INTRODUCTION

Consumers in the United States, which developed the Internet, have been the first to suffer from misuse of the Internet. I am confident that swindlers in other countries are just as smart as in the United States and that, therefore, the same problems will soon appear worldwide. At the same time some government agencies in the United States have found new ways to use the Internet to protect consumers. The good news is that these approaches also can be applied everywhere.
 
 

PROTECTING CONSUMERS AGAINST FRAUD ON THE INTERNET

Traditional Consumer Protection

The dramatic fall in the price of long distance telephone in the past 20 years has led to a massive increase in telemarketing fraud. Likewise the far more dramatic fall in the cost of Internet communications is leading to a sudden rise in Internet fraud. The threat is in many ways greater. Telemarketing fraud requires hiring skilled personnel and paying substantial sums for telephone communications. For about 20 dollars a month anyone can have a World Wide Web page and send thousands of electronic mail messages. Because of the high cost of international telephone calls, telemarketers generally operate domestically, at least in the United States. Internet fraud, however, can be conducted easily and cheaply from anywhere in the world. For a number of other reasons, the Internet is a particularly attractive medium for fraudulent marketing. For "pyramid' schemes, distribution by e-mail is much faster and easier than distribution by "snail" mail. Sufferers from serious illnesses surf the Internet looking for "cures." People who want to "get rich quick" surf for instant wealth schemes.

The United States Federal Trade Commission has applied its longstanding rules and remedies for traditional types of consumer fraud to the same fraud executed via the Internet.⁽²⁾ In March 1996, the FTC announced that it had negotiated settlements with eight companies and was going to court against a ninth company for on-line fraud. Four companies were charged with making unsubstantiated claims about how much money their customers could make while working at home. Five companies were charged with making false claims about how their customers could erase bad credit records.⁽³⁾

The Federal Trade Commission has also applied its usual remedies to false advertising on the Internet. For instance it obtained consent orders to stop advertisements claiming fantastic reductions in engine wear,⁽⁴⁾ huge weight losses by using exercise equipment,⁽⁵⁾ and an unbelievably good portable refrigerator,⁽⁶⁾

New Measures for Consumer Protection

The Internet has advantages for consumer protection agencies as well as for crooks. Working together with state attorneys general and foreign consumer protection officials, the United States Federal Trade Commission has conducted several "surf days" in which dozens of experts "surfed" the Internet looking for scams.⁽⁷⁾ The tremendous power of Internet search engines made it much easier to search the World Wide Web than to search magazines and newspapers for false advertising. This power also allowed warnings to be sent instantly by e-mail. Particular impressive was the first "International Internet Sweep Day" coordinated by the Australian Competition and Consumer Commission, with the participation of consumer protection officials from 24 countries and from 23 states of the United States. In the United, the lead agencies were the Federal Trade Commission, the Commodity Futures Trading Commission, and the Securities and Exchange Commission. The United States participants sent 180 web site operators warning letters. The FTC plans to revisit these web sites in the future to see if problems have been corrected, and, if not, to take law enforcement action.
 
 

PROTECTING CONSUMERS AS USERS OF THE INTERNET

Regulating Internet Service Providers

Every consumer who uses the Internet needs an Internet Service provider. The three largest Internet service providers are America Online, CompuServe (recently bought by America OnLine), and Prodigy. The Federal Trade Commission has secured consent decrees against each of these for falsely advertising "free" time and for violating rules concerning direct debits from customer bank accounts.⁽⁸⁾ In the fall of 1996, America Online raised its billing rates and promised customers unlimited access to its system for a flat rate per month. Unfortunately, America Online did not have enough equipment to handle the resulting increase in access. So customers got billed for the monthly rate, but got busy signals instead of Internet services. The New York Attorney General threatened America OnLine with legal action.⁽⁹⁾ The matter was settled, when America OnLine made adjustments in its billing and undertook a successful crash program to add the necessary equipment. Other companies had to match America Online's unlimited access plan. The result was ultimately beneficial for consumers, as costs for unlimited Internet usage fell to as low as $10 a month at some local Internet service providers.

Stopping Automated Fraud

The FTC obtained a consent decree promising restitution of millions of dollars for the most extraordinary electronic fraud on Internet users.⁽¹⁰⁾ This was described as follows by Jodie Bernstein, Director of the FTC Bureau of Consumer Protection.⁽¹¹⁾

We filed charges in our case against a group of New-York based defendants, including Audiotex Connection; Promo Line; and three individuals. We allege that they have run a variety of Internet web sites featuring what they call "free adult entertainment." Here's the scam: when consumers surfing the 'Net came upon one of the defendants' websites, they saw a message stating that, before they could go in, they had to download what the defendants called a "special viewer" program called "david.exe." Unbeknownst to consumers, what this program turned out to be was a ploy to secretly disconnect them from their local Internet service provider -- say, America Online, for instance -- and then reconnect them to a phone number assigned to Moldova, a country near the Black Sea bordering Romania.

Even more insidious, this is essentially a "stealth" scam -- consumers are kept in the dark because the software program also turns off their modem speakers so they cannot hear either the disconnect, or the dialing of the international phone number. It gets worse: once the program is activated, it does not disconnect the international call when consumers leave the defendants' web sites to visit other web sites, or even when they sign off the Internet and turn to other computer activities such as word-processing. Thus, once they download or activate the "david.exe" program, consumers start racking up international calling charges of more than $2 per minute, and they keep racking up those hefty charges as long as their computers remain turned on. The phone bill you see beside me shows the damages: these bills were often the very first notice consumers got that they'd been massively scammed.

The defendants get their cut in this illegal-billing scheme from the Moldovan phone company, which we believe gives them a share of the proceeds from the calls. But here's yet another hidden component of this scam: the calls apparently never made it to Moldova! Rather, they went to a computer in Canada, which, of course, has much lower long-distance rates than Moldova for calls from the United States. Nonetheless, consumers were charged the higher Moldovan rates.

Anti-Spamming Measures

One of the most annoying features of the Internet has been "spam" -- message posted on hundreds of news groups or e-mailed to tens of thousands of Internet users.⁽¹²⁾ Consumer activist groups and individuals have created Web sites to fight spam.⁽¹³⁾

In cases involving attempts by Internet service providers to defend their customers by blocking senders of massive quantities of unsolicited e-mail, the courts generally have sided with the Internet service providers.⁽¹⁴⁾

The state of Nevada was the first to enact an "anti-spamming law."⁽¹⁵⁾ But lobbyists succeeded in weakening the law so much that anti-spam activists criticized it as worse than nothing.⁽¹⁶⁾ These activists would like to see legislation similar to the highly-effective federal legislation that prevents junk faxes. Such legislation was introduced in Congress in 1997, but failed to pass.

Privacy Measures

Consumer activists are worried about invasion of privacy of those who surf the internet, particularly about the use of "cookies"⁽¹⁷⁾ that automatically record information about Internet usage. As with "spamming," at present there is no effective legislation.

Anti-consumer Enforcement

The State of Minnesota, like almost all U.S. states, exploits consumers through a monopolistic state lottery that offers limited choice of games at highly unfavorable odds. Faced with the threat of an out-of-state gambling house that would offer much broader choice of games at much better odds, the Attorney General sued (under consumer protection legislation!) to stop the competition.⁽¹⁸⁾
 
 

ACTIVE USE OF THE INTERNET IN PROVIDING INFORMATION TO CONSUMERS

Information on Performance of Regulated Businesses

A number of federal and state agencies that regulate services, such as medical care, are now providing information on line on the performance of the service providers. For instance California makes available records of disciplinary actions and malpractice suits against physicians.⁽¹⁹⁾ However, much remains to be done. A half hour search on the Internet failed to reveal any sites that would have allowed consumers to check easily to see if a particular lawyer had been disciplined. Illinois law authorizes posting of physician disciplinary actions on the Internet.⁽²⁰⁾ But when I visited the official state of Illinois Internet site, it appeared that this law has not yet been implemented. Instead I found an advertisement for the Illinois state lottery, which, with its odds outrageously in favor of the state, imposes a heavy tax on the less sophisticated citizens of Illinois⁽²¹⁾ The California state agency which supports the monopoly of "licensed" real estate agents, with their long history of price-fixing and other anti-consumer practices, provides a site listing proceedings against unlicensed agents, but not against licensed agents.⁽²²⁾
 
 

Consumer Information Sites

The federal government and most states have consumer information sites on the Internet .⁽²³⁾ These sites provide a wide array of valuable consumer information. Unfortunately those consumers with the least education, who are the most likely to be the victims of fraudulent schemes, are also the least likely to have the equipment and skills necessary to access the Internet.
 
 

CONCLUSION

Existing consumer protection legislation and agencies have been doing a good job of protecting consumers from fraud by Internet providers and Internet service providers. They also have found an important new medium for consumer information education. At the same time problems remain. Special interest groups will try to secure regulation of the Internet to prevent free competition in the provision of goods and services to the Internet. The poorest and least educated consumers rarely access the Internet, thus remaining apart from both its benefits and dangers.

1. Corman Professor of Law, University of Illinois at Urbana-Champaign [ p-maggs@uiuc.edu].

2. Roscoe B. Starke, III, and Lynda Rozell, "A Cyberspace Perspective: The Federal Trade Commission's Commitment to On-Line Consumer Protection, "15 J. Marshall J. Computer & Info. L. 679 (1997).

3. "FTC Tackles Fraud on the Information Superhighway; Charges Nine On-Line Scammers," Federal Trade Commission Press Release, March 14, 1996, <http://www.ftc.gov/opa/9603/netsc.htm>.

4. Blue Coral, Inc., Docket No. 9820, <http://www.ftc.gov/os/9712/bluecora.d&o.htm>; Ashland, Inc., File No. 962-3072, <http://www.ftc.gov/os/9710/ashland.htm>.

5. Abflex, U.S.A., Inc., File No. 962-3041, <http://www.ftc.gov/os/9706/abflex.htm>.

6. Comtrad Industries, Inc., Docket No. C-3719, <http://www.ftc.gov/os/9702/c3719d&o.htm>.

7. "Get Rich Quick Schemes, Illegal Pyramid Schemes Caught in an International Law Enforcement Web; Nearly 200 On-Line Businesses Put on Notice," Federal Trade Commission Press Release, Nov. 17, 1997, <http://www.ftp.gov/9711/intlsurf.htm>; "North American Health Claims Surf Day Targets Internet Ads; Hundreds of E-Mail Messages Sent," Federal Trade Commission Press Release, Nov. 5, 1997, <http://www.ftp.gov/opa/9711/htlthsurf.htm>; "Federal-State Surfing Catches a Wave of Potential Internet Scams; Over 500 Pyramid Operations Put on Notice," Federal Trade Commission Press Release, Dec. 12, 1996, <http://www.ftp.gov/opa/9612/surf.htm>.

8. America Online, File No. 952-3331, <http://www.ftc.gov/os/9705/ameronli.htm>; CompuServe, File No. 962-3096, <http://www.ftc.gov/os/9705/compuser.htm>; Prodigy Services Corp., File No. 952-3332 , <http://www.ftc.gov/os/9705/prodigy.htm>.

9. "New York Warning to America Online," New York Times, Jan. 25, 1997, Sec. 1, p. 39, col. 3.

10. Federal Trade Commission v. Audiotex Connection, Inc., d/b/a Electronic Forms Management, www.sexygirls.com, etc., <http://www.ftc.gov/os/9711/Adtxprmford.htm>; Beylen Telecom, Ltd., et al., File No. 972-3128, <http://www.ftc.gov/os/9711/beylenagr.htm>.

11. <http://www.ftc.gov/opa/9702/audiotex1.htm>.

12. For discussions of "spamming," see Dee Pridgen, "How Will Consumers be Protected on the Information Superhighway," 32 Land & Water L. Rev. 237 (1997), David A. Gottardo, "Commercialism and the Downfall of Internet Self Governance: An Application of Antitrust Law, 16 J. Marshall J. Computer & Info. L. 125 (1997); Michael W. Carroll, Garbage in: Emerging Media and Regulation of Unsolicited Commercial Solicitations, 11 Berkeley Technology L. J. (1996), <http://server.Berkeley.EDU/BTLJ/articles/11-2/carroll.html>.

13. "What's News at JUNKBUSTERS," <http://www.junkbuster.com/ht/en/new.html>; The Coalition Against Unsolicited Commercial Email, <http://www.cauce.org/>; Stan Brown, "Spam and Junk Email: My List of Anti-Net-Abuse Sites," <http://www.concentric.net/~Brownsta/nospam.htm>.

14. Compuserve Inc., v. Cyber Promotions, Inc., 962 F. Supp. 1015 (S.D. Ohio 1997) Cyber Promotions Inc. v. America Online Inc., 948 F.Supp. 456 (E.D. Pa. 1996). But see

Cyber Promotions, inc. v. Apex Global Information Services, Inc., 1997 WL 634384 (E.D. Pa.).

15. Nevada Rev. Stat. Sec. 41-705, <http://www.leg.state.nv.us/NRS/CH_041.html>.

16. Stephanie Miles, "Antispammers slam first spam law," <http://ne2.news.com/News/Item/0,4,12288,00.html>.

17. Joshua B. Sessler, Journal of Law and Policy, "Computer Cookie Control: Transaction Generated Information and Privacy Regulation on the Internet," 5 J.L. & Pol'y 627 (1997).

18. State of Minnesota v. Granite Gate Resorts, Inc., d/b/a On Ramp Internet Computer Services; et al., 568 N.W. 2d 715 (Ct. App. Minn. 1997).

19. <http://www.docboard.org/ca/df/casearch.htm>.

20. Illinois Statutes, Chap. 20 Sec. 2105/60.3.

Publication of disciplinary actions. The Department shall publish, at least monthly, final disciplinary actions taken by the Department against a licensee or applicant pursuant to the Medical Practice Act of 1987. The specific disciplinary action and the name of the applicant or licensee shall be listed. This publication shall be made available to the public upon request and payment of the fees set by the Department. This publication may be made available to the public on the Internet through the State of Illinois World Wide Web site.

21. Illinois Lottery Launches "New Lotto...All the Money, All at Once"<http://www.state.il.us> (visited Jan. 18, 1997).

22. <http://www.dre.cahwnet.gov/Consmnu.htm>.

23. <http://www.consumer.gov/> (central U.S. government page); <http://www.consumerworld.org/pages/agencies.htm> (list of state and non-governmental agencies). Typical state sites are: State of Maryland, Office of the Attorney General, Consumer Protection Division, <http://www.oag.state.md.us/Consumer/>; State of Kentucky <http://www.law.state.ky.us/cp/Default.htm>.