Fandialan, Maria Adella: Consumer Protection involving Online Transactions in the Philippines

SY 2008-2009, First Semester


I.      INTRODUCTION

Today, markets are not limited to what we call “domestic” market. You can buy so much more products from overseas with relative ease than before, making the world a smaller place in terms commerce. This evolution is made possible by what we call today as “online transactions”, “internet transactions”, “e-commerce” and such other names that generally pertain to exchanging merchandise/services using the internet.

Electronic commerce is the process of trading across the Internet, that is, a buyer visits a seller’s website and makes a transaction there. [1] These days, our technology allows us to purchase virtually anything through the internet.

However, in all of this advancement, consumer protection cannot be overlooked. Without the confident of e-consumer, there would be no e-commerce. Thus, it is imperative to ensure that the online traders observe specific rules and guidelines to allay the fears of the consumer and promote ethical online transactions. [2]

In the business environment, traditionally there is a need for tangible and permanent form of communication in a transaction between buyer and seller. However, e-commerce there is the ability to communicate in an electronic form where a computer is able to recognize, reproduce and store means that business could now conducted in a paperless environment. [3] With the benefits of this technology come the disadvantages that arise from the fact that these transactions are made with minimal person-to-person interaction. Since the buyer and seller do not interact personally and therefore could not make any legal documents signed by both parties, transactions are done mainly by the seller by displaying some rules by which the buyer may agree or not by clicking buttons on the screen. As the process goes on, purchase may be consummated when the buyer gives details of his/her credit or debit card and the seller using it to charge the buyer’s card company the amount agreed upon in the transaction.  Fraud and other online scheme that may be devised to deceive people of their money can be easily done with low risks involved. This paper shall deal with the different ways online fraud may be accomplished and the local law/s applicable in this kind of crime. Also, the penalties and some recommendations shall be given in connection with this topic.

II.    BACKGROUND OF THE STUDY

A. Overview of Online Transactions

Online transactions are made, as one may know, using the internet. This is a type of transaction when a product (or service) is advertised over a website or a webpage and a person buys the item by following written instructions set on the page itself. The transaction usually needs a valid email address and payments are done mainly by credit cards.

B. Online Transactions at Present

Online transactions today have a wide array of different products to offer and several services and websites that provide a “common ground” to all buyers and sellers across the globe. Some examples are Amazon.com, eBay and e-2-door. Amazon.com provides an internet site where manufacturers/companies can advertise and sell their products while offering the facility to order the products online. eBay on the other hand offer a common “marketplace” for virtually every person who wants to sell or buy just about anything that may be legally sold thru the internet. The main difference between the two is that while Amazon offers manufacturers/distributors a place to sell their standard products, eBay opens the same service to any person who wish to sell just about anything that he thinks somebody would buy and actually lets the interested persons to ‘Bid’ on what he offers. The last example, e-2-door offers services in a unique way. Instead of buying different items from different websites (thereby increasing the risk of a fraud) they offer you to buy whatever items for sale you can find on the internet and in turn you will ultimately pay e-2-door for all those items instead of individually buying your needs over different websites.

C. Online Buyer and Seller Defined

Online Buyer may be defined as the person who willingly (sometimes unwillingly) undergo the process of transacting business over the internet and agrees to pay for the items/services being sold. Online seller are companies, manufacturers and even ordinary people who expressly offer their products or service to any person/entity that may be interested in buying the same through the use of the internet.

D. Advantages and Disadvantages

Advantages:

  1. Products/service not available within one’s local area or even one’s own country may be easily bought. There can be a wide access and different choices of goods and services that the consumers can choose from.
  2. One can buy a product and have it delivered in their given address while transacting in the convenience of their own home. There will be greater efficiency in terms of buying and selling different articles or goods in the market.  
  3. A great variety of products/options are available to the buyer. The buyer may even read some reviews of previous customers or users of the products and compare prices of the same products from different stores without leaving their homes.

Disadvantages:

  1. The total cost of the product (including shipping) is almost always greater than the cost of the same item when bought directly from a store.
  2. Delivery of the item may take months.
  3. Prone to online/internet frauds.
  4. Fraud and deception, for example, lack means to authenticate merchandise purchased online. [4]
  5. Personal information given by the buyer may be utilized by the seller for other transactions to the prejudice of the former.

III.   PROBLEMS AND RISKS

A. Fraud on Online Services

Businesses that conduct transactions online are often targeted by fraudster since online transactions inherently require so much personal information and consumers often provide the information unwittingly. [5]  Fraud on online services may take several forms. Some of them are outlined below:

1.     Auction Fraud

Auction Fraud is a very common scheme. Simply put, items are offered for sale and funds are collected, but the merchandise is never delivered. Someone offers items for sale on one of the many online auction sites available (such as eBay or Yahoo! auctions), collects funds for the goods, and then never delivers the promised goods. Sometimes the fraudster will ship empty packages in order to delay discovery of the fraud. Sometimes “junk” will be shipped so that the fraudster can claim the fraud is really a misunderstanding. A $10 disposable camera will be substituted for a $400 digital camera, for example. To protect yourself, try to deal with known, reputable sellers. Use a form of payment which allows rescission or has insurance. Credit cards offer valuable protections for both the purchaser and the seller. Use a known, reputable escrow service of your own choosing. [6]

2.     False Storefront

It is similar to the Auction Fraud. Instead of using an auction site the fraudster creates an entire site that appears to be legitimate. Payment is collected, but the merchandise is never delivered.

It is very easy to set up a website with a polished, professional appearance. The site may include shopping carts and secure transaction processing. It may also have absolutely no substance behind it. If you are not familiar with a company be cautious about the transaction. Be very cautious about sending wire transfers, money orders, cashier’s checks, or making deposits directly into bank accounts. [7]

3.     Fake Escrow

A bogus Escrow Agent is suggested as a means to protect to the parties involved in the sale. In this scheme a fraudster will pretend to be a legitimate escrow agent, which should provide greater protection to both online buyer and seller, but will actually be working to defraud the seller. In a legitimate escrow arrangement, a purchaser will send money to the escrow service. The escrow service will confirm receipt of the payment to the seller. The seller will then ship the merchandise to the buyer who will notify the escrow agent that the goods were received as expected. The escrow agent will then forward the payment to the seller. The escrow agent will receive a fee for his service. The buyer and the seller will arrange among themselves responsibility for payment of the escrow service charge. [8]

In a Fake Escrow scheme, the escrow agent will tell the seller that good funds were received when none were. After the buyer (who may, in fact, be operating the Fake Escrow service) receives the goods, the Fake Escrow will cease communications with the seller. There may be a brief period where the seller is told the funds have been shipped. Excuses may follow, such as claims of lost shipments, illnesses, misdirected mail, etc. [9]

Eventually, however, the seller receives nothing for his goods.

It is also possible for the Fake Escrow to collect funds from a legitimate purchaser and then abscond with the money, leaving the seller and the buyer in an adversarial relationship.

To protect yourself, deal with known, reputable escrow agencies and services. An escrow service that has been in business for a number of years is unlikely to be actively engaged in an ongoing fraud. [10]

B. Lack of Proper and Necessary Documents

Since online transactions are done without the actual personal interaction between the two (or more) parties involved, some necessary and often very important documents may be waived. Signature of the seller and buyer involved in the transaction over a written document will be totally absent in this kind of transaction. Receipt may never be issued. Certification from Government agencies such as Department of Trade and Industries, Securities and Exchange Commission and other agencies that have some direct or indirect jurisdiction over the selling/buying of legitimate products may never be provided for scrutiny or verification.

C. Breach of Contract

Since there is no written contract that the parties involved have both signed in the case of an online transaction, a breach of contract may be more than difficult to prove if not impossible. Unless the transaction is made through a reputable website which offers some protection for their customers, like printable guidelines and control numbers which may be a basis or proof of a transaction and agreement of both parties to a set of the pre-defined guidelines, a customer may be in for a very difficult and losing situation.

IV.   APPLICABLE LAW

A. In the Philippines

Under the New Civil Code of the Philippines, a “contract” is a meeting of the minds between two persons whereby one binds himself with respect to the other, to give something or to render some service. With the above definition of contract it can be said that online transaction can be considered as a contract itself between the parties, though it was not reduced into a written form. When the buyer and seller agreed to the stipulations (rules and guidelines in the website) by giving some personal information, both of them become bound to perform their specific prestations. Since the Constitution recognizes the freedom of the parties to have or to formulate their own terms and agreements in a contract, then the Civil Code gives the right to the parties to negotiate and agree on anything as they deem convenient as long as it is not contrary to law, morals, customs and public policy. Online buyer and seller may then freely concur to their stipulations without the interference of anyone, even by the courts.

Republic Act (RA) 8484, otherwise known as the “Access Devices Regulation Act of 1998” was promulgated on February 11, 1998. This statute focuses mainly on the use and utilization of different access devices which was defined under this Act as cards, plate, code, electronic serial number, account number, or other telecommunications service, or other means of account access that can be used to obtain goods, money, or other thing having valuable consideration.

According to Section 2 of the said Law, the State recognizes the advances of technology and the widespread use of access devices in many transactions, especially in commercial transactions. Therefore, in order to meet the demands of the modern technology, the Congress came up with this law, so as to protect the rights and define the liabilities of the parties in a commercial transaction; RA 8484 also regulates the issuance and use of access devices.

Upon careful scrutiny and perusal of RA 8484, it can be inferred that it only protects the interests of the credit card companies and not for the consumer protection on online frauds and other similar act which damages the online buyers. Section 9 of which provides for the “prohibited acts”, these include producing, using, trafficking in one or more counterfeit access devices; trafficking in one or more unauthorized access devices, using with intent to defraud, an unauthorized access device; obtaining money or anything of value through the use of an access device, with intent to defraud or with intent to gain and fleeing thereafter, and the like unlawful acts. The above stated prohibited acts, as can be gleaned from the said provision are only in favor or credit card companies and not really for consumer protection. The consumers who happen to be mostly the victims of online fraud, breach and deception are not duly protected by the said law.

We must note that the Philippine Law Republic Act No. 8484 do not offer comprehensive protection of consumers against online fraud specifically the kinds of fraud enumerated above. This particular law focuses on the protection of the issuing bank or institution against fraudulent use of the access device by the issuant or any other person not authorized to use the device. True consumer protection must focus on the penalties and implementing rules or guidelines that may be imposed on the online institutions doing business mainly on the internet. Transactions made by an ordinary person must be covered by a law that ensures or at the very least offer a way to trace or track down institutions, companies or persons that intentionally defraud persons doing transactions online.

VI.   CONCLUSION

The future of e-commerce seems to be very bright. However, it can only remain so if there is consumer trust and confidence in it. Therefore, there is a need for online traders to be accountable and responsible to the consumer. 11  Our Government through the Legislative Departments, the House of Representatives and the Senate need to work together to come up with a law that would set the standards which will support and protect online buyers in order to lessen if not to avoid absolutely online frauds, breach and deception. 

Both the business and government have a role to play in international consumer protection in the online marketplace, which can be global and borderless. 12 The Philippine Government has to provide specific rules for the protection and security of consumers and to ensure the effectiveness of the regulation and supervision of industries thereby strengthening the confidence of the buyers.

Internet transactions are here to stay. It is a part of the world’s economy and will continue to be so in the future, perhaps even becoming “The Future” of doing business in our modern day. But as there is good in every innovation there will always be some negative effects that it may have on us given the nature of people to get the better of others. We should always remember first before undergoing into any transaction, be it in the internet on not, that we must always check the background to the people/company we do business with. This may be done so through referrals of friends who previously did business with them of by checking or government agencies concerned in registering legitimate businesses. This will ensure that our transaction will shall be honored by the other party.

VII.   RECOMMENDATION/S

To prevent internet fraud, there are some things that we must remember; some of these reminders are: One suggestion that may be made is to create a government institution or extend the responsibility of existing Philippine agencies (such as the Department of Trade and Industry or the National Bureau of Investigation) to the point where companies can get a certain kind of “permit to operate” which can be validated by codes or may be simply look-up to a list in the department/government agencies’ site itself. This may encourage legitimate companies to seek accreditation by the government and thereby offer a certain degree of protection for the consumer.

That if a person cannot avoid transacting using the internet then it is recommended that they only transact on websites that are reliable and trustworthy, and make sure that the website provides for online facility that secures credit card information.  

The Congress is also asked to come up with a law that protects mainly the consumer in Internet transactions. The said law must provide for the remedy or remedies that can be availed by the online buyers in case they became victims of fraud, breach of contract, and or deception in the Internet. It must also make available the penalty that an unscrupulous seller or fraudster may face when proven guilty of the said offenses.


Endnotes

[1] Kaur, Kiranjit. “Consumer Protection in E-Commerce in Malaysia: An Overview”. www.une.edu.au/asiacenter/KKaur.pdf.  Accessed 10/20/08

[2] ibid.

[3] ibid.

[4] ibid.

[5] http://www.symantec.com/business/services/overview.jsp?pcid=consulting_services&pvid=online_fraud_ protection accessed 10/20/08

[6] http://tampa.fbi.gov/ accessed 10/18/08

[7] ibid.

[8] ibid.

[9] ibid.

[10] ibid.

[11] Kaur, Kiranjit. “Consumer Protection in E-Commerce in Malaysia: An Overview”. http://www.une.edu.au/asiacenter/KKaur.pdf.  Accessed 10/20/08

[12] ibid.

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