Ombud calls for updates to legislation to protect online consumers

The Consumer Goods and Services Ombud has called for legislation to be updated to improve protection for consumers who buy online.

The current legislation that protects consumers was published in 2002 and 2008, while much has changed in the meantime.

The Electronic Communications and Transactions Act was published in 2002 and sets out the duties and responsibilities of South African-based vendors and marketplaces regarding how they may conduct online businesses.

The Consumer Protection Act was published in 2008 and protects consumers when they enter transactions to buy goods or services.

Lee Soobrathi, the Consumer Goods and Services Ombud (CGSO), pointed out in his office’s annual report that was released this week that online transactions accounted for the greatest number of consumer complaints lodged with the office for the fourth consecutive year, despite e-commerce only making up about 5% of total retail sales in South Africa.

“Almost all of these complaints relate to items not delivered on time (or at all), defective goods, or purchases that do not align with customer expectations.

“This is partly due to the nature of online shopping. In brick-and-mortar stores, customers have the opportunity to inspect goods and – except for furniture or large appliances – generally do not rely on the supplier to deliver. And when goods are defective, the return and refund process is often handled in-store.”

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Electronic Communications and Transactions Act only helps if suppliers are in SA

He says the Electronic Communications and Transactions Act regulates the basic minimum information that online vendors are compelled to provide to consumers by law to ensure that they are treated transparently and fairly. For the most part, local suppliers take their responsibilities in this regard seriously, he notes.

However, issues mainly arise when the vendor is not locally based, especially when there are language complications and differences in time zones, Soobrathi says. “An added difficulty is that the CGSO has no jurisdiction beyond the borders of South Africa. Therefore, our main approach when it comes to e-commerce has been to create awareness of the pitfalls to be avoided and to ensure more online-savvy consumers.”

For this reason, the CGSO places great emphasis on helping consumers identify rogue sites and poor practices. “This year, as part of our education and outreach activities, we also teamed up with the Ombudsman for Banking Services to educate consumers on the options available when online purchases go wrong.”

Soobrathi says tempting as it is to ascribe the 26% drop in online complaints year on year to the success of the CGSO’s education and outreach campaigns, it could equally mean that online vendors have upped their game or that more consumers are requesting chargebacks (the reversal of a credit or debit card transaction initiated by the bank on request of its customer).

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Clear gaps in legislation to protect online consumers

“As welcome as this is, compared to the previous three years, it does not constitute a downward trend. The fact remains that there are clear gaps in the legislation when it comes to protecting online consumers, especially concerning online marketplaces that host high-volume third-party sellers who could be based anywhere in the world.

“Most consumers are unaware that they have contracted with a third-party seller until things go wrong. If the third-party seller subsequently ghosts the customer, very little redress is available. This is not a problem unique to South Africa and many countries are in the process of amending legislation to provide greater transparency when it comes to the veracity of third-party vendors.”

Soobrathi says in June 2023, the US Congress passed the Integrity, Notification and Fairness in Online Retail Marketplaces for Consumers Act (INFORM Consumers Act), compelling online marketplaces to collect bank account information, contact details and Tax IDs for high-volume third-party sellers, verify their details, disclose those details in the event of a dispute and in the event of non-compliance, suspend the third-party seller.

Marketplaces are also now obliged to provide a simple mechanism for consumers to report suspicious conduct. Similarly, he points out, that the EU has also put provisions in place to protect EU consumers online, specifically when it comes to information that must be disclosed about third-party sellers and the removal of sites or social media accounts where scams have been identified.

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How other countries are getting it right

“They also made it possible to request information from internet service providers or banks to trace the identity of rogue online traders. In the UK, contracts for goods or services made via online marketplace are categorised as “distance contracts” in terms of the Consumer Rights Act 2015.

“This piece of legislation includes all transactions that do not happen face-to-face, including sales made over the phone or by email. The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations also impose obligations on traders to provide certain information to consumers before forming a distance contract and dictate what rights a consumer might have to cancel the contract, subject to certain exceptions.

“These include requirements to alert consumers to the total price of the goods, services, or digital content inclusive of taxes or the method by which the price will be calculated any delivery charges, the total costs for a billing period, the duration of the contract or if indeterminate, the conditions for cancellation and where applicable, the minimum duration of the consumer’s obligations under the contract.”

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Old legislation must be updated to protect consumers

Soobrathi says while the Electronic Communications and Transactions Act and the Consumer Protection Act provide extensive protection to consumers when it comes to disclosure and accuracy of information, the fact is that the legislation is very old.

He says regional discussions between SADC partners to collaborate on ensuring regional best practices when it comes to transparent and effective protection, fair business practices, advertising and marketing practices, online disclosure, confirmation processes, payment, dispute resolution and redress, privacy and security and education and awareness, is a step in the right direction.

“The next generation of lawmakers and lawyers will be critical to ensuring that our consumer protection legislation remains current and effective.”