7 Companies Seek Safeguards for Online Consumer Privacy

Seeking to forestall further government intervention in e-commerce, a coalition of leading high-tech companies Tuesday proposed a new system aimed at protecting consumers against fraud and privacy intrusions in cyberspace.

The seven-company coalition--including America Online, AT&T;, Dell Computer, IBM and Microsoft--suggests voluntary guidelines under which participating merchants would clearly spell out the terms and conditions of a sale, make reasonable efforts to protect consumer privacy and provide for “fair, timely and affordable” dispute resolution when something goes awry.

The proposal comes as a burst of online buying enthusiasm has been tempered somewhat by reports of theft of customers’ private credit card data by hackers at several Web sites. The industry is also trying to recover from widely publicized incidents of delivery problems last Christmas by high profile online merchants such as Toys R Us, Amazon.com and online units of Bentonville, Ark.-based retailer Wal-Mart Stores.

But consumer groups and policymakers say the online industry has a checkered record of widely adopting and enforcing industry standards in cyberspace.

Since last fall, the U.S. and all 28 other member nations of the Organization for Economic Cooperation have met with little success in getting merchants to adopt guidelines to provide secure sites for credit card purchases and understandable methods for handling consumer complaints.

Similarly, although polls have found that privacy is the No. 1 concern of people using the Internet, less than 20% of Web sites actually post their privacy policies, says the Federal Trade Commission. And efforts by Microsoft and others to gain acceptance of a voluntary initiative called the Privacy Preference Project, have yet to spur widespread adoption.

Meanwhile, the problem of fraud on the Internet and the lack of privacy protections have developed into major political issues that have attracted the attention of Congress and the White House.

Although online fraud and sales snafus pose only a fraction of the problem they pose in the much larger mail-order industry, experts say consumer complaints are growing amid the Internet’s boom and as electronic commerce goes global.

The Internet is conducive to fraud and transaction disputes because “it offers speed and anonymity,” said Paul Fichtman, president of Riskwise.com, an Internet security firm that helps merchants avert fraudulent transactions. “The Internet is like direct marketing on steroids, so it can lead to many of the same” abuses consumers and merchants suffered in the retail world but potentially on a much larger scale.

To allay consumers’ concerns and ward off further intervention by government regulators, the coalition of high-tech companies called on online merchants to strengthen consumer protection in several areas, ranging from posting warranty and privacy policies, to improving packaging so that goods don’t get damaged during delivery to customers.

Nearly nine months in the making, the industry proposal also draws the broad outline of a system of dispute resolution that consumers can resort to if an online transaction goes bad.

The proposal suggests setting up a third party to handle complaints from consumers via e-mail. However, neither consumers nor online merchants would be bound by such a mediator. That could pose a dilemma in a global marketplace where jurisdiction over disputes is already difficult to pin down. Still, proponents of the proposal said it was good for industry to take the initiative.

“We think it is important to come up with policies to protect consumers and also help companies doing business on the Net,” said Ronald L. Plesser, a Washington lawyer who is leading the coalition’s consumer initiative.

But the FTC has been pushing for expanded powers from Congress to regulate the industry’s Web sites, including curbs on the sale of personal data. A number of other bills in Congress seek to increase consumer protection against online fraud and privacy abuses.

“This is a good first step . . . but there [remains] a vast amount of commerce online where consumers are being victimized,” said Jean Ann Fox, an official at the Consumer Federation of America, a Washington-based watchdog group. E-commerce won’t truly be as safe and satisfactory as it is in retail stores, she said, until consumers get guaranteed dispute resolution, privacy protection and secure online sales transactions.

The industry announcement came just one day after the Internet firm HavenCo Ltd. in the principality of Sealand in the North Sea, announced a “secure offshore” site to conduct business online with few limitations beyond a ban on distributing child pornography, unsolicited e-mail or launching attacks on other computers.

“Sealand has no laws governing data traffic, and the terms of HavenCo’s agreement with Sealand provide that none will ever be enacted,” the company proclaimed in a news release Monday. Officials of the company, who criticized other industrialized nations for “suppressing the growth of profitable Internet business through ill conceived, constantly changing regulation,” could not be reached for comment.