Law and Government Division
10 October 2000
TABLE OF CONTENTS
FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
Policy Framework for Consumer Protection in Electronic Commerce
B. Government Initiatives
Canadian Framework Consumer Protection for Electronic Commerce
B. Provincial Action
CREDIT CARD CHARGEBACKS
B. Chargeback Policies
C. United States
E. United Kingdom
F. European Union
Electronic commerce has
the potential to offer consumers a number of benefits, including convenience,
more choice, more product information, and lower costs. By extending access
to a range of goods and services normally only available in urban areas,
it can also provide important benefits to those who live in rural, remote
and regional areas.
In Canada, electronic commerce
is becoming more common, and the number of Canadians using the Internet
continues to increase. The latest statistics released by Industry Canadas
Electronic Commerce Branch in August 2000 reveal that, in 1999, 49% of
Canadians had accessed the Internet and 25% of Canadian Internet users
had made a purchase via the Internet. Statistics Canada data show that
Canadian electronic commerce for 1999 totalled $4.4 billion.(1)
One of the principal reasons
consumers purchase online is to gain access to goods and services that
are not physically close to them. Provincial and national boundaries,
therefore, become irrelevant as consumers seek to acquire the goods and
services they need in an online environment.
How consumers protect themselves
and how governments adapt their consumer protection policies and laws
to electronic commerce present a number of challenges. Traditionally,
provincial governments have tailored their consumer protection laws to
transactions where both the seller and the buyer are located within the
same province. This approach, however, may not be effective for transactions
involving parties from more than one province or more than one country.
As the number of interprovincial
and cross-border international transactions increase, it will be important
for Canadian provinces to coordinate their approaches to consumer protection
and for Canada to coordinate its efforts with other countries.
This paper will outline
efforts by the Organisation for Economic Co-operation and Development
(OECD), and in Australia and Canada, to develop frameworks for consumer
protection in electronic commerce. In addition, the paper will deal with
one specific measure the "credit card chargeback"
that appears to be gaining acceptance as a viable consumer protection
measure in an electronic commerce environment.
FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
In April 1998, the OECD
Committee on Consumer Policy began to develop a set of general guidelines
to protect consumers participating in electronic commerce. The following
year, in December 1999, the OECD released its Guidelines for Consumer
Protection in the Context of Electronic Commerce. The Guidelines:
reflect existing legal protection available to consumers in more traditional
forms of commerce; encourage private-sector initiatives that include participation
by consumer representatives; and emphasize the need for cooperation among
governments, businesses and consumers.
The Guidelines enumerate
the following eight principles to guide business-to-consumer electronic
about the business, the goods or services and the transaction:
Businesses engaged in electronic commerce with consumers should provide
accurate, clear and easily accessible information about: the business
identity; the goods or services offered; and the terms, conditions
and costs associated with a transaction.
process for the confirmation of sales:
To avoid ambiguity concerning the consumers intent to make a
purchase, the consumer should be able, before concluding the purchase,
to: identify precisely the goods or services he or she wishes to purchase;
identify and correct any errors or modify the order; express an informed
and deliberate consent to the purchase; and retain a complete and
accurate record of the transaction.
law and jurisdiction Because electronic commerce poses challenges
to the existing jurisdictional framework, governments should consider
whether the existing framework for applicable law and jurisdiction
needs to be modified, or applied differently, to ensure effective
and transparent consumer protection in the context of the continued
growth of electronic commerce;
Business-to-consumer electronic commerce should be conducted in accordance
with the recognized privacy principles set out in the OECD Guidelines
Governing the Protection of Privacy and Transborder Flow of Personal
Data (1980), and taking into account the OECD Ministerial Declaration
on the Protection of Privacy on Global Networks (1998), to provide
appropriate and effective protection for consumers.
and awareness: Governments,
business and consumer representatives should work together to: educate
consumers about electronic commerce; foster informed decision-making
by consumers participating in electronic commerce; and increase business
and consumer awareness of the consumer protection framework that applies
to their online activities.(2)
The Guidelines are likely
to be an important tool in assisting businesses, governments and consumer
organizations to develop programs that protect consumers in an online
environment. Since their release, the countries involved in their development
have met to discuss how to promote consumer education and ways to encourage
countries to implement the Guidelines.
Policy Framework for Consumer Protection in Electronic Commerce
In January 1999, the Australian
federal government released the document entitled A Strategic
Framework for the Information Economy, in which it set out its strategy
for the information economy.(3) The governments policy approach to
consumer protection gives preference to industry self-regulation over
government intervention. The Australian government cites a number of advantages
to self-regulation, including its ability to:
Industry, consumers and
government working together would develop effective self-regulation.
The government then released
its policy framework for consumer protection in electronic commerce in
October 1999.(5) The Australian governments objective for consumer
protection in electronic commerce is to "build a world class consumer
protection environment for electronic commerce in Australia."(6)
The Policy Framework outlines the following five principles to assist
Australia in achieving its objectives:
The Frameworks vision
of the roles of industry and government is of particular interest. Industry
is to be the leader in providing consumer protection through self-regulation.
Governments role, on the other hand, is to: guide and support industry
in adopting self-regulatory schemes; monitor their effectiveness; educate
consumers; and undertake international negotiations to ensure effective
The Policy Framework identifies
a number of important issues that must be addressed to provide a safe
and efficient online environment for consumers, including:
Access to adequate information is essential for consumers to make
informed decisions in an online environment. Businesses should present
information to consumers in a clear, conspicuous, accurate and easily
accessible manner. In particular, consumers must be able to know the
identity and location of a business, as well as the details of the
terms and conditions of a purchase contract (including delivery arrangements,
warranties, returns and refunds).(8)
The cross-border nature of electronic commerce means that access to
redress for consumers is often very limited. Thus, access to effective,
speedy and inexpensive forms of redress is essential for consumers
engaging in electronic commerce.(10)
An international consensus on the issue of jurisdiction and consumer
transactions, which takes into account the unequal bargaining power
that generally exists in these situations, is needed.(11)
The Australian government
has been actively involved with industry and consumer groups in developing
a best practice model to provide guidance to industry and consumers on
the elements of an effective self-regulatory framework for electronic
commerce. These efforts culminated in the release of a model in May 2000.
Entitled Building Consumer Sovereignty in Electronic Commerce: A Best
Practice Model for Business, the Best Practice Model recognizes that
the unique characteristics of electronic commerce require businesses to
adopt practices when dealing with consumers that may differ from practices
in business-to-business transactions or in the offline environment.
The Best Practice Model
has been developed for businesses based in Australia that deal with both
Australian and overseas business-to-consumer electronic commerce and seeks
to guide businesses on:
of privacy principles;
and disclosure of information about payment, security and authentication
The Australian government
has also developed a Best Practice Model kit that allows businesses to
test their websites against the Best Practice Model.
Canadian Framework Consumer Protection for Electronic Commerce
In 1999, Canadas Working
Group on Electronic Commerce and Consumers (composed of representatives
from government, consumer groups and business) finalized Principles
of Consumer Protection for Electronic Commerce: A Canadian Framework
(the Framework),(14) which is
guided by the following concepts:
The Framework sets out the
following eight principles:
and "intermediaries" should respect the privacy principles
set out in the Canadian Standards Association (CSA) Internationals
Model Code for the Protection of Personal Information.
and intermediaries should take reasonable steps to ensure that "transactions"
in which they are involved are secure. Consumers should act prudently
when undertaking transactions.
The Framework further elaborates
on each of these principles. For instance, in the first principle, the
scope of the Information Provision includes information provided by merchants
about their identity and location, product or service descriptions, the
level of privacy protection, information on security mechanisms to protect
the integrity and confidentiality of information, complaint procedures,
disclosure of the full terms and conditions of sales contracts as well
as information on how contracts are formed and on the products and services
The Frameworks second
principle, which deals with contract formation, requires vendors to take
reasonable steps to ensure that consumers are aware of their rights and
obligations under a proposed contract before they agree to the contract
or provide payment information. This would include a multi-step confirmation
process that requires consumers to, specifically and separately, confirm:
their interest in buying; the full price; terms and conditions; details
of the order; method of payment; and their agreement to purchase.
The Frameworks third
principle calls upon vendors to protect the privacy of personal information
provided by purchasers by adhering to the ten privacy principles contained
in the CSA Model Code for the Protection of Personal Information. These
Use, Disclosure and Retention:
Except with the consent of the individual or as required by law, personal
information should be used or disclosed only for the purposes for
which it was collected. Furthermore, personal information should be
retained only until those purposes have been met.
Access: Upon request,
an individual should be informed of the existence, use and disclosure
of his or her personal information and should be given access to that
information. An individual should be able to challenge the accuracy
and completeness of the information and have it amended as appropriate.
The Frameworks fourth
principle requires vendors and intermediaries to safeguard payment and
personal information that is exchanged and/or stored as a result of a
The Frameworks fifth
and sixth principles redress and liability cover situations
where problems arise in connection with online purchases. Principle 5
calls upon vendors to establish efficient and effective complaint-handling
procedures and for governments, businesses and consumer groups to work
together to develop appropriate standards for dispute resolution mechanisms.
In the event of cross-border disputes, governments should cooperate in
the development of clear rules relating to the applicable law and forum
and the mutual enforcement of judgements.(17)
Among other things, Principle
6 covers unauthorized or inadvertent sales transactions. The Framework
provides that consumers should not be liable for amounts billed to them
for unauthorized transactions and should be given a reasonable time in
which to cancel a transaction that was inadvertent. Furthermore, it invokes
credit card issuers to make "reasonable efforts to help consumers
resolve complaints with vendors in the event of non-delivery or unauthorized
The Frameworks seventh
principle requires vendors to avoid using unsolicited commercial e-mail.
The Frameworks eighth principle stresses the importance and necessity
of consumer information and education.
Manitoba has introduced
specific measures designed to protect consumers in an online environment.
The Electronic Commerce and Information Act (Bill 31)(19)
which was tabled in the Legislative Assembly on 5 June 2000 and
received Royal Assent on 17 August 2000 contains a set of rules
that give legal recognition to electronic documents, signatures and communications.
The Act also includes amendments to the Manitoba Evidence Act and
the Consumer Protection Act.
Part 6 of the Act gives
consumers certain cancellation rights in relation to retail purchases(20)
over the Internet. It also requires a credit card issuer to reverse a
credit card charge for an Internet purchase if the vendor fails to provide
a refund after a consumer has exercised such a cancellation right.
Section 129 of the Consumer
Protection Act allows a buyer to cancel a retail sale conducted over
the Internet before accepting delivery of the goods or services purchased
where the seller fails to provide "prescribed information" to
the buyer before the sale is entered into. In addition, a buyer can cancel
an Internet purchase agreement where the seller fails to deliver the goods
or services purchased within 30 days after the specified delivery
date or, if no delivery date is specified, within 30 days after the date
of the purchase agreement.
A buyer is required to give
notice of cancellation to the seller. Once cancelled, the buyers
obligations under the agreement will be extinguished and the seller will
be required to refund all consideration paid by the buyer within 30 days.
Section 134 of the Consumer
Protection Act gives a buyer additional recourse against a credit
card issuer where the buyer has charged an Internet purchase to a credit
card. A buyer can request that a credit card issuer cancel or reverse
a credit card charge and the issuer will be required to do so where:
Albertas Fair Trading
Act(21) contains a number of provisions to ensure
consumer protection for online transactions. Section 42 of the Act, which
deals with marketing through electronic media, gives the Minister the
power to make regulations:
the forms of electronic media and the types of marketing to which
the regulations apply;
and prohibiting specified activities involved in the marketing of
goods and services through electronic media; and
To date, no regulations
have been issued under section 42.
On 10 August 2000, the Ontario
government released for public consultation proposals to
consolidate its consumer protection legislation and to modernize a number
of its consumer protection rules.(22)
Many of the proposed changes
are designed to accommodate Internet sales and include the following:
that purchasers can cancel contracts for non-compliance with disclosure
terms or for late delivery. If goods are not delivered within 30 days,
or services are not provided within 30 days or the date specified
in the contract, the purchaser can cancel the contract and obtain
a full refund of any monies paid.(23)
However, the Ontario consultation
paper makes no mention of proposals to give consumers any rights against
credit card issuers with regard to cancelled contracts.
CREDIT CARD CHARGEBACKS
Fostering consumer confidence
in electronic commerce has been an important focus of the federal governments
electronic commerce strategy. Getting consumers to use the Internet, getting
those who are online to purchase goods or services, and getting online
purchasers to continue to buy over the Internet has been a challenge for
industry and for government. Consumers have repeatedly voiced concerns
about security and confidentiality as well as how complaints will be handled
and what forms of redress will be available should something go wrong.
One redress mechanism that
has been receiving an increasing amount of attention is the credit card
chargeback. Simply put, a chargeback scheme allows a credit cardholder
disputing a transaction with a merchant to challenge the transaction through
the card issuer where the goods or services have been paid for with a
credit card. The credit card issuer reverses the charge made on the consumers
credit card and charges the cost back to the merchant.
For consumers using the
Internet, chargebacks are seen to provide a number of advantages:
B. Chargeback Policies and Procedures
Credit card companies, such
as Visa and Mastercard, operate chargeback systems where a consumer is
credited and a merchant is debited in situations where the consumer can
establish to the satisfaction of the credit card issuer that: the goods
or services purchased were defective or not as described; the amount charged
did not match the agreed purchase price; or the charge was entered erroneously.
In a 1999 paper, the Public Interest Advocacy Centre noted that there
does not appear to be a particular Code of Practice relating to chargebacks
to which credit card companies adhere, but rather internal regulations
that apply to international and domestic transactions.(24)
In a 1999 letter to the
U.S. Federal Trade Commission, the Senior Vice President and Assistant
General Counsel of Visa International Service Association described the
rules and procedures developed by Visa and its members to handle disputes
arising out of international transactions.(25)
The letter notes that the
primary means of handling any dispute in the Visa payment system is through
the "chargeback" mechanism, which is incorporated in the Visa
Operating Regulations. These regulations permit chargebacks in cases where
a cardholder does not receive purchased services or goods, where delivered
goods are not as described, or where the delivered goods are defective.
Chargebacks are contractual rights and obligations between the financial
institutions that issue VISA cards and the financial institutions that
sign merchants to accept VISA cards. They do not give direct rights to
consumers, and card issuers are not obligated to use chargebacks.
Visas chargeback rules
do not track consumer protection laws around the world, although some
chargeback rights correspond with statutory rights granted to consumers
in particular countries, such as the rights granted under U.S. federal
law to dispute certain credit card transactions.
The letter points out that
the key advantage of chargeback rights in international transactions is
that they provide a consistent and standard level of protection on behalf
of consumers in situations where the merchant is beyond the reach of local
C. United States
In the United States, the
federal Fair Credit Billing Act (FCBA) as well as a number of state
laws regulate chargebacks. Under the FCBA, a credit card issuer
is required to investigate complaints from cardholders about billing errors
that are notified to the issuer within 60 days following the date of the
first statement on which the charge appears. Billing errors include:
The credit card issuer must
acknowledge receipt of the cardholders notice within 30 days of
receipt and resolve the dispute within two billing cycles but not more
than 90 days. In this situation, the card issuer stands in the shoes of
the merchant and will credit the purchasers account.
The FCBA limits a
credit cardholders liability to US$50 and payment of the disputed
amount may be withheld if the cardholder takes the appropriate steps to
notify the card issuer of a billing error.
The FCBA also allows
a cardholder to assert any "claims and defences" against a card
issuer where the cardholder has attempted to resolve a dispute with a
merchant. This would include disputes about the quality of goods and services.
When asserting a claim under the "claims and defences" provisions
of the FCBA, the cardholder has up to one year from the date of
the billing statement to notify the issuer. The following additional conditions
apply under these circumstances:
A number of states have
enacted chargeback laws. California, Kansas, Maine, Maryland, New Jersey
and New York have laws largely similar to the FCBA. Oklahoma also
has a chargeback regime, but it is not as comprehensive as the federal
In Australia, consumer credit
is regulated under a national uniform Consumer Credit Code that
has been adopted in each State and Territory. The Code applies to all
forms of consumer credit contracts entered into since 1 November 1996.
Part 7 of the Code (sections
115-131) deals with "sale contracts" contracts for the
sale of goods and the supply of services financed by credit. The
Code introduces the concept of a "linked credit provider" defined
as a credit provider:
a merchant has a contract, arrangement or understanding relating to
the merchants supply of goods, the merchants business
or the provision of credit to purchasers of the merchants goods
or services for payment for those goods or services;
the merchant has an arrangement to regularly refer persons for obtaining
or application forms or offers for credit are, by arrangement with
the credit provider, made available to persons by the merchant; or
the merchant has a contract, arrangement or understanding under which
contracts or applications or offers for credit from the credit provider
may be signed by persons at the merchants place of business.(29)
Subject to certain conditions,
the Code makes a merchant and a linked credit provider jointly and severally
liable if a purchaser suffers loss or damage as a result of misrepresentations,
breach of contract or failure of consideration in relation to goods or
supplies goods to the linked credit provider and the purchaser contracts
with the linked credit provider to finance the purchase; or
contracts with the merchants linked credit provider for credit
to purchase goods or services.(30)
The Code also introduces
the concepts of:
The Code provides that where
a tied loan contract or a tied continuing credit contract exists, any
representation, warranty or statement (whether orally or in writing) by
the merchant to a purchaser in relation to the tied loan contract or the
tied continuing credit contract, gives the debtor the same rights against
the credit provider as the purchaser would have had if it had been made
by the credit provider.(32) A credit
provider suffering damage, under this provision, however, is entitled
to a statutory indemnity from the person making the representation, warranty
or statement or on whose behalf it was made.
The Code sets out certain
defences for linked credit providers. A linked credit provider will not
be liable to a purchaser if the credit provider can establish that:
approached the credit provider for credit without inducement by the
relate to a contract of sale with respect to which a tied loan contract
applies, where before becoming a linked credit provider, the credit
provider made due inquiry as to the merchants business reputation,
and financial standing and before the credit contract was entered
into, the credit provider had no cause to suspect that the merchant
was insolvent or that the customer would be entitled to recover for
misrepresentation, breach of contract or failure of consideration;
continuing credit contracts (such as credit card contracts), having
regard to the nature and volume of the business and other circumstances
and before becoming aware of the relevant sale contract, the credit
provider had no reason to suspect that the customer might be entitled
to recover damages from the merchant for misrepresentation, breach
of contract or failure of consideration.(33)
The amount of a linked credit
card provider liability to a consumer is also limited. This liability
cannot exceed the sum of:
E. United Kingdom
In the United Kingdom, section
75 of the Consumer Credit Act 1974 gives a customer a claim against
a credit grantor where the customer has a claim against a supplier in
respect of a misrepresentation or breach of contract. In order for section
75 to apply, the following conditions must be met:
agreement must be "regulated," i.e., an agreement where
not more than £25,000 of credit is advanced to an individual (this
includes sole proprietors, partnerships and unincorporated bodies
besides private individuals) and which is not exempt from regulation.
is advanced under arrangements between the credit grantor and the
supplier. (A credit grantor would not be liable, however, if a customer
arranged credit independently of the supplier. Nor would a credit
card company be liable if the customer uses his or her credit card
to obtain cash to pay for the purchases.)
Subject to any agreement
to the contrary with a supplier, under section 75 the credit grantor is
entitled to be reimbursed by the supplier for any loss suffered as a result
of a claim. This includes all costs reasonably incurred in defending the
claim, and the cost of meeting the claim if it is upheld.(34)
F. European Union
In the European Union, Council
Directive 87/102/EEC of 22 December 1986 aims to harmonize the laws, regulations
and administrative provisions of the Member States concerning consumer
credit.(35) Article 11 of the Directive
provides that consumers may seek redress against a credit grantor when
the following conditions are met:
Member States are required
to bring their domestic laws into conformity with the Directive.
As electronic commerce becomes
more important and consumers conduct larger numbers of transactions online,
the need to adapt and to a certain extent rethink consumer protection
policy in light of the electronic commerce environment is readily apparent.
Governments around the world are engaged in this process as they seek
to establish their countries as leaders in electronic commerce. In 1999,
Canada, Australia and the OECD established policy frameworks for consumer
protection in electronic commerce. Recognizing the cross-border nature
of electronic commerce, the Canadian policy framework emphasizes equivalent
protection, harmonization of domestic consumer protection laws, and international
The federal government and
a number of provincial governments are in the process of developing, introducing
or implementing measures that would facilitate electronic commerce and
deal with consumer protection issues.
credit card chargeback has the potential to be an important consumer redress
mechanism in an electronic commerce environment, it has received little
attention from Canadian governments. To date, only the government of Manitoba
has introduced a form of the concept in a law dealing with electronic
commerce. The levels of business-to-consumer electronic commerce are increasing,
but significant numbers of consumers continue to be wary about shopping
online because of concerns about security, confidentiality and redress.
This reticence suggests a need to develop effective consumer redress tools
to allay some of those concerns. To this end, Canadian governments may
wish to examine what other countries have done to develop and establish
a regulatory scheme for credit card chargebacks.
(1) Industry Canada, Canadian Internet Commerce
Statistics Summary Sheet, 22 August 2000.
(2) Organisation for Economic Co-operation and Development,
Guidelines for Consumer Protection in the Context of Electronic Commerce,
(3) Australia, A Strategic Framework for the Information
Economy Identifying Priorities for Action, National Office
for the Information Economy, December 1998.
(4) Australia, Minister for Financial Services & Regulation,
A Policy Framework for Consumer Protection in Electronic Commerce,
(6) Ibid., p. 5.
(7) Ibid., pp. 5-6.
(8) Ibid., p. 7.
(9) Ibid., p. 8.
(10) Ibid., p. 9.
(11) Ibid., p. 11.
(12) Ibid., pp. 6, 12.
(13) This document is available at http://www.ecommerce.treasury.gov.au/html/ecommerce.htm
(14) Working Group on Electronic Commerce
and Consumers, Principles of Consumer Protection for Electronic Commerce:
A Canadian Framework. http://strategis.ic.gc.ca/pics/ca/principlese.pdf
(15) Ibid., p. 3.
(16) Ibid., pp. 6-7.
(17) Ibid., p. 7.
(19) Bill 31, The Electronic Commerce and Information,
Consumer Protection Amendment and Manitoba Evidence Amendment Act, 1st
Session, 37th Legislature, Manitoba, 49 Elizabeth II, 2000.
(20) Bill 31 also would provide a cancellation right in
relation to hire-purchase agreements made over the Internet. Part 6 is
expected to be proclaimed into force in 2001.
(21) Statutes of Alberta, Chapter F-1.05. This Act came
into effect on 1 September 1999.
(22) Ontario, Ministry of Consumer and Commercial Relations,
Consumer Protection for the 21st Century, August 2000. http://www.ccr.gov.on.ca/pdf/EnConsProt.pdf
(23) Ibid., p. 9.
(24) Public Interest Advocacy Centre, Comparative Review
of Laws and Voluntary Codes relating to certain aspects of Consumer Protection
in Electronic Commerce, Report Commissioned by Office of Consumer
Affairs, Industry Canada, November 1999, p. 8. http://www.piac.ca/newpage21.htm
(25) Letter from Senior Vice President and
Assistant General Counsel, Visa International Service Association to U.S.
Federal Trade Commission, 25 March 1999.
(26) 15 U.S.C. section 1666. 12 CFR, Regulation Z, section
(27) 15 U.S.C. section 1666i. 12 CFR, Regulation Z, section
(28) Public Interest Advocacy Centre (1999), p. 17.
(29) Consumer Credit Code, section 117.
(30) Ibid., section 119(1).
(31) Ibid., section 117(2),(3).
(32) Ibid., section 118.
(33) Ibid., section 119(2).
(34) United Kingdom, Office of Fair Trading, Consumer
Credit Act 1974 Section 75 Equal Liability, June 2000.
(35) European Union, Council Directive 87/102/EEC
of 22 December 1986 for the approximation of the laws, regulations and
administrative provisions of the Member states concerning consumer. Official
Journal L42, 12.02.87.