be cost-effective for most consumers, or for New Zealand based enforcement agencies. Taking action in the country where the trader is based may not be effective. The law of another country may not offer the same protection as New Zealand law, and once again the cost would be prohibitive for most consumers or agencies. Note: Currently, the High Court hears cases only if the contract is made or entered into in New Zealand, or if the Court determines the consequences were felt entirely in New Zealand, and the natural forum for the case should be in New Zealand. This suggests that some form of self regulation is most appropriate. Issues of redress can be included in codes developed for application in the domestic and international marketplace. Credit card companies already offer "chargeback" policies for purchases made by credit card. These can afford some access to redress depending on the company policy. They may not be well known. Strategies for action Monitor cases (if any) where tribunals or courts do make orders for redress which are subsequently enforced, to assist in the development of consumer and business understanding.   Promote the inclusion of redress provisions in international codes.   Promote the development of chargeback provisions, consumer understanding of the provisions, and the use of chargeback policies where problems occur.   Location and identification of businesses Issues As is already the case with traditional mail order, electronic commerce implies more transactions where there is no direct contact between the consumer and the business. How can a consumer be satisfied that the business is legitimate? How will a consumer find the business in the event of a dispute? Should electronic traders be required to provide details of their physical location in case of a dispute? What should be the responsibilities of those providing the medium for electronic marketing, such as Internet Service Providers, to consumers in dispute with an electronic trader who has failed to provide a physical address? Analysis It is not mandatory for businesses to provide information of their physical location or to establish their bona fides. In the event of a dispute, consumers may not know how to locate a trader to seek redress, they may not be aware that a business is located overseas, or that the business is little more than a website. This is no different to the current situation with mail order businesses or telephone based sellers. To require those who provide the medium for such businesses to police this may be excessive. This does not mean that co-operative relationships can not be formed between regulatory authorities and service providers, through which action can be taken to stop businesses that are breaking the law. In cases where service providers continue to support businesses who they know are breaking consumer laws, the providers themselves may face liability under the law. Strategies for action   Encourage consumers to deal only with businesses that provide details of location, and /or information to satisfy questions about the substance or legitimacy of their operation, for example by demonstrating membership of an industry organisation or code.   Participate in the preparation of, and promote, relevant codes of practice in the distant selling area, and seek to have included a requirement for advertisers to divulge a physical location.   Monitor the significance of this as an issue for consumers, to provide information to assist in the development of a consumer information standard to disclose country of origin for electronically sourced goods and services should that become necessary.   Contract Issues Who makes the offer and who accepts? Is the contract made when it is accepted or when notification of acceptance is received? Is there a way to preserve, for legal purposes, the conditions of the contract as agreed between consumer and trader? Can digital signatures be sufficiently robust so as to guarantee the identity of the parties? Analysis Unless expressly set out in the contract, when a contract is made may be unclear. The law to be used in the event of a dispute may be set out in contract. If the jurisdiction is not defined in a contract, the court will determine the ‘proper’ law of the contract by inferring the intention of the parties. The trail left by an electronic commerce transaction may be insufficient. Computer printouts may not be admissible as evidence. They can also be unreliable. A contract agreed on-line could be altered before printed out. The United Nations Commission on International Trade Law (UNCITRAL) has developed a Model Law on Electronic Commerce. It proposes the legal admission of a signature in relation to a data message if a method is used to identify the person and indicate that person’s approval, and the method used is as reliable as appropriate for the purpose of the data message in light of all the circumstances . Strategies for action   Monitor international developments in this area.   Monitor cases to obtain clarification and decisions on contract formation, in New Zealand, Australia and elsewhere.   Work with the Ministry of Commerce on a project to investigate the legal status of digital signatures in the context of electronic transactions, including consideration of the digitised signature proposals of the UNCITRAL Model Law on Electronic Commerce.   Safety Standards Issues How can New Zealand consumers be satisfied the products they are buying internationally meet appropriate standards of safety? Analysis Different countries set different standards and have different labelling requirements. We tend to regard our minimum safety needs as being those expressed currently through the Fair Trading Act 1986 and associated consumer safety legislation. The existence of more rigorous safety standards elsewhere may not be a problem, although New Zealand consumers may be asked to pay extra for these higher standards. However, in those countries where safety standards are lower than New Zealand, unwary consumers (and particularly children) may buy products that cause injury, or loss. Strategies for action   Investigate, report on, and publicise the use and meaning of different international safety and conformance markings so that consumers are able to be discerning in their choices (see reference to OECD project above).   Network internationally and nationally to identify unsafe products, determine if they are available in New Zealand and take appropriate action (for example to remove them from the market, under the product safety provisions of the Fair Trading Act). Note: The Ministry has recently developed and is responsible for an international product safety notification system initially to be operated by OECD member delegates of the committee on consumer policy. This will be expanded to cover other agencies with an interest in product safety issues.   Security of electronic payment systems Consumer confidence in payment systems, including the avoidance of fraud, are key issues in the development of the electronic marketplace. This is equally significant for domestic transactions as it is for cross border transactions. Issues Who carries the cost of alternative payment systems? How secure are they? Who carries the risk and costs of fraud? Analysis Security issues are being dealt with in a number of ways:   Authentication - certificates are granted by a certification body which verifies the identity of both parties. VISA and Mastercard use a system of authentication in their Secure Electronic Transaction (SET) protocol.   Encryption - details of bankcards are encrypted. SET also uses a system of public key encryption. These market developments are rapid and will likely be in place to provide consumer confidence in the short term. Strategies for action   Promote the early establishment of a certification process for authenticating New Zealand suppliers, for the benefit of both consumers and business.   Seek to have payment systems operators inform consumers on the capabilities and the terms and conditions of payment systems, and about their liability and redress processes in the event of disputes.   Undertake international co-operation among business, consumers and government agencies in creating electronic payments frameworks, seal of approval schemes and security services such as certification bodies and public key issuers.   Privacy Privacy issues in New Zealand are dealt with by the Privacy Commissioner. The Commissioner has said that "the use and capacity of computers has enabled the manipulation of vast quantities of information quickly and economically. However, the privacy problems created are not new issues, just new privacy applications". Domestic privacy laws provide a firm basis for the protection of the electronic consumer. New Zealanders, however, should be made aware that other jurisdictions do not afford the same protection. Issues Electronic commerce systems offer a relatively low level of data transmission security. Personal information may be used to create user profiles for marketing purposes. New Zealand privacy law does not extend to persons or organisations operating outside New Zealand jurisdiction. New Zealanders do not know what level of privacy they are afforded by persons or organisations outside New Zealand jurisdiction. Analysis Current New Zealand privacy legislation requires:   full disclosure to individuals in relation to the collection, content, handling and use of information;   agencies to ensure personal information is protected by security safeguards against loss, access, use, modification or disclosure by unauthorised persons, and other misuse. This applies to databases, not just the technology itself - i.e. smart cards. Encryption, authentication and identity protectors can be used to ensure that these requirements are met. However, consumers in New Zealand cannot be sure that similar principles will be followed by businesses they deal with outside of New Zealand unless those businesses offer positive proof (seals of approval or code membership) that they comply to similar principles. Strategies for action   Promote inclusion of privacy principles of similar quality to those that operate in New Zealand, in relevant codes.   Educate consumers about the potential threats of giving information to organisations which do not guarantee privacy or security.   Access The Ministry does not have as its core focus issues of whether or not consumers can have access to different goods or services. It is however, a relevant and important issue. Consumers who do not have access to the means necessary to take part in the electronic marketplace will accordingly not have direct access to the benefits of greater choice and lower prices. This is an issue for agencies other than the Ministry and may not currently be considered pressing, as the hype about the electronic marketplace may be seen presently to be greater than the reality. Nevertheless, it is an issue that deserves recognition and consideration at an early stage. Issues Taking part in the electronic marketplace requires access to the right technology. This has cost and information implications. Will all New Zealanders be able to afford, or have the knowledge, to operate in the electronic marketplace? Will lack of access increase the gap between the haves and the have nots? Analysis Access to all electronic technology in commerce is likely to reflect the trends in Internet uptake. That is, the less skilled, the less well-off, women and the elderly will be more likely to obtain the benefits of electronic commerce later, if at all. Although the requirements for specialist skills may reduce in time, as advancing technology simplifies user responsibilities, the possession of such skills would enable a consumer to exploit all aspects of the technology to further advantage. The means of information transmission will need to be affordable in some form for all socio-economic groups. Strategies for action   Initiate intra-Governmental discussion on all aspects of consumers’ / citizens’ access to global communications technology, including affordability, community facilities and targeted user education.   Monitor the development of new technologies and their spread and uptake amongst New Zealand consumers.   Discuss consumer access needs with the Internet Society of New Zealand which is developing an Internet Service Providers’ Code of Practice.

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