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Electronic Commerce: Costumer Protection In Electronic Payments

Authors: Omid Ghassemi


As a by-product of its "cyberspace" status, electronic commerce is global, encompassing a whole range of B2C relationships which need to be approached with solutions provided at a local level while remaining viable when applied to global issues. Today, the European Union seems to be endowed with a reliable legal framework for consumer protection. A question which remains, however, is enforcement of this protection. This is probably a matter of time and awareness from both parties in the B2C relationship. Business should realize that enhancing trust in the minds of consumers is more than a question of technology; it is a question of best practice. Best practice starts with the online service of high street banks as well as with the existence of a secure, user-friendly and cost-effective payment system. It also includes the respect of privacy and the use of smart cards as well as enhancing privacy technologies and fair information practice. In sum, only by offering this guarantee of privacy and security will the consumer be assured that, in cyberspace, his/her interests will be protected in the same manner as in a traditional commercial environment.

Keywords: Consumer, Electronic, Jurisdiction, Payment

Digital Object Identifier (DOI):

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[1] Peter Preston, ÔÇÿThe Abolition of Hard Cash? That will do nicely. Money-s symbolic power is vanishing, one stride at a time-, The Guardian, Monday April 17, 2000.
[2] The G10, in their ÔÇÿReport of the Working Party on Electronic Money-, noted that: ÔÇÿa precise definition of electronic money is difficult to provide; indeed a number of official bodies have described and categorized these products in different ways.-, April 1997.
[3] Directive 2000/46/EC on the taking up, the pursuit and prudential supervision of the business of electronic money institutions.
[4] Laura Edgar, ÔÇÿElectronic Money-, in Reed, Walden and Edgar, ÔÇÿCross- Border Electronic Banking: Challenges and Opportunities-, 2nd ed., LLP, 2000, at page 202.
[5] Davies notes that the etymology of the words spends and pound come from the Latin expendere, which means to weigh. Op. cit. supra fn. 1
[6] Trystan Tether, ÔÇÿPayment Systems for E-Commerce-, in supra FN 4 at page 167
[7] ÔÇÿElectronic Money: So much for the Cashless Society-, the Economist, 26 November 1994, Vol.333, No. 7891, pg 3
[8] Supra fn. 6. At page 167
[9] Figures suggest that such cards are used to effect payment in more than 90% of the web-based transactions, cited in supra fn. 6 at pg. 169.
[10] Additionally, card payments are "ill-suited" to b2b transactions. Op.cit. fn. 6 at page 176
[11] Simon Newman, Laura Edgar & Gavin Sutter, ÔÇÿElectronic Payments and Smart Card Systems- in Simon Newman (Ed), ÔÇÿSmart Cards-, ECLIP II, IST Project 1999-12278
[12] Secure Socket Layer Protocol.
[13] Supra n. 11.
[14] Ibid.
[15] Secure Electronic Transaction Standard.
[16] Supra f. 11.
[17] Id.
[18] Tether, op.cit. FN 6 at page 181
[19] Ibid.
[20] Mondex being the only provider of such service.
[21] Some institutions make provision for disposable cards, similar to the mobile "pay as you go" types available from most mobile telecommunications operators.
[22] Unbeknownst to him/her since the key is stored within the smart card.
[23] Section B, infra.
[24] It is to be noted that the consumer and/or merchant must have a normal account with such banks or financial institutions already.
[25] Directive 2000/46/EC of the European Parliament and of the Council of 28.09.2000 on the taking up, pursuit of and prudential supervision of the business of electronic money institutions.
[26] S 83(1) strictly applies only to regulated consumer credit agreements as defined in s.8 of the Act, which include agreements whereby a creditor (card issuer) provides a debtor (card holder) with credit that does not exceed 25,000 pounds. The provision of this section offers protection to e- consumers in cases their credit card details have been collected by a sham site.
[27] Such protection will generally not be applicable in cases where the consumer-s credit card details have been intercepted on the Internet and subsequently used for unauthorized purchases or where the credit card details have been collected by an illegal, sham site, the reason being that the consumer is still in possession of his credit card in the online market and therefore does not follow under s.84 (1) provisions.
[28] More specifically, if the card holder within a certain time limit disputes a transaction claiming that is the result of fraud, theft or error, then if such a dispute is accepted by the card issuer, a charge- back will occur obliging the e-merchant not only to repay the disputable sums, but also subject himself to a possession fee which sometimes is more that than the sum in dispute.
[29] S.75 CCA1974. However, the issuer-s (bank) liability under s.75 depends on the consumer-s claim against the merchant, in other words it has first to be established according to the contract between the consumer and the merchant that the first has a claim against the latter. It is worth to be mentioned that the consumer apart from the purchase price of the goods, he can also claim any consequential loss that incurred by the merchant-s breach of contract. Nevertheless, it has to be noted that s.75 can only be applied when three requirement imposed by the law are met:The purchase price of the goods is greater that 100 pounds and less that 30,000 pounds and;
[29] - the credit card agreement is used to finance a particular transaction between a debtor (card holder) and a supplier (merchant0 and;
[29] - the credit card purchase is made under pre-existing arrangements or in contemplation of future arrangements between the card issuer and the merchant
[30] For example, in the BT Array payment system one of the terms stated that ÔÇÿthe issuer may change the terms and conditions contained in this agreement at any time. You are advised to check the terms and conditions when using the Service to be aware of any such changes which you will be deemed to have accepted by your ongoing use of the Service-.
[31] Directive on Unfair Terms in Consumer Contracts 93/13 EEC, OJ L 95, 21/4/93
[32] Article 3(1). The assessment of the unfairness of the terms of the contract shall be based on the nature of the goods or services and the surrounding circumstances at the time the contract was concluded.
[32] The strength of the bargaining position of each of the parties, the extent to which the seller has dealt fairly and equitably with the consumer as well as issues determining whether the consumer was given any inducement to agree to the term or whether the goods or services were sold or supplied to the special order of the consumer, are all factors that according to the Directive should be taken into account when the fairness of a term is assessed. (Recital 20)
[33] Article 7(1)
[34] ÔÇÿElectronic payment instruments- covers both electronic payment cards and reloadable electronic money instruments in the form of stored value cards and electronic tokens stored on network computers memory.
[34] (Article 2 of the Recommendation 97/489/EC)
[35] Article 7(2) (a)
[36] Article 7(2) (d). This duty can be carried out either by the company issuing the card or by another entity appointed by the former. The entity must provide the necessary means for customers to be able to notify the loss, theft or error of the payment instrument at any time of day and night and must also provide the suitable means of proof that the consumer has given due notice. Article 9(1)
[37] The block is compulsory even if the cardholder has acted fraudulently or with extreme negligence. (Article 9(2))
[38] Article 8(1) (b). In other words, if the holder acts in a diligent way in the use and maintenance of his payment instrument and notifies however, the issuer of the loss or theft of the card, but afterward an unauthorized use occurs, the issuer is liable and must restore the holder to the position he was before the unauthorized transaction. Article 8(2) (b)
[39] Article 8(4). Article 3(3) (a) provides that the issuer is under the obligation to communicate the terms of the contract to the holder and the terms should include a description of the electronic payment instrument, including where appropriate the technical requirements with respect to the holder's communication equipment authorized for use, and the way in which it can be used, including the financial limits applied, if any. Thus, for example under these provisions and according to the Directive of Unfair Terms in Consumer Contracts as mentioned above, a term in a contract which stipulates that ÔÇÿthe issuer is not liable for clients- inability to use the electronic payment instrument or for delays or damage due to accidents attributed to the breakdown or failure of different devices such as EPOSs (Electronic Point of Sale) or other machines connected to the operation of the payment instrument- should be considered as an unfair term.
[40] Article 5(a)
[41] Article 5(b)
[42] Article 6(1)
[43] Articles 6(1) and 6(2)
[44] The cardholder is not in breach of his contract with the issuer if other people are aware of his personal identification number and use the payment instrument. The only consequence is that the holder will possibly be liable to the issuer and therefore liable for the costs of any transactions carried out.
[45] Directive 2000/46/EC of the European Parliament and of the Council of 18 September 2000 on the taking up, pursuit of and prudential supervision of the business of electronic money institutions. In: Official Journal of the European Communities of 27 October 2000, L 275, 39-43.
[46] Article 4, Directive 2000/46/EC
[47] Articles 4(1) and 4(2)
[48] Edgar, Electronic Commerce Legal Issues Platform: -Electronic Payments-, ESPRIT Project 27028, 16 December 1999 Also Lelieveldt, S., ÔÇÿWhy is the Electronic Money- Directive Significant-? Electronic Payments System Observatory Newsletter, May 2001 Issue 7,
[49] Thus the issuer must place an amount at least equal to its financial liabilities in one or both of the following; Assets that attract a zero credit risk (Article 6(1) (a)). Sight deposits held with Zone A credit institutions and debt instruments which are highly liquid. These must not exceed 20 times the own funds of the issuer. (Article 6(1) (a))
[50] Commission of the European Communities, Amended proposal for a European parliament and Council Directive concerning the distance marketing of consumer financial services and amending Directives 97/7/EC and 98/27/EC, Brussels, 23.07.1999, COM (1999) 385 final
[51] Recital 5
[52] Article 8a
[53] Directive 97/7/EC of the European parliament and the Council of 20 May 1997 of the protection of consumers in respect of distant contracts.
[54] Pichler, R., ÔÇÿFinality of Credit Card Payments and Consumer Confidence - Different approaches in the United States and Europe-. Electronic Payments System Observatory Newsletter, February 2001, Issue 7.
[55] The study has been undertaken under contract to the European Commission by a consortium of 10 European partners led by CRID, University of Namur and the IT Law Unit, Center for Commercial Law Studies, Queen Mary University of London. Facultes Universitaries, Notre- Dame de la Paix ÔÇÿStudy of the implementation of Recommendation 97/489/EC concerning transactions carried out by electronic payment instruments and in particular the relationship between holder and issuer-, May, 2001 nt/parta.pdf
[56] i) There is lack of information provided by issuers to holders; ii) Information is provided in unclear and/or inaccessible way; iii) The information is sometimes only provided on or after the conclusion of the contract; iv) There is no limit to a holder-s liability after notification.
[57] Paragraph IV of the definition, states that e-money is ÔÇÿissued on receipts of funds on an amount not less in value than the monetary value issued-. This may imply that large value payments are not covered by the Directive. Thus for example, if an organization issues 100 EURO of electronic pre- paid value against a payment (or a load of 99, 9999 EURO, would this organization fall within the definition of the Directive and therefore within its regulatory provisions?
[58] Pitofsky. R., ÔÇÿcompetition and Consumer Protection Concerns in the Brave New World of Electronic Money-, United States Department of Treasury Conference: Towards Electronic Money& Banking: The role of Government, September, 1996,
[59] Most of these electronic payment systems monitor the whole shopping process as well as other behavioral information about the consumer (i.e. sites and products visited, the amount of time spent in each site etc).
[59] Some other e-payment systems on the other hand have the technical ability to ensure that transactions are carried out anonymously.
[60] Giannakoudi, S., (1999) ÔÇÿInternet Banking: The Digital Voyage of Banking and Money in Cyberspace- Information &Communications technology Law, Vol. 8, No. 3
[61] Some examples are Mastercard-s solution for secure payment applications named SPA, the 3D secure system that has been proposed by Visa USA and also Maestro has proposed a solution based on a server side client wallet. For a more detailed analysis of the above menyion proposed systems see Lelieveldt, S., ÔÇÿNew Payments Authentication Methods for use on the Internet,- Electronic Payments System Observatory Newsletter, July 2001, Issue 8.
[62] Pollard, S., ÔÇÿElectronic Payment Systems: The legal Perspective- Gilbert&Tobin, May,1996
[63] Nadal, M., (1998) ÔÇÿElectronic commerce: Digital Signatures and Certification Authorities-, Editorial Civitas, Madrit
[64] JEPI was initiated by the World Wide Web Consortium (W3C) and has wide support in the IT industry for example, Cyber Cash, Microsoft, IBM, BT, France Telecom, Net Bill, Netscape Communications Corporation, Nokia.
[65] IOTP is supported by hardware industries (IBM), software manufactures (Netscape), banking industry (Canadian Imperial Bank of Commerce) and payment systems companies (Cyber Cash, Mondex International, DigiCah), .CEPS was released to the public in March 1999 and has been signed with organisations in 22 countries. For more information see Europay International ÔÇÿCommon Electronic Purse Specifications-
[66] One example is the Which Online WebTrader scheme that requires the e-merchant to display their logo as an indication of their compliance with the code of conduct. The German Trusted Shops scheme operated by Gerling Insurance proposes free insurance of a broader scope for consumers shopping within its trust seal area. The consumer can claim insurance in cases of non-delivery of the goods within 30 days, for nonrefund of advance payment within 30 days after returning the goods, and for fraudulent use of credit card details up to 50 pounds.
[67] Mitchell, J., (1998) ÔÇÿElectronic banking and the Consumer: The European Dimension-, (London: Policy Studies Institute) p.37
[68] Banking ombudsmen programmes currently operate in Belgium, Canada, Germany, Italy, Netherlands, Switzerland, Australia, New Zealand. Giannakoudi, S., (1999) ÔÇÿInternet Banking: The Digital Voyage of Banking and Money in Cyberspace-, Information &Communications technology Law, Vol. 8, No. 3
[69] Giannakoudi, S., (1999) ÔÇÿInternet Banking: The Digital Voyage of Banking and Money in Cyberspace-, Information &Communications technology Law, Vol. 8, No. 3; Group of Ten, Electronic Money: Consumer Protection, Law enforcement, supervisory and cross borderissues,April1997
[70] provides the same guarantee as the British up to 100DM along with further insurance for returning goods worth more than 40EURO.
[71] Group of Ten, ÔÇÿElectronic Money: Consumer Protection, Law enforcement, supervisory and cross border issues-, April 1997