The various challenges in trying to provide effective redress to consumers have created momentum behind an effort to change the way we think about consumer protection. The old zero-sum debate between consumer advocates (presumed to be in collaboration with the class action bar) and the big legal defence firms (presumed to be doing the bidding of big corporations) has achieved little in terms of progress over the past few decades.
Each side has continued to point fingers, with businesses supposedly abusing customers and class action attorneys supposedly filing frivolous cases to force settlement. The debate over pre-dispute binding arbitration clauses is only the latest phase in this ongoing back and forth.
But the internet has continued to change the game even while the zero-sum debate was playing out in the courts and legislatures. In fact, while few were paying attention, some of the promising dynamics that had been identified by the internet futurists like Doc Searls in the 1990s have begun to pan out. Consumers are getting more skilled at using the internet to organise, and the wide spectrum of choice is moving towards more trustworthy merchants and marketplaces. While the regulators and lawyers were debating minimum standards and binding arbitration clauses, leading e-commerce businesses were going far beyond legal requirements for consumer protection.
Forward-thinking merchants are creating the next generation systems that could handle consumer problems. Entirely new types of companies, sometimes called ‘sharing economy’ or ‘collaborative’ companies, were being started by consumers for others consumers. They were bringing a wholly new attitude to consumer protection.
Large internet intermediaries, like online marketplaces (eBay), large merchants (Amazon) and payment processors (Paypal), realised very early on that the consumer trust problem was creating friction on the internet and that solving it could provide a valuable market advantage. These companies weren’t willing to wait for regulators to figure out how to provide consumer protection on the internet, so they moved to build their own solutions to address the problem. For these large internet companies, trust in transactions proved to be a powerful competitive differentiator, one with a demonstrably positive impact on the bottom line.
The next generation
Many forward-thinking consumer protection organisations began to recognise this trend as well. They saw that these new internet platforms were creating next-generation redress systems that were delivering fast and fair resolutions to consumers, all within the private sector. Instead of falling back into the old finger pointing between business and consumer advocates, there emerged a new zone of cooperation that offered some reason for optimism. The 2003 agreement between Consumers International and the Global Business Dialogue on e-commerce (GBDe) was an important step in this direction. Suddenly two groups that had long been tugging on either end of the rope and getting nowhere were finding ways they could now both pull on the same side, working together in common purpose.
Regulators as well had come to the conclusion that court-based approaches to consumer protection were destined to fail in an internet-powered economy. Long-standing efforts to resolve jurisdictional questions around consumer disputes, like the Hague Conference on Private International Law, were not getting any closer to agreement despite decades of negotiation. A proposition to legally locate all consumer disputes in the home jurisdiction of the consumer was presented by the Canadian and Brazilian delegations to the Organization of American States (OAS) in 2009, but the concept was met with quite a bit of resistance. How could internet merchants defend themselves in every jurisdiction around the world? The concept seemed out of step with where the economy was going.
In response to the Brazilian and Canadian proposal, the US State Department offered a blueprint for the use of online dispute resolution (ODR) to build a global, cross-border system for resolving consumer disputes. The proposal was met with such enthusiasm that UNCITRAL decided to devote a Working Group to the concept, Working Group III, which has met bi-annually in Vienna and New York for the last six years to flesh it out in more detail.
Similarly, the European Parliament passed a regulation requiring all member states to implement cross-border consumer ODR by the middle of 2016. The European Standards organisation, the International Standards Organization and the Canadian legislature all quietly issued standards for quality ODR. It was clear that a consensus was building up. In fact, the Organisation für Economic Co-Operation and Development’s (OECD) Committee on Consumer Policy recently released a draft recommendation from the Council of Consumer Protection in eCommerce that reads, in part:
“Consumers should have access to ADR mechanisms, including online dispute resolution systems, to facilitate the resolution of claims over e-commerce transactions, with special attention to low value or cross-border transactions. Although such mechanisms may be financially supported in a variety of ways, they should be designed to provide dispute resolution on an objective, impartial, and consistent basis, with individual outcomes independent of influence by those providing financial or other support.” (Art. 45)
The OECD document goes on to state that “The development by businesses of internal complaints handling mechanisms, which enable consumers to informally resolve their complaints directly with businesses, at the earliest possible stage, without charge, should be encouraged.” For an organisation focused on consumer protection to be specifically calling on merchants to build their own private resolution processes is a big breakthrough, and an indicator of how universal these sentiments have become.
The Civil Justice Council in the United Kingdom recently conducted an extended study of ODR in civil cases, eventually recommending that the Ministry of Justice create something called ‘Her Majesty’s Online Court’, which could resolve all cases under GBP 25,000 through ODR mechanisms. As the Master of the Rolls said in the Forward to the final report, “ODR will play an important role in the future of civil justice.”
Similar conclusions are being reached by judicial luminaries around the world. After much study and inquiry, they are concluding that we cannot update our old legal redress systems fast enough to keep up with the changes being wrought by the internet. We need to build for the future. Software-enabled private resolution processes, backed by private enforcement, are seen by many judges and regulators as a much better fit with the needs of online consumers than legal redress options.
Written by Amy J. Schmitz and Colin Rule.
This is an adapted extract from the book ‘The New Handshake: Online Dispute Resolution and the Future of Consumer Protection‘ by Amy J. Schmitz and Colin Rule, American Bar Association, 2017. For the full chapter click here.
Amy J. Schmitz is the Elwood L. Thomas Missouri Endowed Professor at the University of Missouri School of Law and Center for the Study of Dispute Resolution, and the founder of MyConsumertips.info.
Colin Rule is the Vice President of Online Dispute Resolution at Tyler Technologies. In 2011 he co-founded Modria.com, an ODR provider based in Silicon Valley, which was acquired by Tyler Technologies in May 2017. From 2003 to 2011 Colin was Director of Online Dispute Resolution for eBay and PayPal.