Going, Going, Gone Online auctions, consumers and the law July 2006 A research report by Nick Moustakas for the Communications Law Centre Funded by the TPA Consumer Trust — 1 — GOING, GOING, GONE © 2006 COMMUNICATIONS LAW CENTRE LTD About the author Nick Moustakas is the Legal Officer of the Communications Law Centre (CLC) and part of the Centre’s Research Unit at the Law School of Victoria University. Nick provides legal advice, conducts research, and teaches in the area of communications law and policy. He is a solicitor for the Centre’s Oz NetLaw internet legal practice which provides free information and advice on internet and e-commerce related matters. He has completed a Master of Laws at the University of Melbourne on internet legal issues. Acknowledgements The author would like to thank all those who participated in the survey and focus groups for this project, and those who gave their time and insights for this project. (see Appendix 6 for consultation list) Special thanks go to: Elizabeth Beal for her input as supervisor of the project; Dr Denis Muller for his work on the survey and focus groups; and Ginger Briggs and Jane Williams for their assistance in preparing the report. Thank you also to: Derek Wilding, Simon Curtis, Kurt Malcolm, and Peter Tsipas. The Communications Law Centre acknowledges the funds provided by the TPA Consumer Trust for this project. Communications Law Centre The Communications Law Centre is an independent, non-profit, public interest organisation specialising in media, communications and online law and policy. In Victoria, the Communications Law Centre is a research unit within the Law School of Victoria University. Director: Elizabeth Beal Level 1, 283 Queen Street Phone +61 (0)3 9600 3841 Melbourne VIC 3000 Fax +61 (0)3 9670 7902 PO Box 14428 Email [email protected] Melbourne VIC 8001 Web www.comslaw.org.au © Communications Law Centre Limited 2006 ABN 89 003 623 630 ISBN 1–875538–36–4 All rights reserved. Without limiting the rights under copyright preserved above, no part of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the Communications Law Centre. The image on the front cover is by Don Farrall from the Photodisc Green Collection — 2 — GOING, GOING, GONE © 2006 COMMUNICATIONS LAW CENTRE LTD Contents EXECUTIVE SUMMARY 7 Issues in this report 7 Methodology and consultation 8 Key findings 9 Options and recommendations 12 Data collection 12 Complaint handling/ fraud investigations 14 Consumer education 14 The next step 15 Increased consumer protection 15 Survey and focus group key findings 16 Survey 16 Focus groups 16 Buying behaviour 17 Online auction risks 19 Problems encountered 21 Dispute resolution 21 Understanding of legal rights and obligations 22 Appropriateness of safety measures and legal information provided 23 1. BACKGROUND AND OVERVIEW 24 1.1 Why this project is important 24 1.1.1 Increasing popularity of online auctions 24 1.1.2 Lack of attention to legal issues 25 1.1.3 Lack of consumer information 27 1.1.4 Lack of research 28 1.2 Issues in this report 29 1.3 Aim and objectives 31 1.3.1 Aim 31 1.3.2 Objectives 31 1.4 Funding 32 1.4.1 Benefits beyond the funding period 32 1.5 Methodology and consultation 33 1.5.1 Project stages 33 1.5.2 Consultation 33 1.6 Report structure 35 — 3 — GOING, GOING, GONE © 2006 COMMUNICATIONS LAW CENTRE LTD 2. ONLINE AUCTION INDUSTRY 37 2.1 U2C and A2C e-auctions 37 2.1.1 U2C e-auctions 37 2.1.2 Business sellers at U2C e-auctions 38 2.1.3 A2C e-auctions 39 2.1.4 Fixed price sales 40 2.2 Sites and number of users 41 2.2.1 Specific sites 41 2.2.2 Other sites 43 2.2.3 Conclusion 46 2.2.4 Auctions and shopping online 47 3. ONLINE AUCTIONS, CONSUMERS AND THE LAW 49 3.1 Auction laws 49 3.1.1 Licensing auctioneers 49 3.1.2 Prohibited auction conduct 51 3.2 Consumer laws 52 3.2.1 Trade practices laws 53 3.2.2 Victoria – unfair contract terms 60 3.2.3 New South Wales – Contracts Review Act 1980 (NSW) 64 3.3 Contract and agency law 65 3.3.1 Contracts at online auctions 66 3.3.2 Agency law and online auctions 70 3.4 Criminal laws 72 3.5 E-Auction sites, sellers and consumers 73 3.5.1 Auction site operators 73 3.5.2 Business sellers at U2C e-auctions 80 3.5.3 Private sellers at U2C e-auctions 81 4. FRAUD, CONSUMER COMPLAINTS & PRIVATE DISPUTES 82 4.1 Problems 82 4.1.1 Fraud 82 4.1.2 Consumer complaints 83 4.1.3 Private disputes 84 4.2 Australia 84 4.2.1 Fraud 84 4.2.2 Consumer complaints 91 4.2.3 Private disputes 99 4.3 Overseas (United States) 101 — 4 — GOING, GOING, GONE © 2006 COMMUNICATIONS LAW CENTRE LTD 4.3.1 The Consumer Sentinal 102 4.3.2 eConsumer.gov 102 4.3.3 US National Fraud Information Center 102 5. USER KNOWLEDGE AND EXPERIENCE 104 5.1 Survey 104 5.2 Focus groups 107 5.3 Bidders and buyers 108 5.3.1 Buying behaviour 108 5.3.2 Risks involved 123 5.3.3 Problems encountered and dispute resolution 134 5.3.4 Understanding of legal rights and obligations 142 5.3.5 Appropriateness of safety measures and legal information provided 149 5.4 Sellers 153 5.4.1 Selling behaviour 153 5.4.2 Problems encountered 155 5.4.3 Sellers’ experiences 159 6. OPTIONS AND RECOMMENDATIONS 160 6.1 Data collection 163 6.1.1 Online auction fraud 163 6.1.2 Consumer complaints 164 6.1.3 National database 165 6.2 Complaint handling/fraud investigations 166 6.2.1 Low financial losses 166 6.2.2 Jurisdiction 167 6.2.3 Online auction industry 168 6.3 Consumer education 170 6.3.1 Risks and prevention 170 6.3.2 Consumer rights 172 7. CONSUMER SUGGESTIONS AND FEEDBACK 179 APPENDIX 1: SURVEY 189 APPENDIX 2: SURVEY RESPONDENTS 198 APPENDIX 3: ADDITIONAL SURVEY AND FOCUS GROUP RESULTS 201 5.3 Bidders and buyers 201 5.3.1 Buying behaviour 201 5.3.3 Risks involved 212 — 5 — GOING, GOING, GONE © 2006 COMMUNICATIONS LAW CENTRE LTD 5.3.3 Problems and dispute resolution 228 5.4 Sellers 232 5.4.1 Selling behaviour 233 5.4.2 Problems encountered 234 5.4.3 Sellers experiences 236 APPENDIX 4: FOCUS GROUP DISCUSSION OUTLINE 249 APPENDIX 5: AUCTION SITE OPERATOR QUESTIONNAIRE 251 APPENDIX 6: CONSULTATION LIST 253 BIBLIOGRAPHY 255 1. Articles/Books/Reports 255 2. Cases 255 3. Legislation 256 4. Other Sources 257 — 6 — GOING, GOING, GONE © 2006 COMMUNICATIONS LAW CENTRE LTD Executive summary The Communications Law Centre (CLC) considers the project important because of the: • increasing popularity of online auctions • lack of attention to online auction consumer legal issues • lack of online auction consumer information • lack of research in Australia in the area of online auctions and consumer protections. Issues in this report This report considers whether the current law sufficiently protects Australian consumers who shop at online auctions, and whether legislative or other regulatory intervention is required. In determining this, the following key matters have been investigated: (a) Legal and regulatory issues • consumer issues for Australians in relation to retail shops operating on fixed prices at an auction website • the legal position of individual online auction users in Australia (buyers and sellers) • the potential risks, liabilities and obligations users may face • the potential liability for online auction site operators for instances of fraud or deceptive and misleading conduct that occur through their online forums, and the possible implications for buyers or sellers who fall victim to fraudulent dealings • the extent to which existing legislative, regulatory, co-regulatory and self- regulatory mechanisms adequately protect consumers. (b) Consumer knowledge/experience • the number of Australians who shop at online auctions — 7 — GOING, GOING, GONE © 2006 COMMUNICATIONS LAW CENTRE LTD • the level and types of fraud in online auctions where Australians have been victims • consumers’ understandings of: i) the risks involved in online auctions; and ii) their rights and obligations when shopping at an online auction. (c) Complaints/dispute resolution procedures • the level and types of complaints Australians have made with respect to online auctions • the level and types of disputes in online auctions that have resulted in online dispute resolution where at least one user is Australian • the level and types of successful and unsuccessful online dispute resolution cases where at least one user is Australian. (d) Future trends and developments • future trends and developments in online auctions and related electronic commerce activities, and the potential consumer protection issues that may arise • analysis of the experience of other jurisdictions where use of online auctions is particularly common (e.g. in the US). Methodology and consultation Stage 1 For the purpose of collecting information regarding fraud, complaints, and disputes at internet auctions involving Australian consumers, the following organisations were consulted: 1. state and federal law enforcement agencies (e.g. Australian High Tech Crime Centre, Victoria Police, Federal Police) 2. state and federal Consumer Departments (e.g. ACCC, Consumer Affairs Victoria) 3. auction site operators (Appendix 5 provides a copy of the questionnaire sent to auction site operators) 4. consumer interest organisations (e.g. Australian Consumers’ Association). Online auctions users also provided information regarding fraud, complaints, and disputes at Internet auctions through online surveys and focus groups. (See chapter 5) — 8 — GOING, GOING, GONE © 2006 COMMUNICATIONS LAW CENTRE LTD Stage 2 In order to examine industry practice regarding Internet auctions, auction site operators were consulted (Appendix 5 provides a copy of the questionnaire sent to auction site operators). Appendix 6 provides a full list of organisations consulted for this project. In addition, both sellers and individuals participating in Internet auctions were consulted. This occurred through an online survey and focus groups. (See chapter 5) Stage 3 Stage 3 involved investigating consumers’ understandings of: i) the risks involved in online auctions; and ii) their rights and obligations when shopping at an online auction. This occurred through solicitation of consumer experiences and understanding of Internet auction issues via online surveys and focus groups. (See chapter 5) Stage 4 A draft version of the report was sent for comment to relevant organisations including state and federal law enforcement agencies; state and federal consumer departments; online dispute resolution companies; auction site operators; credit card companies; and consumer interest organisations. Key findings Popularity of online auctions • Online auction sites are very popular in Australia and are becoming increasingly popular. More than 4.4 million people visited eBay Australia’s site in March 2006 alone. (See sections 2.2.3 and 2.2.4) Significant number of business sellers at online auctions • Many businesses are selling at online auction sites. (Section 2.1.2) For example, in May 2004, eBay stores selling at fixed-price sales accounted for 28% of eBay’s Australia’s gross merchandise sales. This indicates that there are a significant number of consumer transactions occurring at online auction sites. It also appears that consumer transactions at online auctions are increasing. — 9 — GOING, GOING, GONE © 2006 COMMUNICATIONS LAW CENTRE LTD Significant number of non-auction sales at auction sites • U2C e-auction sites (User-to-Consumer online auction sites: where any user of the site can act both as a buyer and a seller e.g. eBay – see section 2.1) allow items to be bought at a fixed price and through an auction sale. (See section 2.1.4) According to eBay, during the 4th quarter of 2005, fixed price sales of eBay’s auction sites globally accounted for 34% of total ‘gross merchandise volume’ (the total value of all successfully closed items on eBay’s trading platforms).1 Lack of consumer complaints/fraud data in Australia • Data from law enforcement agencies is not helpful in ascertaining how many Australians are experiencing problems at online auctions because of the limitations in the agencies’ data collection processes. (Section 4.2.1.1) • Data from consumer government departments are not helpful in ascertaining how many Australians are experiencing problems at online auctions because auction users who experience problems rarely contact consumer government departments for assistance. (Section 5.3.3.2) Furthermore, there are problems with the consumer complaint data of consumer government departments, such as inconsistent complaint categories (e.g. the type of legislative breach) and in some instances the absence of an online auction complaint category. (Sections 4.2.2 and 6.1.2) Lack of transparent fraud/complaints/disputes data from auction site operators • Online auction site operators do not provide transparent information regarding the number of fraud/complaints/disputes involving users of their sites. (Sections 4.2.1.5, 4.2.2.10 and 4.2.3.2) Overseas data shows online auctions is a leading fraud/consumer complaints category • Overseas data, particularly from the United States, shows that: a leading fraud complaint category is online auctions. The data also shows that online auctions are one of the most common consumer complaints generally – of either online or offline consumer concerns. (Section 4.3) 1 eBay, eBay Fact Sheet (as of 31 December 2005), p 1, available at <http://pages.ebay.com.au/aboutebay/FactSheet.pdf> at 27 April 2006. — 10 — GOING, GOING, GONE © 2006 COMMUNICATIONS LAW CENTRE LTD