Discussion Paper

3. The Best Practice Model

The development of the BPM was a key initiative arising from the Australian Government’s Policy Framework for Consumer Protection in Electronic Commerce (The Policy Framework). The Policy Framework established the Government’s objective of building a world-class consumer protection environment for e-commerce in Australia and described the principles that guide its initiatives in achieving this goal.

The BPM provides guidance to businesses and consumers on the elements of an effective self-regulatory framework for consumer protection in e-commerce. It is primarily designed to be adopted by industry associations and their members as part of their codes of conduct, and to guide the trading practices of individual businesses.

The BPM consists of a series of guidance principles in a range of areas including: the provision of information to consumers; identification of businesses; fair business practices; security of payments; privacy; dispute resolution; and advertising and marketing. While adoption of the BPM is voluntary, several of the standards in the model are legal requirements and reference is made throughout the BPM to relevant legislation.

In developing the BPM, the Australian Government sought to implement the elements of the Organisation for Economic Cooperation and Development (OECD) Guidelines for Consumer Protection in the Context of Electronic Commerce (the OECD Guidelines²¹). The OECD Guidelines represent an international attempt to define the characteristics of effective consumer protection in e-commerce. They were the result of several years of discussion and consultation between member countries, to which Australia made a major contribution.

3.1 Australia’s E-commerce Policy Framework

The BPM reflects the Australian Government’s preference for effective industry self-regulation in consumer protection, as articulated in its Policy Framework. The Policy Framework was released in October 1999 and states: the Government’s overall objective of building a world class consumer protection environment for e-commerce in Australia; the principles that will assist in achieving this objective; the key consumer protection issues that e-commerce presents; and the ways in which the Government will seek to address these issues.

Due to the differences between shopping online and in the traditional retail environment, e-commerce presents consumers with a number of particular challenges and concerns. The Policy Framework identified these as being the:

• access by consumers to adequate information for decision-making in the online environment;
• security of payment methods;
• adequacy of avenues for redress, which may be hindered by the cross-border nature of e-commerce;
• need to determine the appropriate jurisdiction for e-commerce transactions; and
• privacy of personal information.

In addressing these issues and pursuing its overall objective for consumer protection, the Government applies five key principles, which are set out in the Policy Framework and discussed below.

Functional Equivalence and Technology Neutrality

Consumers should have at least the same level of protection when engaged in e-commerce as in traditional shopping.

Promoting the Interests of Consumers

Trust is the basis of successful online trading, just as it is offline. Adequate protection should be given to consumers to encourage participation in e-commerce.

Promoting the Interests of Australian Business

Australian businesses should not be disadvantaged in the global marketplace by the need to comply with an onerous regulatory burden. They will be at an advantage if they develop an international reputation for best practice in their dealings with consumers.

Dual Roles of Industry and Government

Industry will assume a leading role in providing effective consumer protection through innovative self-regulatory schemes. The Government, in consultation with consumers, will provide guidance and support to industry and will educate consumers about the benefits and risks of the online environment.

International Co-operation

Consumer protection in Australia will be developed in accordance with international principles.

Based on these five principles, the Government has developed an approach to online consumer protection that emphasises industry self-regulation, supported by well-designed consumer education initiatives and robust legislative safeguards. The BPM, together with its legislative underpinnings and associated promotional and educational campaign, exemplifies this approach.

3.2 The OECD Guidelines and International Cooperation

The OECD Guidelines provide both a framework and a set of principles that inform businesses and consumers of the types of information disclosure and fair trading practices expected of businesses engaged in e-commerce.

Since their release in December 1999, the OECD Guidelines have been adopted by most member countries as the chief policy document for consumer protection in e-commerce. There is no specified method in which the OECD Guidelines are to be implemented. This means that member countries have been free to pursue a range of initiatives, consistent with the OECD Guidelines, to enhance consumer protection in e-commerce. In many countries, the OECD Guidelines serve as the basis for government and private sector development of B2C e-commerce codes of conduct, self-regulatory programs and trust mark²² schemes.

In some countries, including Australia, Canada, and New Zealand, B2C e-commerce codes of conduct have been developed through consultation between government agencies, industry, and consumer organisations. The BPM is an example of this approach. In other OECD countries, such as the United Kingdom and the United States, trust marks and seals of assurance have been used to build consumers’ confidence in e-commerce.

Appendix A to this paper contains further information on international approaches to consumer protection in B2C e-commerce.

3.2.1 International Co-operation and Enforcement

Since the release of the BPM in 2000, there has been an increase in cooperation between national consumer protection policy and law enforcement agencies worldwide. Given the global nature of e-commerce, this has had significant implications for the enforcement of online trading standards, including those set out in the OECD Guidelines and reflected in the BPM. Much of this closer cooperation has stemmed from the work of two international fora – the International Consumer Protection and Enforcement Network (ICPEN) and the OECD Committee on Consumer Policy (CCP). Australia has made a major contribution to the work of both these bodies.

Appendix B to this paper contains further information on the work of ICPEN and the CCP.

3.3 The BPM’s Guidance Principles

The BPM is designed to empower consumers who engage in e-commerce by encouraging businesses to disclose information on themselves and their trade practices - namely who they are, how they conduct transactions, and how they address consumer complaints.

Many of the BPM’s guidance principles, while voluntary, are underpinned by legislation. In particular, the Trade Practices Act 1974 (the TPA) and State and Territory fair trading legislation protect consumers in online transactions in the same way that they provide safeguards in conventional transactions. In addition, the Electronic Transactions Act 1999, in conjunction with complementary State and Territory legislation, enables the legal recognition of electronic communications. This Act helps to ensure that commercial transactions conducted electronically are treated in the same way as paper-based transactions.

The BPM is not a replacement for general consumer protection laws or any other laws or codes of conduct to which a business may be subject, and complying with the BPM does not exempt a business from its other obligations.

The areas in which the BPM provides guidance to business are listed below. A fuller discussion of the guidance principles is provided in Appendix C to this paper, along with reference to the relevant legislation underpinning the principles.

The BPM provides guidance on:

• fair business practices
• accessibility of e-commerce to consumers
• disability access
• advertising and marketing
• engaging with minors
• information to identify the business
• contractual information
• procedures for the conclusion of contracts
• payment mechanisms
• security and authentication
• internal complaint handling
• external dispute resolution
• the law and forum applicable to e-commerce transactions

3.4 Awareness of the BPM

The Department of the Treasury has engaged in a range of activities to promote awareness of the BPM to businesses. Copies of the BPM have been distributed both as a hard-copy publication and in electronic form. The BPM has also been disseminated through Australian Government agencies including the ACCC, the Australian Securities and Investments Commission (ASIC), NOIE, and the Office of the Federal Privacy Commissioner.

Following the release of the BPM, Treasury officers met with representatives of industry associations and individual businesses, and have promoted the BPM at speaking engagements, conferences and industry seminars.

The BPM has also been publicised online. The Department of the Treasury’s e-commerce website ( www.ecommerce.treasury.gov.au) provides tools and reference materials designed to assist businesses to implement the BPM’s guidance principles. The website also serves as an information resource for consumers.

The Government has also developed resources to help consumers assess whether online businesses are acting in accordance with the principles of the BPM. For example, in 2000, the Australian Government released a brochure entitled 10 Things to Check before Shopping on the Internet. The brochure, which is based on the key principles of the BPM, provides consumers with a ready reference to important information to glean from a website before committing to a transaction.

More recently, the Australian Government has released ConsumerPING²³, a piece of application software which provides consumers with information specific to where they are browsing on the Internet. The software houses a Site Analyser Plugin which, when activated, can detect where key pieces of information can be located on a business’ website (such as any privacy policy and contractual terms and conditions). This feature assists consumers to assess the business practices embodied in a website, including the extent to which the website adheres to many of the information disclosure requirements of the BPM.

3.5 Adoption of the BPM

The Australian Government has encouraged industry associations and individual businesses to adopt the BPM by means of a targeted promotional campaign and the design of a BPM logo that is available to businesses that adopt the BPM guidance principles.

The BPM was drafted in industry neutral language to allow a range of industries to incorporate the best practice principles in their own industry codes or practices. Since its release, three industry associations have endorsed the BPM or agreed in principle to adopt it. The Internet Industry Association Board and the Financial Planning Association have endorsed the BPM, while the Mortgage Industry Association of Australia has agreed in principle to adopt the BPM.

The Internet Industry Association (IIA) has developed a Content Regulation Code of Practice, which is primarily concerned with raising user confidence on the Internet. The provisions of this code mirror most of the guidance principles outlined in the BPM.

In accordance with section 14 of the BPM, the Department of the Treasury also maintains a voluntary register of businesses claiming compliance with the model code. Forty-seven, predominantly small to medium sized businesses have registered their adoption of the BPM. This figure represents voluntary registration with the Department and does not necessarily reflect overall adoption of the BPM. Business feedback received by the Department suggests that the notified adoption of the BPM may significantly understate the value of the BPM to businesses and consumers, reflecting the voluntary nature of the notification procedures.

Outside of formal adoption of the BPM, the best practice principles that it incorporates have a broader role in influencing the fair-trading and disclosure practices of businesses engaged in e-commerce. The extent of such influence is necessarily difficult to measure. However, a number of Internet surveys have been conducted in recent years, which provide a useful insight into the practices of online retailers, including the extent to which their e-commerce practices are consistent with the principles of the BPM (in Australia) or the OECD Guidelines (overseas). Information on some of the more relevant of these surveys is contained in Appendix D to this paper.

3.5.1 BPM logo

The What is Best Practice – Australian e-commerce best practice model logo, (shown above), informs consumers that the business supports best practice in online consumer protection. Businesses that adopt the BPM guidance principles may download and display the model code’s logo from the Department of the Treasury’s e-commerce website on a self-assessment basis. As at November 2003, less than half of all businesses that registered their adoption of the BPM displayed the logo on their website.

When consumers ‘click’ on the logo they are directed to the Department of the Treasury e-commerce website, which contains information about online shopping and the BPM. Businesses are advised when adopting the BPM that the logo is neither a form of accreditation nor a seal of approval. As such, the Department of the Treasury does not audit websites displaying the logo for compliance with the BPM principles.

3.6 Questions for Discussion on the BPM

Questions for consumers:

7. In shopping online have you become aware of the BPM? Are you aware of the BPM logo?
8. What factors are important in reaching a sufficiently high level of confidence to transact online?

Questions for businesses:

9. Were you previously aware of the BPM? If you were, did you seek to adopt the advice contained in the BPM?
10. If so, does your business website display the BPM logo? If your business website does display the BPM logo, was this helpful for your business? If not, why not? In your experience, is consumer behaviour influenced by online logos?
11. If you have not previously been aware of the BPM, what factors do you consider to be important in achieving good B2C practice online?

Question for consumers, businesses, industry, organisations and academia:

12. Do you have any comments on how best to ensure consumers are protected online?
13. The Australian Government’s current approach to consumer protection online is to emphasise self-regulation and involves working co-operatively with industry and consumer organisations. Is this an appropriate sensible approach, given the nature of problems you are observing?

Questions for governments and academia:

14. In addition to those studies referred to in Appendix D of this paper, are you aware of any other research into the practices of Australian businesses engaged in B2C e-commerce?

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²¹ The Guidelines are available on the Internet at www.oecd.org/dsti/sti/it/consumer/.

²² Trust marks are accreditation schemes established to promote good online practices.

²³ ConsumerPING is available at www.consumerping.gov.au.

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